Qualified Residential Mortgage (QRM) Rules Threaten Housing Recovery, Argue Brokers
Warn of Higher Mortgage Costs for Consumers, Fewer Loan Options, Origination Delays
IRVINE, Calif. – October 22, 2013 — RealtyTrac® (www.realtytrac.com), the leading online marketplace for comprehensive housing and real estate data, today released opinions from five leading real estate brokers across the country on the impact to the real estate market and mortgage industry posed by the newly proposed Qualified Residential Mortgage (QRM) rules set to take effect in January as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010.
Loans that qualify as QRMs would be exempt from the Dodd-Frank law requirement that mortgage originators must keep a 5 percent stake in loans they securitize and sell.
Highlights of Proposed QRM Rules
The newly proposed QRM definition would be identical to the definition adopted by the Consumer Financial Protection Bureau for a “qualified mortgage” (QM).
- No down payment requirement.
- Raised minimum debt-to-income ratio for borrowers to 43 percent from 36 percent.
- No credit score is required.
- The newly proposed rules are open for public comment through Oct. 30, 2013.
- Finalized QRM rules scheduled to take effect January 10, 2014.
“The newly proposed QRM rules were released to cheers from the mortgage industry, consumer advocates and the real estate industry alike,” said Lisa Mackey, senior vice president, RealtyTrac Network. “As the housing and mortgage meltdown illustrated, better underwriting is an absolutely essential step toward both housing recovery and restoration of faith in the mortgage and securitization industries. However, it is very unlikely that the Dodd-Frank QRM provision would have the effect that supporters expect. The brokers we polled pointed out some possible concerns that could affect the housing market when the new regulations are rolled out in January 2014.”
Here’s what the brokers had to say about the impact of the Dodd-Frank QRM rules:
Restrict First-Time Buyers
“Dodd-Frank poses real and substantial challenges to the entire real estate business,” warned Craig King, Chief Operating Officer at Chase International in Lake Tahoe, Nev. “It will particularly make it tougher for first-time buyers to enter the home ownership arena. If you knock the first-time homebuyer out of the market, you are trashing 30 to 40 percent of home sales. When this demand is removed from the market, prices are also going to be stagnant or decline based on supply and demand economics. Stagnant or declining pricing means more existing homeowners who are underwater will stay in that position, encouraging more short sales and defaults.”
Michael Mahon, Executive Vice President and Broker at HER Realtors in Columbus, Ohio, predicted that the Dodd-Frank QRM rules will reduce competition among smaller lenders and may make obtaining a mortgage more expensive.
“I believe the new QRM rules will reduce competition by lenders, which will ultimately relate to higher prices for consumers, and further limit the ability for consumers to participate in the American Dream of homeownership,” said Mahon. ”The new QRM rules will raise the pricing related to all mortgages, but it will be especially damaging to any mortgage-related products that are not fixed in term, or fixed in rate. As the economy returns to a period of increased interest rates, advantages of modified terms loans, and variable interest rate loans, will not be readily made available by lenders due to the added risk-related covenants and procedures required of them by regulators. This lack of availability to credit products will reduce the overall housing affordability of consumers, and likely slow residential housing markets in many areas of the country.”
Squeeze Out Community Banks & Credit Unions
“QRM's intent was to avoid a repeat of the housing and credit crisis five years ago,” said Bob Parks, CEO of Bob Parks Realty in Brentwood, Tenn. “However, with the regulations that will be put into place, community banks and credit unions may be squeezed out of the mortgage platform. All of this may be an opportunity for larger local banks to emerge as a more powerful player in the mortgage scene. While at the same time, we may see smaller local banks remove themselves from mortgage lending due to compliance overhead.”
Parks added: “QRM rules will reduce credit availability because while loan fees will be limited to 3 percent, additional processing fees may be incurred due to the additional overhead necessary to adhere to new regulations. And the elimination of interest only and negative amortization loans and the reduced debt to income ratios for jumbo loans will force some borrowers out of the market. The burden now becomes less about whether or not you can qualify for a mortgage, and more about the lender’s willingness to assume the burdens that come with the new regulations. ”
Harm Troubled Borrowers
Stephen C. Roney, Chairman and Chief Executive Officer of Prudential Utah Real Estate in Park City, Utah, said borrowers with higher debt-to-income ratios could find it harder to get a loan next year.
“QRM will not impact non-conforming loans but will likely harm a buyer’s capacity to borrow at higher debt ratios,” said Roney. “While we may see interest rates go up a little next year, it won't be because of QRM; it will result from so-called ‘tapering’ by the Fed. We don't anticipate big volume changes when the new rules are rolled out. It's hard to imagine mortgage lending getting much more restrictive than it is today. Some modest easing of practices would really help the market and the overall economy. I'm not suggesting we should return to the standards that got us into this mess. I just want a return to common sense.”
Detrimental Effect on Buyers
“If these regulations go into effect, it is probable that it will have a detrimental effect upon buyers procuring purchase money mortgages, and mortgage companies underwriting the loans,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty in Oklahoma City and Tulsa. “Attempts are currently being made by industry leaders to amend this section of Dodd-Frank prior to its implementation; however, the recent government shutdown resulted in this initiative taking a lesser priority.”
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