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.
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.
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.