www.lasvegasmtg.com Report: The new standard for Mortgages QRM
by John Le Francois
www.lasvegasmtg.com Report: The new standard for Mortgages QRM. What does QRM stand for? It stands for Qualified Residential Mortgage, and it is the product of the banks, Housing and Urban Development, and Securities and Housing regulators release of recommended changes to reduce the risk of toxic loans. This panel was created by the legislation Financial Reform Act in 2010 by Congress to create low risk loans. The legislation gave broad powers to the group and only expressed concerns about negative amortization and balloon payments and were silent on the minimum down payment requirements. Why are these changes even being considered under the Financial Reform Act of 2010? Congress with this new legislation would require All banks to set aside reserves of 5% of total outstanding loans that are considered high risks. With the required 5% reserves of all outstanding loans Congress has set up the mechanism for banks to pass this higher cost on to the consumer. You only have until June 10, 2011 to voice your opinion on the proposed changes and passage of the proposal would not be enacted until 2012.
So what is in the QRM that is so dramatic that it will undermine any hope of the housing recovery?
- The requirement that only borrowers with 20% down will get the preferred interest rates.
- Debt to income ratios can only be 28/36 with no exceptions.
- Can not have any 60 day late payments reported on the credit report in the last 24 months or you would be ineligible for a home loan.
- If borrowers want to refinance their home loan to lower interest rates or terms would require the home to have 25% equity.
- If borrowers are trying to get cash out the property would need to have 30% equity.
Under the new proposed Legislation, borrowers that could not fit within the QRM guidelines would then be placed into a high risk category and higher interest rates. It is unsure at this time what the higher rates would be for the higher risk pool, but industry insiders believe that it could be from .75% to 3% higher interest rates above the QRM rates.
It is noted here that currently the legislation if enacted would exempt Fannie Mae and Freddie Mac from these guidelines as long as they are still under conservatorship. FHA and VA loans will also be exempt from these strict guide lines, but in this political climate there is nothing guaranteed.
So who are the winners and the losers if this legislation goes into effect?
Winners: Once again it is the big banks. While Congress is making the banks require a higher margins of reserves for mortgage loans the banks have set the table with a stacked deck to pass those costs on to the consumers with sub prime rates and with the Governments approval!
Losers: Consumers, Housing Industry, Realtors, Mortgage Brokers, and Loan Officers. Anyone looking to buy a home.