The Federal Deposit Insurance Corporation, the Federal Government Agency in charge of setting the rules under which Fannie Mae and Freddie Mac will operate has finally released the final rules for Qualified Residential Mortgages (ORM). These rules join those already in place for Qualified Mortgages (QM) and define such things as the required (or not) down payment that banks should require for mortgages. The QRM rule provides a set of requirements a loan must meet to be considered safe and eligible to be sold to investors as part of a mortgage-backed security without the lender having to retain 5 percent of the loan amount on its books. This is important because these rules define which loans the banks and other lenders may package up and sell to Fannie or Freddie or other investors. Without that ability to sell bonds backed by packages of mortgages there would be no secondary market and real estate lending would slow significantly.
The Federal Housing Finance Agency (FHFA) also announced that it will release guidelines soon to allow increased lending to borrowers with down payments as low as 3 percent. FHFA, which regulates Fannie Mae and Freddie Mac, also will help lenders who sell loans to the mortgage giants by easing standards on borrowers who don't have perfect credit profiles. The newly released rules, and thus still to come, still require that borrowers be able to prove an ability to repay the loan. You might think that would be obvious; however, it was laxity in just that area that led to the real estate collapse. The new rules define an upper limit of 43% of the borrowers’ monthly income which can be committed to repayment of all forms of debt. That seems sensible, too.
The new guidelines provide more latitude for underwriters to consider the borrowers current ability to pay rather than focusing upon past credit issues. All of this should make mortgages easier to get, especially for first time buyers or people who might have had credit difficulties during the recent recession. This will free underwriters to focus upon the current credit worthiness of the borrower and not have to take so much risk for the bank into account. This easing also takes some of the pressure off lenders who may have feared being required to buy back bad loans that were sold as part of packages of loans. The threat of forced buy-backs had caused lenders to become overly cautious and severely constrained loans.
There are now many more Federal agencies keeping an eye on the financial industry and real estate mortgage practices in particular; all part of the changes that took place during the recession. It’s good that they are at least getting coordinated and pointing the industry in a positive direction. Check with your loan officer about what impact these changes may have for you.
You can now find me on the new .Realtor domain at normwerner.realtor This new domain was just launched for Realtors by the National Association of Realtors (NAR), which owns the rights to manage the Domain. So, you should be seeing a lot of new wed addresses for real estate agents with that distinctive top level domain name. You can also find my posts at WikiRealty.com and at normwerner.realtytimes.com