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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About the Author

 

Peter J.
Wallison

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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