How Mortgage Regulations Are Changing

 

Rules May Decrease Financial Risk

Federal regulators are looking not only at the mortgage servicing process, as evidenced by last month’s proposal presented to the five largest mortgage servicers, but also at the consumer side of the mortgage equation. New rules are being considered that will impact buyers’ eligibility for financing, as well as how those loans must be treated by the offering institution.

Earlier this month, regulators voted in favor of the mortgage risk-retention proposal, which defines rules for “safe” home loans, otherwise known as “qualified residential mortgages” (QRMs).  The purpose of the new reforms is to ensure that the lenders and the investors (buying up the loan-backed investment instruments) have “skin in the game” and are therefore less likely to make risky loans in the interest of short-term profits.

According to a report on FoxNews, the new rules proposed require, among other things, that buyers put down a minimum of 20% of the purchase price and meet strict income requirements for their loan to qualify as a QRM. This doesn’t mean that non-QRM loans won’t be possible for non-qualifying buyers, only that, for the consumer, the loan will be more expensive, and that, for the lender, a 5 percent reserve for all non-QRM loans will be required.

According to Peter Miller at HSH.com, all loans that meet Fannie Mae and Freddie Mac standards, as well as VA and FHA loans, will automatically be considered QRMs. Miller concludes that “in effect, what’s being proposed is largely a return to the traditional lending standards in place before the year 2000.” In an interview with Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair, FoxNews reported that the proposal also includes rules intended to support “non-standard” loans with smaller down-payments, in recognition that there are credit-worthy buyers who may not be able to put 20% down.

As mortgage rates continue to stay low, the mortgage industry continues to be in a state of upheaval. For buyers and sellers alike, working with expert real estate professionals who know how the latest rules and are tuned in to upcoming changes is more important than ever.