This week, six federal agencies announced the revision to the rule proposed in 2011 to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. This new proposal would define QRMs “to have the same meaning as the term qualified mortgages [QM] as defined by the Consumer Financial Protection Bureau.”
“A previous proposal to exempt loans with loan-to-value ratios of less than 80 percent from the 5 percent risk retention requirement rattled real estate trade groups and housing advocates alike, who complained that borrowers making down payments of less than 20 percent would have to pay higher rates.” (SOURCE)
Let us take a moment to deconstruct what that all means for the real estate world:
- Ability to Repay: The requirements around the ability to pay are proposed to be redesigned so that homeowners are unable to take on more debt than they can ultimately afford. Loans with debt-to-income ratios of above 43% can still be considered qualified mortgages if they also meet the underwriting requirements of Freddie Mac, Fannie Mae, HUD, VA, USDA, or Rural Housing Services.
- Risk Retention: Mortgage lenders will not be required to retain a 5% risk retention stake when loans are securitized when borrowers put less that 20% down.
- Safe Harbor: Lenders will be more legally protected throughout the process of making both non-QM and QM loans based upon these new guidelines.
These changes are set to officially hit the lending world Jan. 10, 2014.