You are not likely to see the president of the Mortgage Bankers Association (MBA), Dave Stevens and representatives from the National Housing Conference (NHC) and the Center for Responsible Lending (CRL) all on the same side of the table very often, but the group has teamed up – along with nearly 40 others – to fight “draconian requirements” proposed for the qualified residential mortgage (QRM) standards[1]. Stevens, Ethan Handelman (NHC) and Ken Edwards (CRL) all claim that the new QRM standards mandated by the Dodd-Frank Financial Reform legislation will make mortgages too expensive and difficult to claim. Ultimately, says the group, not only will fewer people be able to get mortgages, but the rules will create “societal boundaries” that will result, essentially, in blatant discrimination.
QRM standards are intended to force banks to keep their own “skin in the game” when making loans. Legislators hope that if banks share more equally in the risks associated with making loans that lenders will be more careful about the loans that they make, thereby preventing another subprime crisis. A QRM mortgage is one that a lender would not have to hold a piece of but could sell the entire loan because the buyer is highly qualified and considered low risk. One of the major facets of a QRM loan is proposed to be the ability to make a 20 percent down payment. Stevens claims that the new regulations could lead to “long-term rental entrapment” for many Americans that he estimates would need at least ten years to save enough money to make that down payment[2]. Other housing and consumer advocates argue that the issue is a civil rights issue and “falls around people of color,” making it a “class issue” as well.
Do you think that the proposed QRM standards are appropriate or too harsh?
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[1] http://www.cnbc.com/id/43257844
[2] http://www.bloomberg.com/news/2011-06-02/u-s-mortgage-proposal-may-limit-homeownership-to-most-affluent.html
I think the QRM standards are too harsh and discriminatory
I am not sure how if the “blame” has been placed at the right door step for the real estate issues we face today. Yes, the government encourages homeownership, they even underwrote education programs to assist first time buyers, and gave incentives (tax credits) which stimulated the economies across the country. However it was the “Mortgage Investment” community that changed the underwriting guidelines that produced these sub-prime loans that were structured to create enormous “Upfront Profits” with “little or zero” long term risk to the originating entities — that means the Investor said if you bring me a borrower that gives me this information I will give you the money (fees included) to assist them to obtain a home. That type of financing was offered in every purchase price point and in every neighborhood across America and that was step #1 in setting up our current problems.
Step #2 was the valuation system not being able to utilize “financing data” in the valuation process (they can not normally use an owner financed sale as a comparable) which could have curbed much of rapid appreciation reported around the country.
Step #3 was and has been the biggest detriment to the American Economy thus far, and that was the issue of “Interest Re-set”. If the investor community had properly prepared (consider homebuyer education with info on WORSE case scenario) consumers for the payment changes, the Investors would probably still own those loans and be paid on the full value of the loan. This would have meant the “Investor” not increasing the interest rate as high as they were legally allowed but “modifying the increase schedule” to assist the consumer to keep up their payments. (The initial round of mortage defaults were payment related NOT value related) They chose to play hard ball and insisted on the increase, buyer defaults, house foreclosed, marketed below loan balance, sold at a discount, which then affects values in the neighborhoods on the homes with fixed rate financing and adjustable financing, then the dominoe effect begins to snowball.
If you review the success record of the Government programs with down payment assistance which required “homebuyer education of only 3 to 8 hours” we had very few foreclosures prior to the onset of the interest rate resets that lead to snowball effect of the sub-prime loans (which did not require homebuyer education).
Education before the loan was and is the correct answer. Help people understand the pluses and minuses of the opportunity to own and prepare them for sustainable home ownership that is profitable for community and the goverment and the economy. But an industry solely concerned with their profitability (sub-prime investors) deserved to perish or at least sustain the losses, but since their collateral is in our communities they had the leverage to effect everyones home value not just the collateral they owned.
I do not think QRM as currently structured will benefit the industry or communities and will defintely have the long term effect of creating generations of renters with little hope of improving their life or the communities they live. The originating banks may need to have an ongoing pre-purchase education program for the loans they originate in exchange for a lower percentage of the loan they are obligated to retain.
It is interesting how Politicans phrase things. They same they want banks to have “skin in the game”, but they are making the buyer come up with the downpayment,so how is that having skin in the game for the Banks? They should just say they want the borrower to come up with the 20%. History has shown that the more a borrower puts down, the lower deliquency rate for the lenders. The problem with that right now, is how many people can come up with a 20% downpayment, and still have 3-6 months reserves left over? not many, when you look at the average price of a house in major cities, especially on the west and east coast, so they are going to kill the Mortgage market, and thus the Real Estate market.
2 items :
a question….Who got paid for Bert Gaston’s advertisement above ?
a comment….The 20% down req.is a knee -jerk, typical politician’s,
“sledgehammet to kill a fly” solution to a problem…another example of the
way messes get created at the behest of the “effete intellectual snobs”
that “look after our interests” in Fogwashbottom D.C.
The lower down payments did not create the ongoing mess. The big Gov’t ,encouraged
overheated ,real-estate value makket created the mess!
A prudent lender would not make loans to people who only “stated” their income,
assets and intentions and a responsible Gov’t wouldn’t allow it for Gov’t backed loans.
Avarice is one of the 7 capital sins.Have not some of the most culpable banking groups
profited grandly from the mess in which we are still mired ?
When do these guys ,along with their enabling cohort politicos get tp “pay the piper” ?
I do not think QRM as currently structured will benefit the industry or communities and will defintely have the long term effect of creating generations of renters with little hope of improving their life or the communities they live. The originating banks may need to have an ongoing pre-purchase education program for the loans they originate in exchange for a lower percentage of the loan they are obligated to retain.
Great points here guys, but I feel the problem goes deeper than this. Why should the banks lend any money now when a bank can borrow from the government for next to nothing and turn around and get government backed t-bills for 4-5%. They can’t get that spread from mortgages now. Even in the 4′s, a t-bill with zero risk, is a safer option. The folks that can afford 20% down are getting very attractive rates in the 4′s today for 30yr mortgages and in the 3′s for ARMs. We don’t like it, but it makes money sense and your government is allowing this on the one hand and telling us they are trying to help with the other.
I think it would be a better use of their time to review the credit reporting requirements, the underwriting policies, and DTI ration policies along with the down payment. I may lose an investment property because I can’t get refinanced over their 25% equity rules. And after 5 years of on time payments on this property, every underwriter is telling me I can’t make the payments. Go figure.