Loans for Bad Credit Don't Reach Homeowners

[Corey Dutton]

Since the credit crisis of 2008 and 2009, homeowners and prospective homeowners with bad credit, have had a hard time obtaining home loans. Although the credit limits were lowered for FHA loans, many high net worth individuals who had experienced foreclosures or even short sales, have even higher hurdles to overcome. Loan size limits and seasoning timelines are the issues for those seeking new purchase loans. And for those with refinances who were unable to do streamline loans, obtaining refinances on their homes has not been an easy task.

Although there are plenty of loans for bad credit borrowers, there are not a lot of choices in the area of home loans. The Consumer Financial Protection Bureau, also called the CFPB, is at the heart of the consumer loan dilemma. Because home loans are also classified as a type of consumer loan, homes loans are regulated, and for this reason there are not as many lenders who are even willing to do home loans anymore. This has increased the difficulty for borrowers to obtain home loans. In fact, new requirements for lending on owner occupied properties makes it nearly prohibitive for most lenders to do so. The bottom line is that common sense has “left the building” on home loan requirements since the crisis hit. And by over-regulating home loans you restrict free lending and people’s right and access to credit.

The disappearance of the sub-prime loan after the crisis is just one example of this. By completely eliminating a product that was abused and unregulated leading up to the meltdown in 2008, lenders essentially eliminated the ability for some people to obtain a type of loan that was originally designed for them. An example is a doctor or lawyer who make sufficient income but have a lot of write offs, and/or a business owner who has sufficient income but lost some spec lots during the real estate meltdown and has foreclosures on his credit. These types of people are unable to obtain loans because the sub-prime loan that they used to qualify for, is now not offered by most lenders. What would you say on this topic? Please share your opinion on the future of consumer lending and home loans. With Dodd Frank to force lenders to eliminate consumer stated loan products in January of 2014, what will the self employed do for home loans? Please comment below.