Qualification Rules for Home Loans Relaxed by Regulators

Filed under: Market Comentary

qrmAccording to a recent article in the Washington Post by Danielle Douglas, Federal regulators have “softened” a proposed rule that would require banks to keep a stake in home loans that they parcel out to investors, for fear that the policy would “disrupt” the current housing recovery.

This move will most likely quiet the outcry from industry groups and housing advocates who have cautioned against strict rules that could freeze homebuyers out of the market, according to Douglas.

The banks have warned that more regulations of new mortgages would possibly raise their costs and eventually make it more difficult and/or expensive for homebuyers to get a loan they need.

Six agencies, including the Federal Reserve, have now “loosened” the definition of the types of home loans, also know as QRMs (qualified residential mortgages), that are so deemed secure enough to be exempt from the extra requirements.

This new 505-page proposal has eliminated the down payment requirement and raised the debt-to-income ratio to 43%.

According to the article, on loans that do not meet that threshold, banks and bond issuers will have to keep a 5% interest in the mortgages they get bundled into securities for investors.

The revisions align the QRM rule with the existing qualified mortgage rule, a measure finalized in January by the Consumer Financial Protection Bureau, whose goal is to determine whether a borrower can repay a home loan.

David Stephens, the president of the Mortgage Bankers Association, praised regulators for taking into consideration that the original “proposal would have unduly constrained the availability of mortgage credit for many borrowers.”

This also means that banks would have to adhere to restrictions that prohibit interest-only loans, balloon payments, and other “harmful” mortgage features.

In addition, lenders that issue loans using the government criteria would receive broad legal protections against borrower lawsuits. And, as a result, analysts expect that banks will primarily have more mortgages that adhere to the standards.

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