What's a QRM?
Hope you're enjoying your summer. Our sweet, mountain summer is in full swing here in the high country, and despite the rain, it's been glorious!
If you haven't heard yet, there's a new bill being purposed by Dodd/Frank that would require all future home buyers to have a 20% downpayment. It's called QRM...Qualified Residential Mortgage. VA and FHA loans would be excluded, but all other loans would fall under this new regulation. Below is an article with the details and following that is a "Call to Action" from the National Association of Realtors. I try not to mix work with politics, but I am not a fan of this proposed bill. I'm all for more strict loan requirements so we don't go back to the loose loan requirements of the past that caused the mess we're still digging out of, but this is swinging the pendulum the other way.
Want to buy a house? Downpayment rules might be changing
Published : Friday, 08 Jul 2011, 9:04 PM EDT
By: David Barras
INDIANAPOLIS (WISH) - Could you afford to buy a house if you had to have 20 percent down to get a loan? Fear that federal rules would make that the law has the real estate industry worried.
Kurt Flock has been selling real estate in Indianapolis for 30 years. New rules like the one the federal government is considering, called Qualified Residential Mortgages, or QRMs, don't make sense he told 24-Hour News 8.
"I've coined a phrase for that,” he said. “Quintessential regulator madness."
The rules are part of reforms passed by Congress last year, designed to avoid another mortgage market meltdown.
Flock said he worries about the strictness of the proposed rules."This particular rule would require people to put 20 percent down,” he said. “And it goes further. It will have more stringent income and debt ratio requirements and credit requirements."
The National Association of Realtors is worried enough about the rules and their effect on potential homeowners that it is buying ads like the 3/4 page one found in Friday's Indianapolis Star, trying to convince the federal government that requiring potential homebuyers to put 20 percent down is the wrong kind of reform.
"It's a way over-the-top response to what turned out several years ago to be some very poor underwriting standards,” said Louis Zickler, sitting in his office in downtown Indianapolis.
The real estate appraiser and a past president of both the Indiana Association of Realtors and the Metropolitan Indianapolis Board of Realtors said making a mandatory down payment rule makes no sense. "It's being able to make the payment is more important than how much do you have to put down," he said.
Some loans, including FHA, VA and those insured by Fannie May and Freddie Mac, would be exempt. Much lower down payments, as low as zero percent for VA and 3.5 percent for FHA would still be allowed for those. But the industry believes a mandatory 20 percent down payment for any loan doesn't make sense.
"The fear is this will really eliminate the opportunity for a lot of people,” Flock said, “or increase the cost of borrowing. That puts homeownership that much further out of reach."
The proposed rules would also require lenders to keep 5 percent of the value of a non-qualifying mortgage on reserve, possible making it less likely they will make those loans. And most lenders don't like the proposed rules either.
The public comment period is ongoing for the rules under consideration. They haven't been adopted yet, and the ad is just one example of the high-visibility campaign against it. Aug. 1 is the deadline. Then the feds will make a decision.
CALL TO ACTION
From the National Assocation of REALTORS: Help Keep the Dream of Home Ownership Alive. Stop the 20% Down Payment Requirement. A new and costly rule called Qualified Residential Mortgage, is being considered right now by federal regulators. If the proposal goes through, it will require homebuyers to make at least a 20% down payment on a home purchase. The federal regulators have taken a new law passed by Congress intended for banks to do a better job of securing loans and instead are trying to turn the rule into a penalty on homebuyers.
Forget the idea of a 10% down payment or even a negotiated amount. It’s a fact: many hard-working, credit worthy Americans have a difficult time saving for the down payment to buy a home. If enacted, the new federal regulation will make it even more difficult for many Americans to buy their next or first home. Suppose you wish to purchase a $200,000 home. The proposed 20% down payment means you will need at least $40,000 upfront to satisfy Uncle Sam’s requirement. Similarly, in high cost areas, on a $500,000 home purchase, you’ll be required to put up at least $100,000.
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