Down payment size “is the major credit-risk driver in mortgages that was untouched by the QM rule,” Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington, said in an interview.
Defining safe loans as those with a 10 percent down payment, instead of 20 percent, “is the politically expedient course to take,” Petrou said.
Others, including Republican Senator Johnny Isakson of Georgia, are calling for a down payment requirement as low as 5 percent and a continued role for private mortgage insurance to hold a share of the risk on loans with less than a 20 percent down payment.
Meanwhile, there are many unanswered questions about the impact of the rules already released, Stevens and other industry participants say. Bankers say they worry that the QM rule could prevent borrowers from obtaining so-called jumbo mortgages, which are larger than the $729,750 ceiling on FHA-eligible loans or the $625,000 ceiling on loans backed by Fannie Mae and Freddie Mac.
Included Fees
In addition, it’s unclear what will be included in the provision capping fees at 3 percent of the loan amount, and what will happen if mortgages originated in good faith are later found not to meet underwriting standards.
The CFPB yesterday also released 1,600 pages of regulations setting requirements for mortgage servicers, including new limits on foreclosures while borrowers are simultaneously negotiating loan modifications.
The regulations, which apply to servicers who handle at least 5,000 loans, also require clear mortgage bills that warn consumers before their interest rates adjust. The servicing rules and the QM rule are scheduled to go into effect in January 2014.
The servicing rules’ complexity could lead to unintended consequences that will need to be addressed as soon as possible, Stevens said.
‘Second Correction’