A new mortgage entering the market: it will impact lending in a BIG way!

Mortgage and Lending with Seacoast Mortgage Corporation, RI (20021119LB & 20031576LL), MA (MC2107) & CT MLO 10920

This new mortgage will affect every American looking to mortgage a home. And the impact will be felt by all of us.

Regulators are deciding the future of down payments. For those who have minimal down payments, FHA will become the norm. 

The new mortgage: QRM: Qualified Residential Mortgage has yet to be defined in detail, but, basically, it will be the new mortgage which will require a defined minimum down payment.  Some proponents are advocating as high as 30%.  If a borrower does not have this minimal down, there will be limited non-QRMs available at higher rates. 

Thus, there will be an increase of mortgages at FHA, which currently offers mortgages at 3.5% down and reasonable rates.  The downfall of FHA is the 1% upfront mortgage insurance, which is financed into the loan and the monthly mortgage insurance which is paid every month for 5 years and until the LTV reaches 78% (for loans greater than 15 years) and paid monthly on loans 15 years or less when the LTV reaches 78% regardless of how long the payments have been made.

FHA may be gearing up for this by increasing their mortgage insurance rates by .25% effective with all new loans on April 18, 2011.  Even the 15 year FHA loans, which were exempt from monthly mortgage insurance with LTV's less than 90%, will have monthly insurance.

So, let's compare FHA payments based on a $200,000 loan at 4.75 for 30 years:

Prior to October 2010: P&I and mortgage insurance: $1146.31

After October 2010: P&I and mortgage insurance: $1205.23:   Increase of $58.92/month

After April 2011: P&I and mortgage insurance: $1247.31:  Increase of $42.08/month        

In less than a year, the increase due to mortgage insurance is: $101.00/month!

Proponents of QRM wish to see the originating company to maintain 5% of every loan on their books for the duration of the loan.  To have so-called "skin in the game", proponents believe the originating company will "care more" about underwriting the loan and will think twice before closing on a loan.  The opponents see this as a large negative for the consumer.  A non-QRM will have higher rates, thus greasing the lining of lenders and hurting the consumer and the housing market. If an originating firm must keep 5% of the loan and it is a non-QRM, the lender will wish to have a higher return for the higher risk. 

The 5% retention requirement will also negatively impact the smaller lenders who will not be able to stay in business with limited capital.  How many loans can a small lender hold for the duration of the loan?  Thus, an already high unemployment rate will grow worse with the closure of all the small lenders.

In 2009, 47% of homebuyers placed less than 10% down on homes.  Imagine what this new QRM will do to the housing market!

Mortgage insurance companies are against the QRM, since they are in business to insure homes with down payments of less than 20%.  If the regulators enact a 20% or more down payment requirement for a QRM, non-FHA mortgage insurance companies will no longer be required. 

April 21 is the deadline to define a QRM, but that date will probably be moved to a later date since this is a big decision for the mortgage industry.

The mortgage crisis is causing many changes.  Some are for the better, but this one needs to be reviewed and analyzed CLOSELY by regulators BEFORE they implement, since it may further negatively affect the real estate industry.

Stay tuned!

Posted by

Ann Sabbagh, President

"The BEST compliment is a client referral: Thank YOUUU!"

Seacoast Mortgage Corporation

401-305-6906 or 508-243-1190

Residential & Commercial Financing


RIAR: teacher for "The Mortgage Course"; "Valuation of Commercial/Investment Real Estate"; "Reading Financial Statements"


"When you choose me as your mortgage consultant, you also choose a financial planner who cares about YOUR financial strength."


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Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

The more government involvement, the worse it gets. Reading this makes me think that they "speak with forked tongue." They SAY they want people to own homes, while they behave in ways that prevent it.

Feb 21, 2011 10:51 AM #1
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Amen, Ann.  I'd like to go a step further than 'analyzing & reviewing' this proposed action.  It needs to be stomped into the ground never to be seen from again!  Yet another horrible idea from legislators who are making irresponsible laws that will undoubtedly have drastic negative effects on the housing market (not to mention other markets, and society as a whole). 

Feb 21, 2011 10:54 AM #2
Mike Morrison
Will & Will Real Estate Brokers, The Woodlands, Texas - Houston, TX

Well, I've got to disagree with you & John. This is exactly what the market needs. 20% down=real buyer,not renter at 0-5% down. Oh my, no seconds to fund PMI. You know the 2nds agents bitch about when you try to do a short sale. Do you need me to explain why the MBS market is all but non-existant?? I'd feel better if the congress just put a gun in my face and asked me for my wallet. Then, I'd know I got hijacked fair and square.

John, have you taken a look at the Fed Balance sheet lately? It's nothing but S**# MBS and Treasury's carried at par and the MBS are worthless. Now, I fear the Treasury's are on the same downward spiral, except the Fed can still print fiat currency to replace the other fiat money they pulled out of their a##. At least the TBTF's know how to hedge. The Fed hasn't figured it out yet.

"Drastic negative effects on the housing market"?? You hoping for the hail mary in the last 3 seconds of the game?? Grow up son, it ain't going to happen.

Feb 21, 2011 01:07 PM #3
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

The underlying problem is that tax payers are currently on the hook for bad loans ($150 Billion so far, and counting) and a low down payment makes it too easy for the borrower to walk.

Feb 21, 2011 01:43 PM #4
Ann Sabbagh
Seacoast Mortgage Corporation, RI (20021119LB & 20031576LL), MA (MC2107) & CT - Pawtucket, RI
President, Sr. Loan Officer

FHA started in 1934.  It was a program which worked for many years.  When toxic loan programs were created, they sent the housing market into an upward climb.  I do not blame low down payment programs, like FHA (3.5% down)and FNMA (5% down) on the housing bubble.  The 80/20's, 90/10's, 125% cash out refinances, NO doc programs , and loose underwriting guidelines created the housing blow-up.  These toxic programs should never have been allowed to be placed on the market.  We have the FDA for checking drugs before they are placed on the market.  We need a similar government leg to protect us from a bad "mortgage loan product drug".

The FHA program uses strict underwriting guidelines and allows the American Dream to continue.  I believe requiring 20% down for home purchases will impact the housing market by creating an increased supply of homes, thus reducing prices even further.  The PMI companies are the safety net for the 5%-19.9% down programs.

Thank you all for your comments and creating a very interesting discussion.  Your comments are always welcome! 

Feb 21, 2011 02:02 PM #5
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Again, completely agree Ann.

If 0-5% down is a major problem, what could be the explanation for the much better than average performance of VA and USDA loans?  These programs are simply underwritten w/more scrutiny, but still allow for $0 out of pocket.

Down payment shouldn't matter.  For anyone who put more than 20% down on a home these past 2 years rather than investing the extra funds...they've lost money.  Common sense underwriting needs to make a comeback, and the AUS-FICO model needs to go away.

Feb 22, 2011 04:31 AM #6
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Ann, it will change the borrowing environment...since I work primarily with sellers I hope it doesn't have a huge negative on sales this year...most of the buyers have been pretty sound...i still like those USDA loans & need more listings in those areas...thanks for a great explanation.

Feb 28, 2011 03:33 AM #7
Tony Morganti
RE/MAX Crossroads in Cuyahoga Falls and Stow, Ohio - Cuyahoga Falls, OH
CRS, ABR, SRES - Cuyahoga Falls, Stow

30% down payment is a bummer!

Mar 21, 2011 03:13 PM #8
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