New Housing Regulations May Tighten Lending

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The Real Estate Marketing Insider comments on news that two new regulations are taking effect which may make it harder for new borrowers to qualify for a home loan.

REMI announced its concern about two new regulations, discussed by Bloomberg News, which are taking effect in January that regulate lending and capital standards, saying that they may be harmful to home sellers as new buyers will be less able to purchase.

The two rules designed to take effect in January were crafted in response to the housing crash of 2008, from which the market and economy are just now beginning to recover. The first rule, known to the industry as the “qualified mortgage” rule, or QM, requires lenders (banks and credit unions) to determine a prospective borrower’s ability to repay a loan. Banks will receive legal protection in the event of foreclosure on loans that the new standards deem is nonabusive; lenders speculate that this will mean new loans will only be given to the safest, lowest-risk borrowers.

The second rule is being called the “qualified residential mortgage” rule, or QRM. The QRM rule requires lenders to retain stakes in high-risk mortgages when packaging them into securities. This comes as a response to the subprime mortgages of the 2008 housing bubble, which were often issued by banks then sold wholesale to other creditors, alleviating the original lender of risk. The QRM rule will be written by the Fed, the FDIC and the SEC after the QM rule, being written by the Consumer Financial Protection Bureau (CFPB), is finalized. The QRM rule has a deadline of January 21, 2013.

Banks are concerned that these two rules, implemented so close to one another, will deter them from issuing home loans to any but the lowest-risk applicants; however, they are also taking heavy criticism from the Fed and from finance experts, who say that despite record-low mortgage rates they are not lending to qualified borrowers now. Consumer advocates, including the National Consumer Law Center, also criticize the industry, saying their fears are exaggerated and that the scope of the new regulations would not necessitate undue restricting in lending.

Compounding fears (and perhaps easing them) is news from Zillow that home prices rose 1.3 percent in the third quarter of 2012, marking the largest quarterly gain since 2006. New borrowers whose loans closed in September 2012 were in the top 40 percent of Americans in terms of credit score; however, new loans only accounted for 72 percent of existing-home sales, as the rest were all-cash transactions involving distressed properties.

The Real Estate Marketing Insider released its statement surrounding two new mortgage lending regulations scheduled to go into effect early next year. The qualified mortgage (QM) rule and the qualified residential mortgage rule (QRM) are being written by different agencies, and will set regulatory guidelines for banks’ new loans and ownership of existing high-risk loans.

About Real Estate Marketing Insider: REMI is an online journal that provides industry professionals with news, insider tips, and analysis of emerging trends. REMI is based in La Jolla, CA.

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