David Saks: WHEN PIGS FLY (and land on their piggy tails)

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

WHEN PIGS FLY (and land on their piggy tails)

flying pig 

The QRM, Qualified Residential Mortgage, regulation defines "qualified residential mortgages" as mortgages with a loan-to-value ratio of 80 percent or less for home purchasers, 75 percent for refinancing, and 70 percent for refinancing where a homeowner receives cash as a result of their transaction. Purchasers would need squeaky clean credit, period, under this law. Purchasers also have to have a 20 percent down payment or that amount in equity from the home they're in. If you refinance, you'll need a ton of cash or equity to qualify.

The Qualified Residential Mortgage (QRM) rule proposal requires home buyers to have at the bare minimum a 20 percent down payment to qualify for a mortgage with a good interest rate.godfather

More risk retention will raise the costs for banks and make lending tougher. The costs will be passed down to borrowers.

In other words, if you don't qualify for QRM status you can still pursue your mortgage, but the interest rate'll soar through the stratosphere.

And, to complicate things even more, investors have to retain a five percent share in any losses in the secondary market along with lenders who have to retain five percent of the risk. That'll make it tougher for banks to replace the funds they need to make more loans. See Sec.931-939H under TitleIX. Includes all asset-backed securities. The comment period on the Federal Reserve Board proposals ended June 10. (see page 80)

The data below is from the FED and indicates that these LTV ratio caps should
reduce the default rate on QRMs that are refinancing transactions. The data shows
that rate and term refinancings that are estimated to meet other QRM standards, but are estimated
to have exceeded the proposed combined LTV cap, have serious delinquency rates 32 to 70 basis
points higher when examining loans originated from 1997 to 2002, and 196 to 539 basis points
higher for loans originated from 2005 to 2007.

fed default chart

For cash-out refinancings estimated to meet other QRM standards, but are estimated to exceed the combined LTV cap, these loans had dangerous delinquency rates 42 to 81 basis points higher when examining loans originated between 1997 and 2002, and 255 to 405 basis points higher when examining loans originated from 2005 to 2007. Good grief !!!


Regulations have to include separate requirements "for different asset classes, and may allocate retention amount between originator and securitizer".

The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have agreed on a 20 percent down payment standard for the QRM.

Is it true that borrowers who are required to put 20 percent down will be able to get 10 percent of it back as a "gift," so it really becomes only a 10 percent down payment ? Or is this an urban legend ?

As part of the rule, FHA is exempt from the five percent retention rule. So, obviously, by exempting FHA from risk retention the playing surface is skewed. FHA requires a 3.5 percent down payment and clearly places FHA in an advantageous position to knock out the sphere of the lending arena that has to retain the five percent risk. Unfair ???

Whether or not QRM legislation stabilizes real estate within five years, returns billions of dollars in lost equity, represents a healthy quality within the national market, and demonstrates that our homes retain their value as investments, is anyone's guess at this stage.

The 20 percent down payment requirement has received public support. FDIC chairman Sheila Blair recently said that "80 percent loan-to-value ratios work well".

QRM is part of the risk-sharing provision in the Dodd-Frank bill that requires lenders to do a better job in the mortgage department. The possibility of lenders becoming infected and destroyed by a financial meltdown, given that exposure to nefarious infectious lending opportunities become pandemic, is what this bill wants to prevent from ever happening again.

Although this is my tentative theorem, it looks like QRM legislation, along with the 20% solution, is a done deal. It's based on irrefutable, incontrovertible data. Ideas which are now accepted as a demonstrable truth which are impossible to deny or disprove.

David Saks

Time&Temp Memphis

Legal Disclaimer
Please be advised that:

 The information and notices contained in this blog are intended to summarize recent developments and news. The posts are presented as general research and information. These posts are not intended, nor should be regarded, as legal advice. Some blog posts concern allegations made in civil lawsuits and in criminal indictments in United States Courts. All persons are presumed innocent until convicted of a crime and proven guilty. Readers who have particular questions or who believe that they need legal counsel should seek the advice of a qualified attorney. It is neither the editor's or author's intention to create a confidential relationship or any broker-client relationship via communication from this site at any time. Please consult with your state real estate board if questions & answers in the education section conflict with the laws of your region or if you need clarification regarding their applicability or how they may govern the services that you provide.

By entering this web site, you understand the following:
When you select a link to an outside Web site, you are subject to the privacy, copyright, security, and information quality policies of that Web site. David Saks:
1.DOES NOT control or guarantee the accuracy, legality, relevance, timeliness, or completeness of information contained on a linked Web site;
2.DOES NOT endorse linked Web sites, the views they express, or the products/services they offer unless linked web sites, the views they express, or the products/services they offer endorse or support David Saks in accordance with the standards of the Tennessee Real Estate Commission and the Federal Government's laws regarding commerce and the application, solicitation and transmission of internet-related concerns, commerce or social networking;
3.CANNOT authorize the use of copyrighted materials contained in linked Web sites;
4.IS NOT responsible for transmissions users receive from linked Web sites;
5. That DavidSaks.Com is biographical & real estate related. Some links within will leave this site.
6. http://activerain.com/profile/davidsaks is internet-compliant & abides by the rules & regulations of the Tennessee Real Estate Commission, Eve Maxwell, Executive Director.
7. Unless indicated otherwise, ActiveRain does offer listings, or IDX and is provided for licensed salespersons, brokers, buyers & sellers of real property as a community & professional service.
8. David Saks is a retired / licensed real estate broker in the State of Tennessee, license #290452, and an independent contractor.
9. Information is believed to be accurate, but not guaranteed, at any realty link or document connected to the World Wide Web & viewable by anyone connected to the internet who has a web browser.
10. Brokers, buyers, sellers, agents & anyone should independently verify any information prior to submitting any offer to purchase goods & services from any link.
11. Please Visit The American Real Estate Alliance or Memphis.8k.Com for additional information regarding property issues for real estate professionals and consumers.


Photos © & Licensed by Nova Development

All Content Protected © 
Before you even think about
committing a real estate crime
click this red button.
Real Estate Crimes

© All Rights Reserved.





"Information generated by the Department of Justice is in the public domain and may be reproduced, published or otherwise used without the Department’s permission. Citation to the Department of Justice as the source of the information is appreciated, as appropriate."

Department of Justice Legal Policies


  Real Estate Crimes


Click "HERE" For Today's Question



TheListen Now!

David Saks Show

Saturday Nite

9pm-12am Central

University of Memphis



America's Hobby

Click Elvis

Mr.Saks' participation in ActiveRain ended April 13, 2015.

His blog archives will remain online.

May God bless you.

Comment balloon 12 commentsDavid Saks • June 15 2011 05:48PM


Ugh.  I couldn't even finish reading.  This is so sickening.  Who runs this country anyway and why don't they ask the people in the trenches how their ideas affect the real world?

Posted by Jeanne M. Gavish, Keller Williams Realty Elite Partners - CIPS,GRI,S (Jeanne Gavish, Keller Williams Realty Elite Partners) over 9 years ago

Can I get you a barf bag, Jeanne:-) I might have one or two left.

Posted by David Saks ((retired)) over 9 years ago

Jeanne, David,

 See what happens when the governement gets involved? Things just get messed up even more. Look at the way they cut Mortgage Pros salaries. Do they put a cap on any professionals income? Is rhis still America where Capatalism exists?

Posted by Robert Amato (Bob Amato of Empire Home Mortgage Inc) over 9 years ago

Not necessaarily messed up, Bob, although it might appear that way because there are fewer choices and fewer loan products. Government mediation has to be in place to prevent another meltdown because of the numerous improprieties. They have to start somewhere. The QRM is an insurance policy for the banks, and the FED. Many thanks for taking a moment to comment.

Posted by David Saks ((retired)) over 9 years ago

QRM is also going to completely quash the second home markets and investors. This type of lending will become portfolio lending at best. I think there is a definite need for QRM but this is too tight. This primary occupancy issue alone is enough to just make me want to find another line of work. Living in Surprise, AZ I have a huge amount of business coming from second homes and investors. This will send every one to Luke AFB for business since they will be the only ones to qualify for a home.

The other half of this that scares me is the fact that lenders tend to lean towards whatever is considered the safest in the market. So if the standards of QRM are considered golden what is going to stop investors from wanting these standards regardless of what program they may be in? For a while any requirements that FHA had for their programs were the standard for everyone. QRM could have the same effect by causing programs like FHA to decide to ask for a higher down payment, higher credit scores, and lower DTI. Throw in the lower loan limits that are coming down the pike in October and we will have our selves another dip in the recession.

Posted by Jennifer Uranga, Surprise, Arizona Mortgages, NMLS #325618 (Amerifirst Financial Inc.) over 9 years ago

Not so sure investors want these standards, Jennifer, if they have to ante up five percent of the risk.
And I doubt that FHA is going to ask for an increase since they won't have to compete with a furious private sector that has to quash the 20 percent proposition. While the banks are fighting legislation the FHA'll just sit back comfortably, watch the deals close at 3.5% with no competition, grin, smile big and wide and say "get lost".

Credit Risk Retention (Section 941) of Title IX requires federal banking agencies and the SEC to jointly prescribe rules that require securitizers to retain an economic interest of at least five percent of credit risk of any assets they securitize. Regulations have to include separate requirements for different asset classes, and they can allocate the retention amount between originator and securitizer, or split the risk. 

HUD and Federal Housing Finance Agency have to participate in a joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements.

The statute requires an exemption for "qualified residential mortgages" which'll be defined by regulators based on statutory criteria which is supposed to ensure sound underwriting and lower the risk of default.

Here are some examples for you: 

• Documentation of borrower's financial resources;

• Debt-to-income standards (capping the 28% and 36% levels)

• Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards;

• Mortgage insurance or other credit enhancements to reduce risk of default

• Prohibiting use of loan features that clearly demonstrate a higher risk of borrower default.

This section exempts loans insured or guaranteed by the United States from risk retention requirements. For commercial mortgage backed securities, regulators have to consider other types, forms and amounts of risk retention which include representations and warranties, underwriting measures and standards and first-loss positions. Within 90 days of enactment the Federal Reserve Board is required to complete a study on the combined impact of risk-retention and the accounting standards that require the  securitizations to be brought on balance sheet which includes an institutional record of the financial situation on a particular date by listing all of the assets and the claims against those assets.

You said that, "The other half of this that scares me is the fact that lenders tend to lean towards whatever is safest in the market".

Why wouldn't they lean towards safe lending practices and exhibit responsibility in a battered economy by clearly demonstrating that they have a loan product that reduces risk for the borrower ? That's the lender I want to thank. I see great promise in Title IX, the Federal Reserve Bank's proposal, and a brave new world.

Posted by David Saks ((retired)) over 9 years ago

"It's based on irrefutable, incontrovertible data. Ideas which are now accepted as a demonstrable truth which are impossible to deny or disprove."

Isn't that what most of our legislation has been based on the last few years?

Posted by Linda K. Mayer, Realtor, SRES, SoCAL, A REALTOR YOU CAN TRUST (License # 01767321) over 9 years ago

It depends on whether of not the governor slept with the housekeeper, or the congressman is still a philandering lunatic, and how they're feeling that day when a roll call is taken on the motion, Linda.

Posted by David Saks ((retired)) over 9 years ago

SUGGESTED. I was scouring your post to see if you included Dodd Frank and I was so impressed (but not at all surprised) that you did.

What a mess - and what a perfect job you did summarizing the issues that the "higher powers" have created for us with so little knowledge of the ramifications. Wow. What a mess....

Posted by Ellie Shorb, Realtor DC, MD & VA Luxury Home Expert (Compass Real Estate) over 9 years ago

They left out a budget for cleaning supplies, Ellie. I'll get the broom.

Posted by David Saks ((retired)) over 9 years ago

May God bless the minds of the folks at the CFPB with CLARITY.  Help them see that all the regulation that has been heaped on us has unintended consiquences and that such a thing could cripple the housing recovery.  


Can I get an Amen???

Posted by Brent Alan McDonald, Serving your family like they are our family (All Western Mortgage, Inc NMLS 1744198) over 8 years ago

Amen, pass the peas, Brent.

Posted by David Saks ((retired)) over 8 years ago

This blog does not allow anonymous comments