Those that run the mortgage industry keep trying to find a scientific way to kill
a fly. I just clap my hands about 6 inches above the fly and generally get it and
down it goes. They are not at all interested in my time tested fly killing method
and continue to find a much more calculated and sophisticated way to eradicate
Knowing the background of those in charge it is easy to see why they came up with
ATR, ability to repay, QM the qualified mortgage. I will now attempt to show you
why their new plan is exactly the same as their protege's attempt to build a better
fly swatter. The background for this new mortgage law is that during the financial crisis
too many houses were forclosed upon and the banks took some heavy losses. We will make sure that nobody can have a mortgage with a higher debt to income ratio of 43%.
and that should solve the problem.
It is pretty clear to me that the danger in housing, according to those in charge, is
allowing a borower to have too much debt in relation to his or her income. My answer
to that: you have got to be kidding! There are really only two reasons people go into
foreclosure on their houses: to little equity and/or to little reserves. If you know that
then you know how to fix it. Loan money to borrowers who will have 50% loan to values
on their property, after the loan is on the property, and who will have at least 50% of the loan in liquid assets after the loan is made.
Tax returns and credit scores really haven't any bearing on the transaction. They always look good for employees whether they are at the top of the organization or
somewhere near the bottom. If you get paid regularly and watch your P's and Q's
you will have decent earnings and good credit. But what happens if the Company
folds? You will find that without a low loan to value on the house and a good amount
of reserves they probably can't survive long enough to avoid a foreclosure.
Those pesky reserves and low loan to value properties sure come in handy.
But what about self employed people? Their tax returns never look good because one
of the benefits of being self employed is not paying much in the way of taxes. You accomplish that by sheltering your income. Credit for self employed people is generally
good if they need to borrow from the bank. If not the credit is generally allright but not
a big concern to the borrower.
I am very exercised about this law and the fact that those in the best financial shape
always get the short straw. No bottom line earnings, no loan. Big reserves, nice but
not enough. We just need to analyze those tax returns and forget about those other guys with low loan to values and big reserves. It all boils down to following the rules,
even if they don't recognize the time honored tradition of borrowers who believe in little to no mortgage debt and a large amount of reserves.
I guess the answer is too simple!
My guys just don't fit in the box.