Qualified Residential Mortgages - New Rules Effective April 2012!


loanAre You Aware of the New Lending Laws Changing in April 2012? Do you know what will be required to obtain a Qualified Residential Mortgage?

I was minding my own business this morning getting ready for work and listening to the news, but stopped in my tracks when the TV host said, "and lenders will require a minimum of 20% down on home mortgages..."


The speaker went on to explain that as of April 2012 new lending laws will establish a QRM or Qualified Residential Mortgage.  These new rules include:

  1. minimum of 20% downpayment
  2. minimum equity of 25% to qualify for refinancing
  3. minimum equity of 30% to qualify to pull cash out of your real estate
  4. minimum credit score of 740 

There is a lot to this bill (233 pages to read at your leisure).  Some of it makes good sense (ratios will be limited to 28/36; no negative amortization, no bankruptcies for 3 years, adjustable mortgage caps of 2%/6%, and more).  Other aspects are highly restrictive (no 30 day lates, no 60-day lates for 2 years, 50% of downpayment must be buyer's own funds, high equity positions and high credit standards, and more).

At this time, the plan is that the new QRM rules will not apply to FHA loans - preserving a resource for less than 20% down real estate purchases.  If a lender tries to skirt the QRM rules, they will be required to hold part of the mortgage in-house.  Only those loans that conform to all the rules will be able to be sold on the secondary market. 

This is all part of the Dodd-Frank Act, and it isn't fully in place yet.  There is still time to do something about a set of rule changes that will dramatically effect the real estate market.  For more information on this proposed bill: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110329a1.pdf

This bill makes me visualize a pendulum - first it swung liberally all the way to disaster, and now it could swing conservatively all the way to a double dip in the real estate market!  Whatever happened to the Happy Medium!?


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Margo Otey

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Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

If this law passed it would be a crushing blow to Real Estate. There are too few buyers as it is. This would create a far more difficult environement.

Apr 12, 2011 03:29 PM #1
Margo Otey

Hi Bill, When I researched the bit I saw on the TV news I was shocked I didn't know about these proposals to revise banking laws!  In fact, the Dodd-Frank bill went into effect April 1, 2011 without the full implementation.  So some of the proposal is already in place.  The balance, including the changes I've blogged about, come in phases - which I hope the lobbyists in our industry can change!  Thanks for your comment.

Apr 13, 2011 12:56 AM #2
Rosa Bueno

Hello Margo,

Unfortunately realtors do not like reading much and  don't get involved until its too late.  We should not wait until they start implimenting the most painful phases of the QRM Rules we should start now.  My experience is that while the lobbyists in our industry try to make changes our markets will suffer and by the time a change is made the damage will be done.  I remember telling realtors in March of 2008  when the sub prime market started failing that we were going to be hit by a massive waive of short sales and foreclosures and that we should start talking to our Associations and NAR for guidence and training and they all said to me that I was being a bit negative and that once the Bush Admisnistration was out of office all would be good again.  HA.  Here we are in 2011 pumelled with double digit declines and years of shadow  inventory.  THANKS for Blogging on this it gives me hope and tells me that I'm no the only realtor looking at these drastic changes that make good sense on one end but will be overly restrictive on the other.  We should definately work toward more responsibility in homeownership but to go from no money down, no doc, no credit to 20 % down, full doc, Fico of 740 is a bit much.

May 28, 2011 02:51 AM #3
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