We begin with a brief explanation of how we got here. Over the past 50 years, housing policy based on more relaxed underwriting standards in an effort to improve the property and help the economy. Many loans are targeted to home buyers in low- and middle-income countries, in an effort to create wealth for the family.
Addictive agenda, strong leverage amortization schedule (within 30 years of the loan), deposit and (DTI) debt to income ratio. Moreover, these loans are often given to borrowers whose credit. This approach may have increased in the short term ownership rates, but many homeowners can not handle their payments, and now we see the home ownership rate pre-1970 level in the low 60 percent. The promotion of the property there is also an increase in long-term interest rates to create wealth that can not be invoked.
After this impulse fails and has great recession, Barney Frank and Chris Dodd legislators fight the new law, called Dodd-Frank Act (DFA), to avoid another financial disaster. DFA considerably expanding the supervision and regulation of unprecedented financial institutions since the Great Depression, and includes three criteria for the reform of housing finance: First, high quality Qualified Residential Mortgage (QRM) is called a mortgage will be – that non-compliance is minimal; Second, the minimum standard called mortgage organize qualified mortgage (QM); and third, the requirement that any QRM mortgage securitizer not keep at least five percent of each mortgage risk group sponsored. Unfortunately, politicians receive their influence on the definition of QRM, which led to a watered-down version that meets the minimum requirements of QM; In other words, credit standards are more flexible and less secure than expected.
National Association of Real Estate Brokers and the media in general indicated that the mortgage market is tight, and Federal Reserve Chairman Janet Yellen said that only those with pristine credit can obtain financing; This is not an accurate statement. According to the American Enterprise Institute, there is little impact given the volume of mortgage regulations are eligible. Over the past three months, DTI ratio is high and many of them are above 43 percent. Currently, the loan amount that Fannie and Freddie have a number greater than 38 percent DTI is more than double what they were in 1990. The Federal Housing Administration (FHA) has a large proportion of loans more than 50 percent DTI which is a very high tax burden before payment. This makes it difficult to pay the tax on income, travel expenses, living expenses and food with what was left.
VA subscription residual income is the key to limiting the default, and it is unfortunate that Fannie Mae, Freddie Mac and FHA watch less risky method to assess the ability to pay. Sweetness mortgage is not as strict rules, but reduce the comfort of the loan, given the risk (of the DFA) and the slow economic recovery. The truth of the matter is that this recovery has had the advantage of limited income, and non-uniform distribution.
Apparently, our memory is short, and the lessons of financial financial catastrophe recently disappeared with GSE employees back to 97 percent of the LTV market. Currently, more than half of all loans for the purchase of an increase of 5 percent or less. The original proposal is standards-based QRM, the borrower will be required to put 20 percent. However, as mentioned above, the proposed rule disappeared under political pressure, such as real estate and complex policy to continue to encourage more flexible credit standards –With said the local credit expansion will mean greater congenital.
Although buyers can get financing, you should check your actual ability to pay, and may decide to leave enough money to contribute to the pension plan and save for their children’s education. Just because a lender will lend, that does not mean it’s the long-term interest of the buyer. As a matter of fact, the increase in debt behind threshold levels of participation (DTI) in a contribution pension plan set to 401 (k) s set, which come mainly from the match employer contributions.
Additionally, DTI has led to higher incomes are not sufficient to meet loan requirements, the cost of living and save for the future. A 401 (k) may be through a reliable and attractive to the accumulation of personal wealth, especially for the increase in purchase choice groups are highly targeted. Keep DTI to more affordable levels would cost unexpected families we all experience, and helping to finance other times of difficulty (such as loss of a job).
Although we are still near their historic lows, interest rates were well worth watching. Historically, the most typical loan interest rate is about 7 percent, but the low level at this time does not have to last long. The Federal Reserve will begin to raise the federal funds reference in December. Although the federal funds rate is not linked to mortgage rates, it affects them indirectly due to the impact of the financial burden of creditors. As mortgage rates rise, it will have a negative effect on purchasing power, and apply downward pressure on prices.