Consumer borrowing and credit has become a major issue in the United States. While this is hardly news to most, this fact may be. Most home purchases within the last year have resulted in the borrower paying out more than 1/3 of their income to credit debt.
A new proposal would prohibit high debt borrowers for getting premium rates on their home mortgages. The idea is to get credit debt (including the mortgage) below that 1/3 level. The proposal also calls for a minimum of 20% cash down payment to qualify for the best interest rates on a mortgage.
While the increased down payment requirement has captured the press of late, the restricted debt limits would have the greatest restrictive effect according to some. The new limits would be for a combined credit cap at 36%. This includes the new mortgage, car loans, credit cards and revolving credit, students loans, etc. There would also be a limit on just the mortgage payment itself of 28% of the borrower’s income.
Research by CoreLogic shows nearly 3/5 of home mortgages sold to Fannie Mae & Freddie Mac last year would not qualify under the new regulations. Another analysis showed that MORE THAN 1/2 of mortgages sold in 2009 would fail to qualify under the proposed limits.
Most would agree that the system needs to have better protections to prevent a repeat of the recent (current?) crash/crisis. But, some argue, other factors should be considered and figure into these limits. Some feel that a high credit score might allow a higher limit. Other conditions might also apply. There are other conditions attached to these proposals governing how lenders sell their loans and more (read more about that in the source link below).
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