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Half of defaults could have been prevented by QM rule

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Mortgage Professional America | 04 Dec 2013, 06:00 AM Agree 0
Almost half of the mortgage defaults triggered by the housing crisis could have been prevented if upcoming consumer protection rules had been in effect at the time, according to a new study
  • Gary Cohen | | 04 Dec 2013, 08:25 AM Agree 0
    Not enough information provided on the type of mortgages originated for this article to have any real value. If you referring stated income type mortgages with stated assets or even verified assets then you may be correct. Income verification and asset verified mortgages did not fail at the rate indicated for sure.
  • gheinecke | | 04 Dec 2013, 08:33 AM Agree 0
    Interesting that anyone cares what Goldman Sachs says when in fact they were in bed with those that got bail-out and were able to reap benefits that took down their major competitor Bear Stearns.
  • John | | 04 Dec 2013, 08:38 AM Agree 0
    QM is no more than common sense that was used for decades until our Federal Government interviened in the operation and underwriting criteria for Fannie and Freddie in 1995, by Clinton, Dodd and Frank. Then the whole proplem was solved in 2008, right after the " housing crisis", by going back to proper UW guidlines. All that QM and CFPB are doing is putting locks on the barn door after the horse got out, and it was caught and brought back in the barn. Common sense is great, it should be used more in the mortgage business.
  • Dan | | 04 Dec 2013, 08:38 AM Agree 0
    If I recall wasn't the congress, the federal reserve and all the powers in Washington on board with wall street offering sisa's, nina's and other exotic types of home mortgages to the masses! Goldman Sach's did the study, laughable since they were one of the wall street titans that benefited from those mortgages!!!
  • Jan | | 04 Dec 2013, 08:40 AM Agree 0
    I agree, this study has no value if you aren't putting our real numbers. To say that up to 47% of foreclosures might not have defaulted (might being the key word here), if they followed QM rules. What kind of number are we talking here 2 million? Verses up to 25% of all mortgage that haven't defaulted and wouldn't have been made. What is 25%, 4 billion? We need real numbers to put it in perspective. I think we can all say that SISA, interest only, Option ARMS and subprime were all a bad idea. What percentage of all foreclosures had one of those features. That doesn't mean that a conv. 40% down purchase with a 45% DTI will default, verses a 43% DTI. We all know ever mortgage is unique and DTI doesn't mean anything when the underwriter won't use bonus or OT income and it's half their income but it's against company policy to state it will continue however they have received it for the last 20 years. Everyone needs to use some common sense.
  • Bob | | 04 Dec 2013, 08:50 AM Agree 0
    Agree. Useless article, where is the meat?
  • Dan Harp | | 04 Dec 2013, 08:54 AM Agree 0
    Half would have been prevented if the tax code forgiving debt had been implemented with some common sense. A lot of people walked away from their homes who didn't have job loss and were still not liable for the IRS gain on income. If a table would have been developed to determine the loss of income in relation to income forgiveness--say 10% or 20%, before 100% of debt forgiveness was eligible--QM would not have been needed.
  • Brian Shatto | | 04 Dec 2013, 08:55 AM Agree 0
    Agree with You Gary. Also, the QM is going to hurt consumers and have much higher interest rates do to all the new rules and changes. Banks taking more risk, means they have to be more profitable. Which means Higher rates. the 3% cap in LO comp is just cause fees to get rolled into rate, again more cost...Consumers are going to pay for these changes in there mortgages for 30 years. How exactly is the Financially Protecting the consumer? Our industry was fixed with all the changes made in 2009/2010, do a study on mortgages done since then and quit trying to fix what is no longer broken.
  • john h p hudson | | 04 Dec 2013, 08:58 AM Agree 0
    so what they are saying is 53% of mortgages that would have been QM still would have defaulted????
  • JScottHarris | | 04 Dec 2013, 09:23 AM Agree 0
    Always 2 sides to every story, depending on who is trying to blame who...
  • David | | 04 Dec 2013, 09:30 AM Agree 0
    This article has no relevance. Subprime was the flavor of the day and everyone was on board to get ANYONE into a home, the government and most importantly Wall Street. Wall Street created the subprime mortgages so they could make more money and the Fed pushed lenders to make mortgages to anyone who could sign on the line. Now in retrospect every one is an expert. Having been in the mortgage business for 36 years anyone with a brain could see that subprime was an accident waiting to happen. You can't go from one day you have to have a job, good credit and some skin in the game to you don't need a job, or good credit and you don't even have to put any money down. How irresponsible is that and all they had to do was go back to how mortgages were underwritten for years, we did not need the government intervention into our business. They are the ones that allowed this crisis to happen and now Dodd/Frank the same ones that pushed subprime are the ones that say we know how to fix this, how could anyone trust what they have to offer.
  • Linda | | 04 Dec 2013, 09:56 AM Agree 0
    I wouldn't believe ANYTHING that Goldman Sach's has to say. They are only saying this to backup more government restrictions and regulations on mortgages....which is just a smoke screen....I only see from experience of my clients trying to "buy" a home that these restrictions only HURT them
  • Michael H | | 04 Dec 2013, 09:58 AM Agree 0
    CRA was at the heart of it. Had those mortgages not been made then the market would not have grown as HOT as it did. That said the article was weak on facts backing up the stats.
  • Steve F | | 04 Dec 2013, 10:11 AM Agree 0
    According to an Analyst at Goldman Sachs?LMAO The same Goldman Sachs that created mortgages their analysts knew would go bad, had a separate corporation that bet against their own mortgages and raked in Billions after already making Billions prior when they were peddling their crap mortgages? The same Goldman Sachs who's hearings for such activities were conveniently swept under the rug in exchange for a roughly 55 million dollar fine? LMAO Gotta love Goldman Sachs
  • steve | | 04 Dec 2013, 10:36 AM Agree 0
    If these phoney protection had been in effect,then there would have been no real estate "Boom" and America would have been in recession 8 years sooner.
  • Terry S | | 04 Dec 2013, 10:52 AM Agree 0
    Had the banks used the money that was allotted for short sales and modifications in the first 2-3 years, the decline would have been half of what it was and 50% of the homeowners would not have been underwater. As a realtor, I spent endless hours with qualified homeowners first trying to help them get a modification and when that didn't happen, then trying to short sale. I saw most homes being sold as banks sales after trying to process a short sale for a year or more for $100K+ less than the offers on the table as short sales. This was typical in the first few years. There were very few strategic foreclosures. Most of the homeowners I worked with did not want to walk away, had gone through their savings trying to hold on and finally just gave up. Had those homes not flooded the market, the outcome would have been much different. 2-3 years later, by the time the banks finally started answering the phone and processing the applications, it was too late.
  • Wm Matz | | 04 Dec 2013, 03:07 PM Agree 0
    The article's premise is ridiculous. Of course if you make fewer mortgages there will be fewer defaults. My "study" shows that if there were 100% fewer mortgages, there would have been 100% fewer defaults.

    Attempts to blame the crisis on particular mortgage programs are completely flawed. There are no "bad" mortgage programs. None. There are only bad matches between mortgage programs and borrowers. Even subprime and Option ARMs have small numbers of appropriate borrowers.

    It was only when use of the criticized programs exploded into large numbers of unsuited borrowers that the problems occurred. E.g., how many defaults were there when SISA, NINA, NR mortgages required 30-35% down payment or equity? Virtually none.

    Clearly, reform that only addresses programs fails to address the root cause of borrowers being inadequately advised on mortgage options. And until greater competence is required for ALL originators -including banks- borrowers are likely to continue to make bad choices.
  • Broker4Life | | 05 Dec 2013, 09:14 AM Agree 0
    Really, Goldman Sachs?! I think my 4 year old would be a more creditable source for your article.
  • J Reid | | 05 Dec 2013, 10:56 AM Agree 0
    Mortgage backed securities and their incredibly fraudulent AAA ratings was the primary cause of the melt down, NOT crude underwriting. Note that Goldman would never criticize the practice.. Recall also that investment bankers in the past could not participate in mortgage banking.
  • Lee in CA | | 05 Dec 2013, 03:15 PM Agree 0
    The record high foreclosure rate was 4.29% in October of 2011. Based on this story, 47% of the foreclosures could have been prevented under QM. That means that the foreclosure rate would have been 2.27% which is still higher than the average foreclosure rate in 2000 of 1.2% which sounds like QM would have been an epic fail... and although QM would have prevented 1.1 million mortgages from being foreclosed, it also means that the small reduction in foreclosures would have come at a cost of 12.6 million mortgages which have performed. That doesn't make a very clear cut case for QM in my book.
  • Lee in CA | | 05 Dec 2013, 03:21 PM Agree 0
    J Reid is right. If the ratings agencies had done their job right, the risk would have been priced in correctly... rates would have been higher for these products (so lower production)... and investors would have gotten a product (MBS) that they expected and paid for... and many of the products that were so prevalent during the 2004 to 2006 era would have died a quick death (or never been offered) without any real impact to the industry.
  • Steve M | | 06 Dec 2013, 12:14 PM Agree 0
    I'd be happy to make a stated income mortgage to a self-employed borrower with 20% down, 720+ FICO, bank statement verified deposits at 50% DTI, and six months reserves on hand - with a point or so added to conforming rates to mitigate a higher default rate. We made these mortgages in the 90's and they performed very well.
  • Johnny | | 11 Dec 2013, 11:25 AM Agree 0
    I don't believe they should be able to blame everything on the Mortgage Broker or Lender. They should do a real study of why these people lost their homes. Was it job lose, medical, etc. It's easier to say I had a bad mortgage than to go into details of how I lost my house due to employment, etc. Everyone wants to place blame on the Broker to put them out of business and now they can barely survive because our government tries to get involved to regulate a lost cause. Brokers have been around for a long time and now the government tells them basically how much they can make per mortgage. The sub-prime lenders are basically not around anymore, which did have an impact on some of this.
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