Tag Archives: self-employed

Reiss on Mortgage Availability

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The Consumer Eagle quoted me in Will Mortgages be Harder to Get in 2014? It reads in part,

David Reiss, Professor of Law at Brooklyn Law School, also sees some benefit in more conservative guidelines. “The QM rules and ability-to-repay rules legislate commonsense things like making sure people can repay loans that they take out, which was something that was given up not only in the last boom but in the boom that preceded it. So from the consumer perspective, you now know that when you get a mortgage you’re probably going to be able to pay it back,” Reiss says. “Some consumers and some people in the industry would say let people make their own decisions with minimal consumer protection regulation, but we had a phase of that and it ended poorly for all of us.”

Borrowers who are self-employed or have irregular income may have a harder time qualifying for a loan under the new rules. Reiss notes that those who are ineligible for a QM may still be able to get a non-qualified mortgage. “What we haven’t seen is what this non-QM market is going to look like in 2014 and beyond,” Reiss says. “It’s a new market.”

Members of the banking industry have expressed concerns about the changes. In recent testimony before the House Committee on Financial Services, William Emerson, CEO of Quicken Loans and vice chair of the Mortgage Bankers Association, said the rules “are likely to unduly tighten mortgage credit for a significant number of creditworthy families who seek to buy or refinance a home” and “may impair credit access for many of the very consumers they are designed to protect.”

Reiss notes that consumer protections are always a compromise. “Regulators want to be conservative to protect consumers, but they also don’t want to keep people who would pay back their loans from getting credit,” he says. “There’s always a dance.”

Reiss on Qualified Mortgage Rule

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TheStreet.com quoted me in a story, New Mortgage Lending Rule Intended to Protect Borrowers May Hurt Self-Employed.  It reads in part,

“Lenders are incentivized to originate qualified mortgages, because doing so makes it easier to defend against borrower lawsuits,” says David Reiss, a law professor at Brooklyn Law School. “In return, lenders must ensure that the terms of the mortgage conform with certain requirements that protect borrowers from abusive terms.”

Qualified mortgage loans cannot have interest-only periods, negative amortization, exceed 30 years, and cannot have balloon payments at the end of the term, with exceptions in rural or underserved areas. Further, qualified mortgage loans cannot exceed 43% of the borrower’s monthly pretax income, and borrowers must provide proof of income or assets.

“Determining whether self-employed individuals are able to make the loan payments presents particular challenges,” says Reiss. “The Consumer Financial Protection Bureau had originally proposed that self-employed individuals provide heavy documentation of their income, and for the lender to make sophisticated judgments about that income.”

In response to comments, the CFPB, in its proposal, subsequently reduced income documentation requirements and the level of lender income analysis required, Reiss says, but adds that “applicants must still demonstrate that their income is stable or increasing.”