Tuesday, December 17, 2013

"To QM or Non-QM?".... That Is The Question!

QM - Non-QM !!
Mirrors or Mindgames?
Even Machiavelli would be intrigued by the Byzantine political furor unfolding around the CFPB and consumer mortgages.  As Wonderland Alice once exclaimed:  "Things just get curiouser and curiouser!" 

Jabberwocky certainly abounds!

Dressing up a pig?
In case you came in late, there are "a few new rules" on how to make a mortgage, which go into effect in January.  The core, "cut-to-the-heart-of-the-matter"
 change involves when a mortgage is fair and prudential and when perhaps it is not.  The basic test of prudence and fairness now seems to be "well-underwritten with a borrower debt-to-income ratio of < 43%" - or a "qualified mortgage".  Imprudence and perhaps disparate impact begin to threaten when that QM is "well-underwritten but carries a borrower debt-to-income ratio of > 43%" - or a "non-qualified mortgage".

All revolves around a very sound idea in any lending which is the concept of a borrower's "ability to repay".  Most of us, who have been around awhile, do not find determining if a borrower can reasonably repay the loan to be a novel idea!  But this is evidently a new era; one in which common sense is not that common and therefore must, of course, be legislated.

Off with your non-QM !!!!

Making a loan which the borrow can not repay  results from either simple negligence or purposeful fraud.  It will be interesting to see if either can be legislated out of existence. 

Personally, .... 

(Happy New Year…..!!)
           .... I wouldn't bet on it !!!!

(…especially if we continue to refuse
 to prosecute the latter.)



Anonymous said...

My first mortgage made by an S+L had a Debt to Income Ratios in excess of 43%. I was very thankful the S+L took a chance on me. 95% LTV. The S+L took a chance on me. Wife and I were just out of college and had limited work histories and the S+L took a chance on me.

I thought I saw a post where Jim thought the CFPB was a good idea?

Jim Blaine said...

Guilty! Still very much for the underlying precept of the CFPB: "Consumer financial fairness."

Not enamoured of all the "legislated solutions", but convinced there was "a problem" which needs to be corrected...

Two points of note:

1) CFPB didn't create "the problem"

2) WE didn't have the...(h-m-m-m lots of choices in nouns here!)... "gumption" to fix it ourselves....

Anonymous said...

So you are suggesting that you are good with sending in stupid to fix stupid!

I also humbly disagree that Government was not part of the problem. Would you let a doctor operate on you again after he screwed up the operation once?

I firmly believe that there was some consumer unfairness, but the underlying reason was just plain human nature. Churches have been warning forever about the ill effects of greed, and it just has not worked. People want a "Silver Bullet" to provide them with wealth without effort.

Jim Blaine said...

Don't disagree with a good bit of all that except the idea there was only "some consumer unfairness"... what I've seen was more at rampant, unconscionable, egregious, mean-spirited... any way you get the idea.

If government should be criticized, it is more for what it failed to do than for what it actually did!

But then again, WE were right there watching it happen without much visible/verbal objection....

OUR hands are clean? Nothing needs to be done? Let's do this recession one more time with gusto and get it right?

Whose at fault can be debated endlessly, what happened can't!

What happened was not right...

Anonymous said...

Why don't you cry for the those you did see it and did not join the party! What was unfair about doing a financial transaction with a fool who believe if he brought a 5000 square foot house which was full of granite every thing which clearly made the house worth triple the value of the granite? Some where you wish to forget that there is a sucker born every minute and 2 to take their money. No sympathy for the borrower or the lender. It would have been much better if the Government stayed out of the mortgage business so the homes could reach their bottom and we would be in real recovery now and not screwing our children's future.

What part of bankruptcy being a constitutional right don't you get? We had a system that worked until we asked government to do the thinking for us!

Anonymous said...

"I predict future happiness for Americans if they can prevent the
government from wasting the labors of the people under the pretense of
taking care of them."
-- Thomas Jefferson

Jim Blaine said...

A "fool" is simply fair game?

Anonymous said...

Just one last thought about the value of the CFPB!

"Any fool can make a rule, and any fool will mind it." H D Thoreau