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The changes to mortgage rules coming early next year are meant to make homeownership a safer proposition. Unfortunately, they may also leave consumers with fewer options, bankers warn.
In the past few years, big banks have been backing out of the mortgages business somewhat as regulation have tightened, The Wall Street Journal says. Smaller lenders, including regional banks and companies that focus specifically on mortgages, have been picking up the slack.
“As of the third quarter, smaller mortgage players held a 60 percent market share of the U.S. origination market, up from 39 percent in 2009, according to industry publication Inside Mortgage Finance,” the WSJ says. But that trend could soon reverse because of new rules coming Jan. 10.
We recently explained how the new rules are going to make it harder to get a mortgage. Check out a quick recap in the video below:
Those rules are meant to prevent foreclosures, but they could push some smaller lenders out of the market, the Mortgage Bankers Association and others in the industry told CNNMoney. Those companies that don’t verify that consumers can actually afford their mortgages will be hit with harsh penalties, and the costs of avoiding the penalties may be too high for some.
Banks won’t be able to lend to anyone whose total monthly debt payments amount to more than 43 percent of their income. They’ll also have to carefully check borrowers’ pay and bank records, tax returns, and a lot of other paperwork. For lenders, that means updating policies, retraining staff, and possibly hiring additional experts to oversee the process, CNNMoney says. Some may just decide to give up instead.
On the other hand, this could just be lenders grumbling about their enforced responsibility. Ellen Schloemer, a spokeswoman for the Center for Responsible Lending, suggested as much to CNNMoney. She pointed to an analysis from CoreLogic that suggests lenders can handle the new rules.
That report concludes, “We have a robust capital market system today, and it’s reasonable to think that a savvy entrepreneur or established organization will figure out a way to deliver qualified and non-qualified mortgages in a way that meets all the regulatory requirements, incorporates sound lending and consumer protections, and makes a profit.”