New mortgage rule could push some borrowers into ‘shadow’ lending industry

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The debt-to-income ratio requirement part of a new mortgage rule could spur some low-income borrowers to take out loans with mortgage rates that far exceed those available to wealthier borrowers, David Stevens, CEO of the Mortgage Bankers Association, told The Washington Post.

The “qualified mortgage rule,” which kicks in today, is designed to discourage risky lending by offering some legal protections to banks who originate mortgages that adhere to certain requirements. According to the rule, qualified mortgages may not carry risky features or exorbitant upfront fees, and banks may offer them only to borrowers whose debt burden won’t be more than 43 percent of their income.

“We’re seeing institutions building business models to take advantage of that side of the market, charging 8 percent to 9 percent interest rates,” Stevens told The Washington Post. “We need clear consumer protections … but nobody wants to push middle-class families on the margins into a shadow industry of high-priced mortgages.”

Wells Fargo is one lender that has disclosed that it’s gearing up to offer more mortgages to borrowers who might not be eligible for qualified mortgages.

Source: The Washington Post

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