QRM and the Coming Disaster

Most everyday folks probably don’t know what the term “qualified residential mortgage rule” or QRM means, but take it from me — you need to know.

If the administration implements the “QRM” rule as proposed, it will dramatically change the landscape of homeownership in the country. Instead of the average 5 percent currently required for a down payment, you will need 20 percent to get the best mortgage on the market. That’s right: 20 percent. The rule is an outgrowth of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was designed to prevent another housing crisis from occurring and wrecking the global economy again. Yet, the 20 percent proposal creates a whole new crisis, jeopardizing the ability of ordinary working families to purchase a home and sanctioning a separate and unequal lending system in which only the wealthy can buy the most affordable loans.

Under this rule, it doesn’t matter if you have a high credit score or job security. If you don’t have the 20 percent down payment, then you’re facing a more expensive mortgage. It’s estimated that for the average home buyer, it could take 14 years to save the 20 percent down payment and additional 5 percent closing costs.

 

Based on the false premise that prime lending with low down payments is responsible for the collapse of the economy, the proposed down payment requirement will do nothing to revive our faltering housing market and help grow the economy; it will only make things worse.

 

Little correlation exists between the size of a down payment and default rates, according to the findings of a recent study conducted by the National Community Reinvestment Coalition. We looked at nearly 1 million loans written for the most creditworthy borrowers in 2006 and 2007 and found that the default rate on a QRM loan with a 20 percent down payment was just .14 percent, but the rate was only .26 percent for those who put down just 3 percent.

 

Given the small margin, it’s hard to fathom why Washington would want to tighten the vise around the availability of credit, which only frustrates potential borrowers, drags down the market and prohibits the economy from experiencing any kind of real recovery. The amount of a down payment should be based on the underwriting of a borrower’s credit worthiness, not some blanket rule that treats all borrowers the same.

 

Homeowners don’t need more hurdles to jump. They have plenty. The foreclosure rate in Albuquerque, for instance, was 2.4 percent in April, up sharply from 1.75 percent last year. And the inventory of available homes in that market is more than 6,500 — three times + what it was 30 months ago.

In the meantime, the Consumer Financial Protection Bureau has no confirmed director, which the Dodd-Frank bill created as a counter-weight against the financial services industry. Wall Street is rolling in the dough and CEO pay is at an all-time high as the rest of us worry about the next paycheck, our home values and a dormant economy.

Our attention should be focused on what will get the housing market back on track: preventing risky and abusive lending while making homeownership affordable for the majority of our citizens.

The administration, as well as Congress, must move past their political stalemate and re-consider the ramifications of the QRM proposal. Not only does it stand to price out millions of responsible borrowers, drive down home prices and cripple an all-too fragile market, but it stands to radically change the profile of homeownership in this country.

If you are wealthy, you have nothing to worry about. But for the rest of us, the QRM rule will stand in the way of a home you may be more than qualified to buy.  Until this rule is rolled out, there are great mortgage options for buying a home.  Call me and we’ll get started.

All Real Estate.  All the Time

 

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