Tags: CFPB | SSDI | mortgage | payment

New Rules Tell Banks to Approve Low-Doc Mortgages for the Poor

By    |   Friday, 12 Dec 2014 08:29 AM

Regulators in Washington seem to have forgotten about the subprime mortgage crisis. It was just a few years ago when mortgages based on little if any documentation contributed to the worst financial crisis since the Great Depression. Now, regulators are telling banks they must approve loans without documentation for certain groups of Americans.

Social Security Disability Insurance benefits average $1,148 per month. Beneficiaries are allowed to make an additional $1,070 a month in earned income. If they make more than that, they are considered employable and ineligible for disability payments.

In a recent notice, the Consumer Financial Protection Bureau (CFPB) told banks they could be subject to sanctions if they closely scrutinize income from SSDI or other public assistance programs.

The amounts seem small, but with a $26,616 a year income (the average SSDI payment and maximum earned income) and no debt, a borrower could qualify for a $113,000 home loan with no money down. There are a number of homes in that price range available around the country and now the possibility of fraud is real.

Foreclosures can occur when borrowers have little invested in a property. Someone with a low down payment and unverified income is more likely to default on a loan than is someone who meets stringent underwriting verification standards.

This is not the first step toward an economy-killing housing bust, but the CFPB's action does have the potential to hurt prices of homes priced under $115,000. Foreclosures in that market will destroy the wealth and hurt the segment of the population that can least afford a financial setback.

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MichaelCarr
Regulators in Washington seem to have forgotten about the subprime mortgage crisis. It was just a few years ago when mortgages based on little if any documentation contributed to the worst financial crisis since the Great Depression.
CFPB, SSDI, mortgage, payment
263
2014-29-12
Friday, 12 Dec 2014 08:29 AM
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