In case you haven’t heard, Congress has been hard at work setting new standards for mortgages so we don’t see another housing crisis any time soon.
Specifically, they’re working on a so-called Qualified Residential Mortgage, which would be exempt from risk retention rules, meaning mortgage lenders wouldn’t have to hold on to a piece of the mortgage after loan origination.
So far, regulators have floated the idea of 20 percent down payments for purchase-money mortgages and anywhere from 25-30 percent home equity for refinance transactions.
This has obviously caused an uproar in the industry, with opponents claiming most homeowners will never be able to save the necessary money to buy or refinance.
Of course, there will still be plenty of options for those not eligible for a QRM, such as an FHA loan or a conventional mortgage loan.
But now the “Community Mortgage Banking Project” has taken shape to ensure the QRM doesn’t ruin a potential housing recovery and rattle the already severely damaged mortgage market.
The group includes tons of big names, including the American Bankers Association, the Center for Responsible Lending, the Mortgage Bankers Association, the National Association of Home Builders, and the Mortgage Insurance companies of America, to name but a few.
They claim mortgage rates on non-QRMs could be anywhere from 75-100 basis points higher than QRMs.
For example, someone who’s able to put down 20 percent may be able to snag a rate of 4.50 percent, while the prospective homeowner putting down only five to 10 percent would be stuck with a rate of 5.25 percent, and as high as 6.35 percent in certain cases.
Clearly this would make mortgage payments shoot up, and dampen a recovery.
But regulators have suggested that risk retention will only result in a 10 to 15 basis point increase in mortgage rates.
It’ll be interesting to see how this plays out…I’m assuming a smaller down payment requirement will result.
Read more: Are mortgage rates negotiable?