CFPB Could Curb High-Debt Mortgages

Andrew Ackermen and Ben Eisen

The Trump administration plans to eliminate a regulatory loophole that put the government on the hook for an additional $260 billion of mortgages last year, a move that could limit the availability of credit for home loans.

The Consumer Financial Protection Bureau took a preliminary step Thursday toward revamping a postcrisis regulation that has transformed the mortgage market by allowing more deeply indebted borrowers to obtain home financing.

At issue is an obscure half-decade-old provision that makes mortgages possible for buyers with high debt relative to their incomes. That temporary provision expires at the beginning of 2021, and Thursday’s move could potentially replace the provision with a tougher version of the regulation.

The proposal is expected to generate pushback from real estate and mortgage industry groups that favor maintaining a relaxed set of rules that ensure loans are broadly available. Others say that these borrowers are riskier.

Those contrasting views will shape efforts by the Trump administration to overhaul the housing-finance system in a way that will likely reduce the government’s role in housing. A central part of that effort revolves around returning Fannie Mae and Freddie Mac to private ownership after a decade under Washington control. The Treasury Department is expected to release a blueprint for broadly reshaping housing finance in the coming weeks that will outline steps to privatize Fannie and Freddie, which guarantee roughly half the mortgage market.

Thursday’s narrower move could have an outsize effect on housing by curtailing the types of loans that are eligible for purchase by Fannie and Freddie. That would likely make it harder for indebted borrowers to find lenders willing to give them a mortgage.

Click here to read more of this Wall Street Journal article by Andrew Ackerman and Ben Eisen