QM -
The vast majority of americans believe we need greater regulation of the banks and mortgage markets. What is clear here is that the "trust deficit", something I spoke about publicly when working for the Obama Administration, continues to overshadow the discussion about how to get credit expanded and allow for a more robust recovery of the housing system.
My assumptions are two fold and very basic:
- No matter what rule, regulation, legislation, or litigation - the 1% (to use the idiom of the occupy movement) will always get a loan. Firm regulations will not harm the wealthy as they will always meet the test. The question is where the line will be drawn between homeownership and rental amongst the 99%. And we need to be clear; renting needs to be more of solution for housing policy makers to emphasize than it was during the past decade of "everyone can own a home". Sustainable housing in consideration of preparedness, transparency, and life planning, all need to be considerations in determining when americans should choose when to buy and when to rent. That being said, the lines drawn by regulation will be barriers created by policy makers - and not necessarily a consumers desire.
- No matter what anyone may personally feel about banks and lenders - a subject for another day - my theory is this: you can sue them, regulate them, legislate them, protest them - but nobody can force a lender to lend. The retrenchment of credit we have seen in the market place, with credit scores rising and loan-to-values declining, simply mean less access for those families on the margin. The fact is, as Fed Chairman Bernake and others have said, the price of making mistake is so great today that lenders are behaving defensively.
Look - I get the anger and frustration that so many felt, and may still feel, about mistakes made. Many lenders offered absolutely non-sustainable products, investors around the globe competed to buy mortgage product from the US, ratings agencies gave illegitimate ratings to mortgage bonds, some consumers became enamored with home price appreciation and took risks so that they would not miss out on the perceived wealth, regulators under regulated, economists failed to see the coming bubble - and more. The resulting recession destroyed the wealth of so many, collapsed companies, eliminated private capital from the US markets and more.
But the bottom line for America today is to get the housing markets functioning more robustly: private capital is needed to make this happen and an improving market will help all - "a rising tide lifts all boats". We must learn to balance the current corrective environment with the need to ensure we don't eliminate access altogether.
Getting QM right - the "Qualified Mortgage" rule in Dodd Frank - is critical to deciding where this line will be drawn. It will be the line separating wealth from non-wealth if we are not careful. My industry will finance every home in America regardless as to whether it is owner occupied or rental. We will be there either way - but the question is whether rules like QM will create a disparate impact on their own in an effort to elimiante any and all risk of a consumer buying a home who could be on the margin.
Your thoughts?