From Alan Zibel and Nick Timiraos at the WSJ: Watchdog to Set Loan Rules
This week, the Consumer Financial Protection Bureau will define standards that all mortgage lenders are likely to follow when originating home loans. …
The rules don’t specify a minimum down payment and instead focus on ensuring that banks document borrowers’ ability to make their monthly loan payments. Loans in which borrowers make only interest payments for a set period and those in which the principal balance can increase are excluded by law from being “qualified” mortgages. …
CFPB is likely to offer two ways in which lenders can meet the regulator’s standard … Under the first approach, the regulator will consider as qualified mortgages all loans that receive an approval after being run through the automated underwriting engines maintained by [Fannie, Freddie, FHA], even if they aren’t ultimately sold to or insured by those institutions.
Under the second approach, loans would be deemed qualified mortgages if borrowers are spending no more than 43% of their pretax income on monthly debt payments.
In the long run this is an important step. This will insure that most loans are made to a somewhat reasonable standard (43% of pretax income is pretty high) – and no stated income or Alt-A loans will meet these standards (Great news!).
Tuesday economic release:
• Early: Reis Q4 2012 Apartment survey of rents and vacancy rates. In Q3 Reis reported the apartment vacancy rate declined to 4.6%, from 4.7% in Q2. The vacancy rate peaked at 8.0% in Q4 2008 and Q1 2009. With a combination of more supply coming online, and the probable bottom for house prices (motivating some renters to buy), most of the decline in the vacancy rate is probably behind us.
• At 7:30 AM ET, the NFIB Small Business Optimism Index for December will be released. The consensus is for an increase to 87.9 from 87.5 in November.
• At 3:00 PM, Consumer Credit for November from the Federal Reserve. The consensus is for credit to increase $13.2 billion in November.