The proposed QRM rule has many factors that strike at the core of what the country defines as a "well qualified buyer".  Many agents and mortgage brokers hold strong opinions that the concept varies so widely that what serves as a good buyer in one area may not be so in another.  The most contentious basis is the notion of down payment.  Is it fair to require 20% down or does that lock out too many buyers.  Would requiring a 33% total household debt-to-income ratio also be just as damaging?  Many feel that there is no magic standard.  I think we should put that to the test.

Let's define the ideal buyer and the marginal buyer!  I understand there are tough markets but in going with the idea that homeownership is a privilege, not a right there has to be some bottom line.  Conversely, what constitutes a top-quality buyer whose mortgage would be an ideal candidate to be used in Mortgage Backed Securities (MBS) - which is the point of QRM.  Keep in mind that QRM is about ensuring high-quality loans so we don't get a MBS meltdown when good and bad loans were mixed.

To conduct this study, I'd like you to participate by posting your opinion on what parameters reflect the best qualified buyer and the least qualified buyer as defined by parameters we can track.  Those are:

  • Down payment percentage (specify what is ideal and what is least acceptable)
  • FICO (optimal and minimal)
  • Total mortgage debt limit (as a percentage of income)
  • Total household debt limit (as a percentage of income)


An example of your entry would look like this:

Down Payment:  20 / 5
FICO:  750 / 630
Mortgage Debt: 28
Household Debt: 33

This is all about coming up with an alternative to the proposals submitted by Congress and being opposed by NAR.  While I had many people state that the 20% requirement was too much, fine, let's come up with a combination that will work.  If we approach this discussion logically, our voices can be heard.  When these results are compiled, I'll write another article sumarizing the results.  I think this is a great way to build a concensus on this issue, if such a goal can be attained.  I look forward to your feedback.

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 Bryan Robertson, President | T: 650.799.9951 | Email: bryan@arrivva.com | Website: http://www.BryanRobertsonHomes.com |CA License: 01191946 | ARIVVA  | 744 San Antonio Road Ste 24 | Palo Alto, CA 94303

 

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11 Comments on Can you define a well-qualified buyer for the QRM rule?

MAY
22
2011
190,849 Points 3 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

HI Bryan, I read about this recently in a NAR email and plan on writing a post about it.  I think the country as a whole, especially the housing industry would be severely hurt if the proposed QRM changes are instituted.  There aught to be some compromise they can reach.  Don't you think with some of the new lending guidelines, it will weed out the unqualified buyers anyway and cut down on default?
12:03pm • #1
1,520,797 Points 112 Featured Posts Localism Sponsor Outside Blog Called Shot Master

I don't have an issue requiring more skin in the game.  So here are my answers:

Down Payment:  10 / 5

FICO:  720 / 620

Mortgage Debt:  25

Household Debt:  35
12:03pm • #2
862,844 Points 174 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

John - Perhaps the new free market regulations will cut out some unqualified buyers.  As far as I know, they already have.  However, Wells Fargo came out with a program allowing buyers with 500 FICO scores and no money down to buy property.  That's what shocks me a bit.

Chris Ann - Thanks!
12:17pm • #3
190,849 Points 3 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Hi Bryan, I heard about some of Wells Fargos new programs for consumers with lower FICO scores recently at a Cinemeeting with Buffini, they are requiring a larger down payment.....like 10% instead of 3%.  I just hope it does not move to 20% like what they are talking about in the QRM changes, because that will keep a lot of people from being able to afford to buy right away.
12:30pm • #4
1,117,037 Points 117 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Bryan 500 fico?  Please say it isn't so again. That's crazy talk all over again.  I like our approach of coming up with solutions.  I attended a broker legislative meeting just last week and the conversation was heated on the 20% down issue.  This is a very important and critical debate....we all need to make our voice count

Down 20+/3.5   (3.5 if the buyers have a good work history and stability on handling finances - none of the just squeeze by folks) 

Fico 750+ /-600

mortagage debt 30

household debt 35

 

Featured in BananaTude
12:36pm • #5
216,585 Points 17 Featured Posts Outside Blog Called Shot Master

Hey Bryan, I'm going to go out on a limb here and buck the trend (so far) on "total" debt-to-income acceptibility.

Down: 20% (ideal), 3.5% FHA (on the low end)

FICO: 725+ / -600

Morgage debt: 33%

Combined DTI: 42% (max ideal)
12:46pm • #6
220,680 Points 2 Featured Posts Localism Sponsor Outside Blog Called Shot Master

OK- I'm in:

Down payment: 20/3.5 (keep zero for VA)

 Mortgage debt: 28%.

Back end ratio: 38%.

FICO: 720/625

Wow- finding buyers could be tough, but that's the buyer I'd like to work with, because it would offer a solid outcome (opinion).

I hope this gets featured, because it's important input, irrespective of how it might vary. *revised per the request below!
8:22pm • #7
MAY
23
2011
862,844 Points 174 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

John - OK.  So, tell us what you think is the right mix of qualities for a buyer.

Anna - Thanks for the feature!  Yes, we all need to work together to come up with a solution.  I'm really hoping I get a lot of responses on this so there's enough data to create a real option for NAR.

David - I appreciate your opinion.  Given the Bay Area, I get why you'd want to go higher.

Laurie - Assuming the person has a reasonably stable job history, how much down.  We need hard numbers.  Also, on the FICO, 625 is your low so what's your ideal.  Thanks!
9:36am • #8
190,849 Points 3 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Bryan, I think I may leave the #s up to the Mortgage experts....I do see a need to increase the down payment across the board, but not necessarily to 20%.  Because of what's transpired in the economy over the past 2 to 3 years, there is going to be a lot of consumers with very low FICO scores, bad credit, etc...because of debt settlements, bankruptcies, etc....many who made good on their mortgage, but bad on the unsecured.   These consumers are still going to have to move from time to time, buy a new home, etc...I suppose if the FICO is low, require a higher down payment, with a medium apr %, don't try and gouge them.  I agree they need to have a low DTI, and the mortgage debt should be no more than 1/3.  I agree with Anna Banana, no squeeze by folks...you either qualify or don't.
12:33pm • #9
MAY
24
2011
161,176 Points 5 Featured Posts

We need to keep in mind that the current QRM provision is only for conventional loans.

But since we're talking about what we think is ideal, I think the following would be good for all loans:

Down Payment:  10 / 0   (no more 100% financing which has left many underwater)
FICO:  700 / 650
Mortgage Debt: 25
Household Debt: 35
9:03am • #10
862,844 Points 174 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

John - Thanks for the additional input.

Colleen - I think the fact that QRM is about conventional loans is completely lost on many people.  I'm glad you get it!  Thanks for the input on scores.  I'm hoping I get more.
3:58pm • #11

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