Much of what NAR does in Washington is defensive: it works with Congress to prevent curbs to the mortgage interest deduction or to prevent elimination of federal backing of conforming mortgage loans. The qualified residential mortgage (QRM) rule that federal regulators released last week falls into this category in some respects, because regulators at first wanted to require a qualified mortgage to come with a 20 percent downpayment, among other things.
NAR worked with 50 other organizations to show that such a requirement would put homneownership out of reach for a big chunk of the market, because on average it would take first-time buyers and others who don’t have equity to draw on 16 years to save up enough money to make a downpayment. Later, regulators were talking about upping that to a 30 percent down payment.
For that reason, when the rule came out with no down payment requirement, industry and consumer groups rightly called the rule a victory. There were other defensive moves as well, because in its original form the rule included very specific credit standards borrowers would have to meet, and those were also taken out and replaced with a broad rule that gives lenders flexibility in how they meet the rule’s intent, which is to create a class of safe loans that borrowers have a reasonable expectation of paying back. (Under QRM, if the loan meets the standards, it’s considered safe, so lenders can sell 100 percent of the loan to investors rather than hold back 5 percent of the loan amount on their books.)
As positive as this is for homebuyers, what the rule doesn’t do is get lenders to open up their lending processes more. Only lenders can do that, and right now they’re still taking a fairly conservative approach, most notably by putting credit overlays on loans backed by FHA and the two secondary mortgage market companies, Fannie Mae and Freddie Mac. QRM will certainly help, because it provides clarity lenders have been asking for on the rules of the road for residential loans. But by itself the rule doesn’t address all the things that’s keeping lenders from easing their restrictions that go beyond what FHA, Fannie, and Freddie require.
What’s more, in about six years, Fannie and Freddie will come under the QRM standard (right now they’re exempt), and when that happens, a small but important percentage of borrowers that Fannie and Freddie now serve won’t be able to meet the standard, even without the lack of downpayment requirement. As a result, unless other things happen, credit availability will become more of a challenge down the road for at least some borrowers. That’s why NAR is looking at other factors that are holding back credit.
In short, the QRM rule is a victory, but it’s not a solution in and of itself to the credit availability problem many households are still experiencing. It keeps things from getting worse, but more needs to be done.
In the video above, NAR Research and Government Affairs analysts talk about the impact of the rule and what’s ahead.