By Robert Freedman, Senior Editor, REALTOR® Magazine
In a small but important development, banking regulators agree to push back the deadline for public comment on their controversial 20-percent minimum down payment proposal.
NAR has been talking a lot about the qualified residential mortgage (QRM) proposal in recent months. That’s because of its severe consequences to home sales if it gets carried out.
The proposal would require lenders to retain 5 percent of the value of loans they originate (for loans that are securitized, excluding Fannie and Freddie) unless the loans have at least 20 percent down. If they meet that down payment requirement and other stiff underwriting requirements, the 5 percent risk retention requirement is waived, so these loans will be far more affordable than loans for which the standards aren’t met. In fact, the pricing difference could be as high as 225 basis points, NAR Research estimates. Should interest rates rise later this year, think of how hard home sales could be hit if on top of these higher rates borrowers have to pay 225 basis points more. And the fact is, with a minimum 20 percent down required for loans to qualify for the 5-percent exemption, the vast majority of borrowers will have to go for the more expensive financing — assuming they can even afford that financing.
How did NAR come up with the 225 basis-point estimate? We learn about that and all of the data behind NAR’s concerns with the QRM proposal in a short video interview with NAR’s manager of regional economics, Ken Fears. He walks us through how researchers identified the consequences of the QRM proposal based on data from lenders, mortgage insurers, and the federal government.
The good news is that Congress has heard the concerns of NAR and others and asked banking regulators, who proposed the rule, to push back its deadline for accepting public comments on its rule. Dozens of members of the Senate and almost 150 members of the House wrote to the banking regulators asking them to delay the comment deadline, and regulators responded with an extension to August 1 from June 10. The delay makes clear that regulators heard Congress’ concerns about moving too quickly on such a potentially destabilizing rule.
More about QRM.