Real Estate Marketing & Beyond
In January, the qualified mortgage rule, knows simply as the QM Rule, took effect. The new legislation aims to protect consumers by strengthening underwriting standards.
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The QM rule requires all mortgage applicants to do full documentation of income, assets, and employment; have a maximum of 3 percent for points and fees; and has a cap of 43 percent on the back-end debt-to-income ratio, among other requirements. Some critics have feared the new rules will raise mortgage costs and reduce access to credit for consumers.
NAR Research recently surveyed a sample of lenders to find out the impact to lending since the new rule took effect. Among the findings:
About a fifth of lenders surveyed say they did not know whether they would charge non-QM borrowers higher rates. However, the most frequently cited change for prime and near-prime borrowers was a rise of 50 to 75 basis points and 150 basis points for subprime.
“Consumers should expect to have to document their income, employment, and resources,” writes Ken Fears, manager of Regional Economics and Housing Finance Policy for NAR’s Economists’ Outlook blog.
“If your client has a high debt-to-income ratio, the FHA, as well as Fannie Mae and Freddie Mac, will be more lenient than private financers.”
View more of the survey results at NAR’s Economists’ Outlook blog.
As the last line of this story indicates, government backed programs will carry a distinct advantage over private sector lenders, in that FHA, VA, USDA, and other related entities can offer higher LTV"s, higher debt to income ratios and lower rates, which in turn drives borrowers out of the private sector and into taxpayer backed programs that are much higher risk and have much higher foreclosure rates. QRM rules were created to prevent lenders from making high risk loans, but government insured, taxpayer guaranteed programs are going to force private lenders back into subprime lending to complete for mortgage business. Witness the pressure being put on Wells Fargo to do more subprime loans, even as banks are still unloading shadow inventory in many markets and struggling with delinquent home owners.