For REALTORS(R), or anyone looking to buy a home or re-finance a mortgage loan, you should know there is currently a proposal being considered as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that might make it much more expensive to obtain a loan if you don’t have a 20% downpayment (or 25-30% equity for those looking to re-finance). The unintended consequence of the Qualified Residential Mortgage (QRM) is that it will make home ownership more expensive for responsible home buyers and jeopardizes the fragile housing recovery.
Here is a blog post from the MassHousing Blog that we wanted to share:
The comment period on the definition of a Qualified Residential Mortgage (QRM) or “QRM Rule” in Section 941 of the Dodd-Frank legislation passed last year has been extended from June 10 to August 1, 2011. This came as a result of pressure brought upon Congress by a coalition of industry groups led by the National Association of Realtors. The group effectively argued that the rule that limited a qualified residential mortgage—exempt from additional risk retention reserve requirements—to loans with 20% downpayment, would have had severe unintended consequences and stopped the fledgling real estate recovery dead in its tracks.
It is our hope the Congress and the regulators involved in creating the rule would use the additional time to consider the success that Housing Finance Agencies (HFAs) have had with low downpayment mortgages throughout their history. HFAs—and MassHousing is no exception—have found that 30-year, fixed-rate, mortgages, made to creditworthy and financially qualified borrowers using full documentaion and sound underwriting can and do perform well, even under stress and even with low downpayments.
A qualified residential mortgage (with a small q, r and m) historically has involved risk evaluation of several key criteria including credit quality and capacity of the borrower, the application documentation methodology, the type and structure of the mortgage product, the intended use of the property, purpose of the loan, and the net exposure to the mortgage holder after downpayment and insurance.
Between 2004 and 2010 MassHousing’s Mortgage Insurance Fund insured over 1,500 100% LTV loans. Of those, 625 had credit scores above 720 and debt ratios under 41%. Of those 625 100% LTV loans insured by the MIF with those credit standards, we have experienced just one foreclosure and claim.
No one knows better how to develop safe, affordable, and sustainable home financing options than state HFAs. We hope that with housing finance reform, legislators, regulators and lenders all learn from HFA experience and look to us as cornerstones of their future home financing plans.
By Peter Milewski, Director, Mortgage Insurance Fund and Manager of Business Development at MassHousing