Important Reminder #1: Real estate agents buying homes for themselves can apply their commissions towards their down payment. Commissions = seasoned down payment funds.
Important Reminder #2: We will get a series of inflation reports this week that could easily send rates to record highs – in a market that is now hyper-sensitive to any news of hotter inflation.
The Consumer Financial Protection Bureau just finalized a rule that will remove $49 billion in medical bills from credit reports.
This will instantly help 15 million Americans, as medical collections will no longer impact credit scores and also further help with debt ratios (although there were already limitations regarding the impact of medical collections on debt ratios).
The CFPB’s rationale is:
- Many medical collections are falsely reported, resulting from insurance billing or clerical errors.
- Medical collections provide little predictive value to lenders about borrowers’ ability to repay other debts in any case.
Why This Is Good:
- Many medical collections are reported in error – thrashing credit scores and creating nightmares for borrowers and lenders alike.
Back in my loan officer days I used to personally pay off small medical collections for borrowers all the time. This is because the borrowers refused to pay collections that did not belong to them, and it was nearly impossible to get them removed. - This will instantly elevate credit scores for millions of borrowers and enable them to more easily buy a home.
Why This Is Bad:
Most medical collections do in fact belong to the borrowers for whom they’re being reported – so:
- Borrowers now have less of an incentive to pay off their medical bills, which will raise medical costs for everyone else.
- Artificially elevating a buyer’s ability to qualify with a CFPB ruling allows for riskier lending that will result in more non-performing loans and/or foreclosures – particularly if there is a housing correction or a bad recession.
- Government rulings like this fail to account for unintended consequences.
My third point is somewhat redundant, as I list two of those unintended consequences in points #1 and #2. But I just want to drive home the point again, as so many government actions intended to help everyone end up hurting everyone – and often badly.
For example:
Price controls on oil, airlines, and trucking in the 1970s created shortages and/or drove up prices.
Affordable housing goals in the early 2000s pushed up the cost of housing and helped foster the Great Financial Crisis of 2008.
Insurance price controls in CA drove insurers out of the state, created shortages, and drove up prices.
Anti-price gouging laws often foster shortages because they often don’t account for the additional cost of garnering items in disaster areas, and they often don’t account for the role higher prices play in attracting more goods to an area.
If politicians cap credit card interest rates, millions of Americans will likely lose access to credit cards.
In any case, this is another reminder that there are no free lunches.
Those of us in real estate and mortgages will benefit from the CFPB’s new rule, but America will end up paying for it one way or another.
