The National Association of Mortgage Brokers (NAMB) has issued a "Call To Action"in an effort to keep one of the many proposals under the Dodd-Frank Act from being enacted. The provision of the Bill that the NAMB is putting out a "Call To Action" on, is the Qualified Residential Mortgage Rule (QRM). This provision of the Bill would require that a 20% Downpayment be made by new Borrowers applying for a Fannie Mae or Freddie Mac backed Mortgage. The Bill also contains a provision where by Lenders will have to retain a "5% Percent Risk Retention"in their portfolios on Mortgages that they sell off to Investors, instead of shifting all of the risk away from themselves.
The reasoning behind these two provisions is to provide so called "Skin In The Game" for Borrowers, and to discourage Lenders from making risky loans, and shifting all the risk to the Investors. While these two provisions might be well intended, and on the surface seem like good ideas, they will actually cause further problems in the housing and continue to send it on a downward spiral. A few of the reasons why I believe this is.
- The 20% downpayment provision completely misses the point on the cause of the Mortgage Industry problems. The problems were not created by lack of downpayment on Mortgage Loans, but by improper use of Loan Products, and very liberal lending guidelines. The fact is that homeowners would probably be in even worst shape if they had put down 20% in States that experienced a severe decline in property values. Homeowners would have lost substantially more money had they put down 20% down, and were then later foreclosed on, or had to do a Short Sale.
- The 5% retention of loans sold to investors would cause a reduction of funds available to fund new Mortgages.
- These provisions would most likely further reduce the number of new Fannie Mae and Freddie Mac Mortgages, and continue to increase the number of FHA Mortgages. If this were to happen we would probably see tightening of FHA Underwriting Guidelines, increase in downpayment requirements, as well as increases to the Upfront Funding Fee, and Mortgage Insurance Premium (MI).
In my opinion these two proposals are another example of people who do not have a good understanding of the Mortgage Industry, making rules that will further set the Industry back instead of moving it forward. In fact one of the ramifications that I raise to the 20% downpayment requirement is already in motion. Congresswoman Judy Biggert, is proposing legislation to change the FHA minimum downpayment requirement from 3.5% to 5%.
If there is one thing that I have learned in the number of years that I have walked this earth, is that government well intended legislation usually creates more problems than it solves. These provisions in the Dodd-Frank Act further reinforces that opinion for me.
******************************************************************************************************************
Who To Call For Your Mortgage Needs In Connecticut:
George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.
Comments(5)