Among the most discussed provisions is one that would create a Qualified
Residential Mortgage (QRM), one that will be viewed as a loan offering a
lower risk of default.
Dodd-Frank requires banks and other firms that issue
mortgage-backed securities to keep 5 percent of the loans that they bundle
and sell as securities. The idea is for banks to retain some of their
mortgage based risks.
Perhaps, if banks previously had been required to hold onto some of their
securities, Wall Street wouldn't have crashed under the weight of the toxic investments.
In any event, anything that regulators deem a QRM would be exempt from
the 5 percent rule.
Because of the low risk, borrowers who qualify for a QRM will pay less
than for a mortgage that is not designated as a QRM (Some analysts estimate
that mortgage rates on non-QRMs could rise by as much as three percentage
points.), but it won't be easy to land the loan.
According to the proposed definition borrowers would have to:
• Put at least 20 percent down to buy a home.
• Have at least 25 percent in equity to refinance.
• Have at least 30 percent equity to do a cash-out refinance.
• Have house payments that don't exceed 28 percent of before-tax
income, and total monthly debt payments (house, credit cards, auto, student
loans) couldn't exceed 36 percent of before-tax income.
• Not have been 60 days delinquent on any debt payments in the last
two years.
There's some confusion about how much the QRM issue will impact the
housing finance market.
Mortgage giants Fannie Mae and Freddie Mac back more than nine in 10 of
new loans and those loans are already exempted from current risk-retention
requirements and will likely satisfy further risk retention requirements.
"We need to strike a balance between reducing investor risk and providing affordable
mortgage credit. Better underwriting and credit quality standards have
greatly reduced risk," said NAR President Ron Phipps.
"Adding unnecessarily high minimum down payment requirements will only
exclude hundreds of thousands of buyers from home ownership, despite their
creditworthiness and proven ability to afford the monthly payment, because
of the dramatic increase in the wealth required to purchase a home," said
Phipps, also broker-president of Phipps Realty in Warwick, RI.
NAR, along with the Center for Responsible Lending (CRL),
National Association of Homebuilders (NAHB), and the Consumer Federation of
America (CFA) sent a joint
letter to federal regulators, urging them to avoid arbitrary high down
payment requirements on mortgage loans.
"Instead, regulators should adopt standards for core underwriting factors
to lower the risk of default. These include strong loan documentation,
assessing a borrower's ability to repay, reasonable debt levels, and
prohibitions on high-risk loan features," CRL says.
Follow the link to continue reading the related articles:
