QRM will affect every person who buy’s real estate, period. This stands for Qualified Residential Mortgage. Basically it is a set of criteria a loan must meet in order for Fannie or Freddie to purchase the loan. What could this mean to you? Higher down payments and tougher pre-qual requirements. These are “proposed” changes so please keep that in mind. Many in the RE industry are fighting these changes but with the gov. trying to remove themselves from the mortgage business, it could come to fruition.
Let’s dissect what this really means…
1) A Product-Type qualified residential mortgage is a first-lien mortgage that is for an owner-occupant with fully documented income, fully amortizing with a maturity that does not exceed 30 years and, in the case of adjustable rate-mortgages (ARMs), has an interest rate reset limit of 2 percent annually and a limit of 6 percent over the life of the loan.
2.) A PTI/DTI qualified residential mortgage has a borrower’s ratio of monthly housing debt to monthly gross income that does not exceed 28 percent and a borrower’s total monthly debt to monthly gross income that does not exceed 36 percent.
3.) An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages the LTV ratio is 80 percent.
4.) A FICO qualified residential mortgage has a borrower’s FICO score greater than or equal to 690 at the origination of the loan.
This is not to say that every mortgage will fall under these guidelines. Banks that decide not to sell their mortgages (conventional loans with 20% down) will not have all of this criteria, however, fees are likely to increase as a result.
The most complete study I could find on this issue was JP Morgan’s 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.
“…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…”
That’s assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.
“This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”
Let’s assume the eventual increase in mortgage rate is 2% (the middle of that 1% – 3% window). What impact would that have on a purchaser? Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.
Food for thought. If you are on the fence, consider jumping off.
No comments:
Post a Comment