QRM stands for Qualified Residential Mortgage. It's a key piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under the QRM proposal, lenders must hold 5% of the risk of any given residential loan unless it meets the definition of QRM and only then will it be exempt from the Act's "risk retention" requirements.
Initially, a QRM is considered as a loan where:
- a 20% downpayment is used or the maximum loan-to-value ratio is 75% for refinances or 70% for cash-out refinances.
- the maximum front-end and back-end debt-to-income ratios are 28% and 36% respectively.
- the borrower's credit history includes no 60 day delinquencies on any debt obligations within the previous 24 months.
So, does this preclude a loan, with less than 20% down, from being originated? No, but it will certainly be more expensive.
As you can imagine, many trade groups and consumer organizations are concerned about the intended and unintended consequences of this proposal. Their concerns include diminished consumer demand, greatly reduced pool of potential buyers, increase in housing inventory, home affordability and more.
So, be aware. Forewarned is forearmed!
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