CFPB's mortgage regulations grandfathers FHA's risky loan practices

The Consumer Financial Protection Bureau (CFPB) made headlines Thursday by promising that its new qualified mortgage regulation will “protect consumers from irresponsible mortgage lending.”  The new rules purport to punish the lender if the borrower can’t afford the mortgage, as AEI’s Peter Wallison explains in The CFPB makes mortgage lending a risky bet: “If it turns out that the borrower cannot afford a loan, the presumption is that the lender was either not careful enough in explaining it or was reckless in providing it in the first place.”

Nowhere is such recklessness more apparent than in the Federal Housing Administration's underwriting practices, which have resulted in its foreclosure start rate ballooning by a factor of 19.  But rather than addressing such risky lending, the CFPB's regulations grandfathered the FHA policies for 7 years.  In CFPB’s new “qualified mortgage rule: The devil is in the details, AEI’s Ed Pinto explains that although standards have been toughened for private lenders, the FHA has been given a free pass: “We have one agency (the Federal Housing Finance Agency) working to reduce the GSEs’ share of the mortgage market by raising their guarantee fees and another (the CFPB) giving them a pass that will strengthen their grip on the mortgage market.”

To see a study of 9,000 zip codes with a projected foreclosure rate of 10% or greater, visit www.NightmareAtFHA.com.  

Ed Pinto, Resident Fellow
Former executive vice president and chief credit officer, Fannie Mae
Research Areas: Federal Housing Administration, Fannie Mae and Freddie Mac

Peter J. Wallison, Fellow in Financial Policy Studies
AVAILABLE FOR RADIO ONLY
Former Counsel, US Treasury Department and White House Counsel to President Reagan; Member, Financial Crisis Inquiry Commission
Research Areas: Dodd-Frank Act, Housing Bubble, Fannie Mae and Freddie Mac

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Peter J.
Wallison

 

Edward J.
Pinto

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