CFPB Releases Borrower Guidelines

The Mortgage Corner

The Consumer Protection Financial Bureau, set up as part of the Dodd-Frank Wall Street and Consumer Protection Act, has just published guidelines for mortgage borrowers to help them get the best possible terms.

Knowing mortgage guidelines and regulations may seem a no-brainer for borrowers, but most don’t research their mortgage options with various direct lenders or brokers, according to the CFPB.

Based on new data in the National Survey of Mortgage Borrowers, a voluntary survey jointly conducted by the CFPB and the Federal Housing Finance Agency, almost half of consumers who take out a mortgage don’t shop prior to filling out an application for a mortgage. Three out of four consumers only apply with one lender or broker. CPFB contends most consumers only get their information from lenders or brokers, who have a stake in the outcome. But many such leads come from referrals by satisfied borrowers. That’s why it’s important to get other opinions.


Graph: The Housing Wire

“Most consumers put substantial effort into considering their differing housing needs,” CFPB Director Richard Cordray said in a speech at The Brookings Institute. “But they do not seem to be as careful or as confident in weighing the economic aspects of the mortgage decision, such as what down payment they can afford or what mortgage terms fit their unique financial needs.”

There are many reasons for this, including convenience. It is now much easier to shop online for mortgage rates and terms than in the past, as sources such as offer comparisons.

There are also the complexities in applying for a mortgage. So-called conforming mortgages that ‘conform’ to Fannie Mae and Freddie Mac qualification guidelines have the best rates and terms, but the most rigorous qualification standards. That is why their default and foreclosure rates are now close to long term historical trends.

Fannie Mae reported that the Single-Family Serious Delinquency rate declined slightly in November to 1.91 percent. The serious delinquency rate is down from 2.44 percent in November 2013, and this is the lowest level since October 2008, says Calculated Risk. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59 percent.

Freddie Mac, the other conforming mortgage guarantor, also reported that the Single-Family serious delinquency rate was unchanged in November at 1.91 percent. Freddie’s rate is down from 2.43 percent in November 2013, and is at the lowest level since December 2008. Freddie’s serious delinquency rate peaked in February 2010 at 4.20 percent.


Graph: Calculated Risk

The Fannie Mae serious delinquency rate has fallen 0.53 percentage points over the last year, and at that pace the serious delinquency rate will be under 1 percent in late 2016, the long term trend, as we said—although the rate of decline has slowed recently.

So how do we know where, or how to shop for the best possible terms? Alas, some homework is involved. Because interest rates have declined so low, most prospective borrowers will opt for the 30-year fixed rate, which makes it easy to compare rates and terms. And 30-year conforming fixed rates have dropped to 3.50 percent with 0 points in origination fees in California, for the best credit scores.

Credit scores are extremely important to lenders in today’s post-housing bubble m environment. It has to be at or above a so-called mid-score of 740 (that is, the middle score from the 3 major credit agencies—Equifax, TransUnion, and Experian.)

And stable income is a major requirement, which can be difficult to verify for self-employed borrowers, since it requires 2 years’ federal tax returns, which will be cross-checked with the IRS for accuracy.

But this is the best time to buy or borrow. Home prices are still recovering from the housing bubble, and optimism from major surveys, such as Case-Shiller, is rising. Surveys are now showing that consumers believe they will see housing values continue to rise in 2015.

Harlan Green © 2014

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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