August 21, 2019
A Way Forward for High DTI Consumers
The GSE Patch, created by design to smooth access to mortgages for individuals with higher Debt-to-Income (DTI) ratios than average by creating exceptions to the Qualified Mortgage rule, is set to expire in 2021. The Qualified Mortgage Rule was implemented by the modifications Congress made to the Truth in Lending Act (via section 1402 of Dodd-Frank) in response to the 2008 housing crisis. The Rule amounted to a number of minimum standards that had to be met in order that a mortgage could be issued.
In a previous post, we looked at the perspective that the GSE Patch (which we will just call the Patch) has already served its initial purpose, that it was exacerbating the lack of affordability in the starter housing market, and that allowing it to expire as planned—which would lower the number of high DTI buyers entering the market—may hold the most benefits for the market.
Today, though, we want to look at the perspective presented in an April report by the Urban Institute using data from financial analytics firm Recursion Co., which declares that permitting the Patch expire as planned in 2021 will have the primary effect of deepening the disadvantages that minorities and lower-income borrowers already face in the housing market.
According to that report, a full 19 percent of GSE loans made from 2014 to 2018—accounting for about 3.3 million loans—were achieved via the existence of the Patch. The data indicates that high DTI borrowers are most often minorities whose incomes average out to be lower than borrowers with lower DTI ratios. The concern becomes that allowing the Patch to expire—and failing to replace it with some functionality that fills the same or a similar function—will disproportionately impact the home purchasing power of minorities and others who fall high on the DTI spectrum. This, the report seems to argue, would be problematic insofar as the goal should be for as many people as possible to avoid being excluded from homeownership, accounting for disparities between purchasing populations.
Whatever the DTI ratio of a buyer, it is important that they receive clear title to the property. Topouzis & Associates, P.C. is the home buyer’s bulwark against problems of the past. We do title searches and ensure you are gaining clear title to your property—and we back our services with offerings of title insurance (click here), in case someone along the line of ownership did something that will weaken your title at some point in the future.