Proposed QRM Rule to Raise Downpayments up to 20%
A critical decision will be made later this year by federal regulators (HUD, Fed, FDIC, FHFA, OCC, SEC) that will seriously affect downpayment rules on home mortgages. The proposed rule on risk retention, implementing section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), requires lenders that securitize mortgage loans to retain five percent of the credit risk on loans packaged and sold as mortgage securities, unless the mortgage is a "Qualified Residential Mortgage" (QRM) or is otherwise exempt.
Unfortunately, regulators’ proposed definition of a QRM upset the important balance contemplated by Congress. Rather than creating a system of penalties to discourage bad lending and incentives for appropriate lending, regulators have developed a rule that is too narrowly drawn. Of particular concern are the provisions of the proposal mandating onerous downpayment requirements of up to 20% or more of the purchase price. Other aspects of the proposal — such as the proposed restrictive debt-to-income ratios and tight credit standards — will also raise unnecessary barriers for creditworthy borrowers seeking the lower rates and preferred product features of the QRM.
NAR supported the creation of the QRM exemption to the risk retention requirements of Dodd-Frank when the legislation was developed. However, NAR believes that Congress intended to create a broad QRM exemption, not the narrow definition of QRM the regulators have proposed. Since late 2010, NAR has been writing to and meeting with regulators to express strong support for a broad QRM that would look much like products currently available in today’s mortgage market—products with strong underwriting and fixed rate or traditional adjustable rate mortgages (not mortgages with teaser rates or the option to pay less than the amount of interest). To support these efforts, NAR has joined with a diverse network of groups who share the position that, as written, the QRM regulation would push millions of American families out of the home market. A white paper titled "Proposed QRM Harms Creditworthy Borrowers and Housing Recovery," issued by NAR and its partners, warns about the negative impact this proposed rule will have on home buyers and the housing market.
NAR and its coalition partners have won the support of more than 40 Senators and 200 Representatives, who have written regulators expressing their original intent on QRM and opposing the imposition of a 20 percent down payment. As a result of these efforts by NAR, its coalition partners, and Members of Congress, the comment period on the QRM rule has been extended to August 1, 2011.
While the extension of the comment period is a short-term success that allows commenters more time to assess and develop data challenging the proposed rule, the regulators still have not expressed any signs of agreeing to fix the proposed QRM rule. Members of the House and Senate held a press conference on June 22 to urge the regulators to honor the original intent of Congress on QRM and exempt a wide variety of traditionally safe, well underwritten products. NAR will continue to advocate to regulators the negative impact this rule will have on home buyers and the fragile housing recovery.
To learn more about QRM, please visit www.realtor.org/topics/qrm.