As bankers, real estate agents and others in the housing industry absorb thousands of pages of mortgage rules issued in the past week, they’re still waiting to see if U.S. regulators will set a minimum down payment for home loans.
Regulators including the Federal Deposit Insurance Corp. and the Federal Reserve drew protests in 2011 when they proposed a rule requiring lenders to keep a stake in mortgages with down payments of less than 20 percent. Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market.
Now, regulators say they expect to release a final version of that so-called Qualified Residential Mortgage rule in the next few months. Together, the QRM rule and additional measures governing underwriting and servicing released by the Consumer Financial Protection Bureau in the past week will fundamentally reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards.
“I have consistently warned of the regulatory tidal wave to come and it’s finally upon us,” David Stevens, president of the Mortgage Bankers Association said during a speech in Washington on Jan. 16. “These changes will impact business operations and the future of mortgage access for years to come.”
Stevens said his organization has received hundreds of e- mails and telephone calls from members trying to understand the new regulations, which were mandated by Congress in response to lax underwriting standards before the 2008 financial crisis.
Underwriting Rules
The so-called Qualified Mortgage rule issued by the CFPB Jan. 10, weighing in at 804 pages, requires lenders to verify borrowers’ ability to repay their loans and offers legal safe harbor for lenders who follow guidelines for safe mortgages.
The CFPB offered strong legal protection for loans on which borrowers’ debt payments are no more than 43 percent of their income. Points and fees for such mortgages can’t be more than 3 percent of the total loan amount. Loans backed by the government through Fannie Mae, Freddie Mac, and the Federal Housing Administration automatically qualify for legal protection for the next seven years.
The CFPB stopped short of adding a requirement for a minimum down payment. Now the six regulators drafting the separate QRM rule, including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, must decide whether to include such a requirement -- and whether to make it less than the 20 percent they originally proposed.
‘Politically Expedient’