Is it really that hard? Yes. And no. And mostly yes again. And maybe it should be.

And since January 10 when the CFPB’s Qualified Mortgage rule took effect, it is definitely harder. So yes.

But there’s more to the story than that, and it doesn’t mean only Patsy Pays Perfect can qualify anymore.

The Qualified Mortgage rule has definitely put the squeeze on would-be homebuyers seeking a mortgage. People with lower income, the self-employed, those with credit scores on the margin, and people whose income comes from tips, bonuses or other harder to document sources are definitely being are all facing an uphill battle.

Industry analysts say that anywhere from 10% on the low side to 20% on the high side of people who have a mortgage now would not qualify for a mortgage under today’s rules.

But the rules and standards for getting a mortgage were already tightening long before the CFPB put their screws to it. In fact, the industry had largely self-corrected – as if it had a choice – long before Washington put it in ink with heightened documentation and tighter standards.

Mortgage applications, the first step in the mortgage process, have been down this year almost consistently.

Analysts with Goldman Sachs [GS] say that at least one of the reasons is persistently tight mortgage lending standards.

“After the housing crisis, lenders tightened mortgage credit and the tightening was particularly pronounced for those with low FICO scores. Surveys conducted by the New York Fed show that an increasing number of low-FICO borrowers do not apply for mortgages for fear of being rejected,” Goldman’s analysts note. “Because low-FICO homebuyers are more likely to rely on mortgages to finance home purchases, an increasing number of discouraged low-FICO borrowers contributes to elevated cash transactions. In other words, persistently tight credit supply over the past few years may have begun to depress mortgage demand, resulting in a sustained gap between home sales and purchase mortgage applications.”

Click the chart to enlarge.

The two big challenges for mortgage applicants are the QM rule and the Ability-to-repay rule.

QM is the standard that the CFPB created for loans considered relatively safe, so it doesn’t affect interest-only or balloon mortgages. Loans eligible to be purchased by Fannie Mae, Freddie Mac, and the Federal Housing Authority are considered QM. QM also requires that a mortgage not push a borrower’s debt load above 43% of income, and originating costs can't exceed 3% of loans above $100,000.

The ATR rule requires most lenders to make a concerted effort to ensure that the borrower will actually be able to pay off the mortgage

This is where it gets more difficult for borrowers, both in documentation and dealing with lenders. In practice, it means banks and other mortgage originators will have to look at more documents proving a borrower's income, assets, credit history, monthly expenses, and employment situation.

The heyday of the “ninja” loan – when shady brokers and Realtors could set a buyer up despite there being “no income, no job, no assets” – is long over.

That’s a feature, not a bug, of new rules and regulations. Too many people who couldn’t handle their own checkbooks were getting loans for houses they couldn’t afford.

Part of that was pure greed on the part of the brokers and the housing finance industry. The industry is still dealing with the fallout of that. Part, though, was the natural outgrowth of a misguided affordable housing philosophy that said “Hey, look how responsible all those homeowners are, with their better credit and stable jobs. Maybe if we fast-tracked ne’er-do-wells into homeownership, they’ll become responsible too.” (Policy makers aren’t real wise at telling cause and effect apart. And you can lead a man to reason, but you can’t make him think.)

The bottom line is there are more hoops, and the bar is set higher in regards to FICO scores.

Further, some lenders are so gun shy about these rules that they make borrowers jump through even more difficult hoops, like a Siegfried trying to one-up Roy.

And then there is the fear factor – some potential buyers think they need to have pristine credit to get a mortgage and often don't apply for a refinance or a purchase loan because they fear their application will be rejected.

The best rates will go to borrowers with FICO credit scores of 740 or higher, but borrowers can qualify without pristine credit.

Borrowers generally can get conventional loans with FICO scores of 680 and 5% down. Those with lower credit scores normally have to apply for FHA loans.

As Goldman noted, about one-third of borrowers with a FICO of 630 get rejected, so that’s about the demarcation line.

Some lenders offer FHA loans for borrowers with scores of 620 and down payments of as low as 3.5%, but others have stricter requirements.

Below that, down payment requirements are higher, even for FHA loans.

The high-water mark for homeownership in America is in the high 60% range. It peaked with the housing bubble and it’s been declining since. More than 65% and it seems like we hit a point of diminishing returns.

Everyone wants to move markets forward, and it would be great if the sense of an ownership society permeated every strata and socioeconomic level, but the reality is it looks like about 35% of the population – and it’s a dynamic 35%, not a permanent caste placement – either aren’t ready yet for homeownership, or won’t ever be.