Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

[don]

Realtors, Builders, Mortgage Bankers Claim QRMs Would Damage Housing Recovery

18Apr11




Several powerful real estate, home building, and mortgage banking groups have attacked the proposed qualified residential mortgage (QRM), claiming it would harm both creditworthy borrowers and a housing recovery.

The following statement was released by the Center for Responsible Lending, the Community Mortgage Banking Project, the Mortgage Bankers Association, the Mortgage Insurance Companies of America, the National Association of Home Builders and the National Association of Realtors late last week:

“In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream.”

“First time homebuyers will have to choose between higher rates today or a 9-14 year delay while they save up the necessary down payment. And 25 million current homeowners would be locked out of lower refinancing rates because they lack the required 25 percent equity in their homes.”

The groups believe the down payment and home equity requirements won’t have a “meaningful impact” on mortgage payment default rates, but rather will penalize responsible consumers and cause many to put off the purchase of a home.

Additionally, they argue that those unable to qualify for a QRM will be subjected to higher mortgage rates, making qualification and homeownership more difficult, if not impossible.

“We urge regulators to develop a final rule that encourages good lending and borrowing without punishing credit-worthy consumers,” the groups concluded.

In short, the proposed QRM will require a 20 percent down payment for purchase money mortgages and 25 percent equity for a refinance, effectively eliminating the need for private mortgage insurance , while putting pressure on home sales and mortgage financing.

http://www.thetruthaboutmortgage.com...sing-recovery/

[WildspitzE]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

“In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream.”

LOL at the part in bold.

I say that we further redefine the American Dream to include owning a Ferrari and let the "public-private partnerships" work their magic...

[don]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

How long has it been since these desperadoes all played their parts, to the hilt, in creating and maintaining the housing bubble.

Now they cry, "Please, bring back the no-doc loan"

It's Passover. Does that give free rein to outrageous chutzpah

[don]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

You mean they're cooking the numbers

Will 20% Down Require Waiting 14 Years to Buy a Home?

By Daniel Indiviglio Apr 17 2011

Should the average American have to wait 14 years to purchase a home? A worksheet (.pdf) from the Center for Responsible Lending says that's how long it will take to save up if 20% down payments become standard. With new mortgage banking reforms in place and broad housing finance reform looming, higher down payment requirements seem pretty inevitable. But a number of groups are fighting these changes, as they worry about average Americans coming up with huge chunks of money to buy a home. Does the CRL's 14-year estimate exaggerate the situation?

Questioning the Assumptions to Get 14 Years

To figure how long long a family would need to save, you must make some assumptions. Here's how the CRL calculates 14 years.

• Median 2009 Home Price: $172,000
• 20% Down Payment (plus closing costs): $43,025
• Median 2009 Annual Income: $49,777
• Effective Tax Rate: 20%
• Savings Rate: 7.5%
• Monthly Saving Amount: $250

From this, it's easy to calculate that saving $3,000 per year, it takes a little over 14 years to have accumulated $43,025. But are all of theses assumptions fair?
Income

What could be fairer than using the median income? First, it's important to note that nobody expects home ownership rates to hit 100%. Instead, we should be pretty content to see the rate return to its late-1980s through late-1990s level of around 64%. That means we can take the bottom 36% of wager earners out of the equation. If you do that, then you need to use something closer to the 68th percentile of income to match up to the median home price, since that's the middle between the 36th percentile and the 100th percentile.

Savings Rate

Next how reasonable is it to say that Americans can save 7.5% of their disposable income? On one hand, even now -- when saving is said to be particularly popular following the recession -- Americans are only saving around 5.8% of their disposable income. That might make 7.5% look optimistic, but saving steadily began to decline starting in the late 1980s. The average savings rate during the 1970s and 1980s was actually 9.1%. It sometimes drifted above 11% during the period.

Moreover, it's important to remember that we're talking about the top 64% of wage earners. They can save more easily than the other bottom 36%. So the average savings rate is likely higher for Americans who can afford to buy a home than for the population on a whole. Perhaps even the two-decade average of 9.1% during the 1970s and 1980s underestimates this crowd's ability to save. If Americans are forced to save for bigger down payments to buy a home, then surely their saving rates will approach those levels. A rate of 10% would not be surprising.

Other options

Finally, this analysis assumes that all banks will require 20% down on all mortgages, which is highly unlikely. For starters, the Federal Housing Authority isn't going anywhere. It will continue to provide somewhere around 15% of new home buyers lower down payment mortgages. This shaves off about another 10% of borrowers, which means only the top 54% of wage earners would face 20% down payments, at most.

Moreover, private banks will almost certainly accept some loans with lower down payments -- even without a government backing. They did so voluntarily, even before the subprime craze. Not all loans with lower down payments were backed by the government over the past few decades, so even without such guarantees some institutions will offer lower down payment alternatives.

This could very well turn out to be an area where smaller, community banks thrive. If they understand their customers better than giant megabanks, then they might be able to profitably sell lower down payment loans that they know are safe. They also won't be as worried about any regulatory burden placed on down payments associated with securitization, if they hold all their loans in-house.

Solutions

Finally, there are also a number of solutions that could be thought reduce the burden of 20% down payments, without relying on federal mortgage guarantees. One possibility would be to provide tax-free savings plans to encourage saving and make it accumulate more quickly. New mortgage products could also be adopted that make lower down payment mortgages more attractive to banks. Another strategy could be for the U.S. to adopt monetary policy that allows for higher interest rates, so savings can grow more quickly, increasing consumers' desire to save.

Getting to 20% in Under Six Years

So let's imagine a different calculation utilizing some new assumptions:

• Median 2009 Home Price: $172,000 (same)
• 20% Down Payment (plus closing costs): $43,025 (same)
• 2009 68th Percentile Income*: ~$75,000
• Effective Tax Rate: N/A (if a tax-free savings plan is adopted) or 25%
• Savings Rate: 10.0%
• Monthly Saving Amount: $625 or $469

Under these assumptions, it would take under six years to accumulate 20%, if a tax-free savings plan is adopted. That means many people could reasonably own a home by the time they're 30 years old, if so inclined. If you take away the tax-free savings plan and assume a 25% tax rate, then the savings would still be there to support a 20% down payment in under eight years.

As you can see, these exercises are all about the assumptions you make. This alternate calculation implies that putting a 20% down payment standard in place might not be very burdensome to home ownership after all.

http://www.theatlantic.com/business/...ce=patrick.net

[LorenS]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

People are marrying less, moving more and having fewer children. The value of home ownership vs renting is likewise falling for many people.

I agree getting a 20% downpayment will be difficult, but with 20% down required and less debt based financing house prices will be consequently LOWER and easier to afford. The downpayment requirement will maybe keep you out of a house a bit longer, but it will save you loads of money in interest payments over the years.

This isn't even a sky falling event for Realtors(tm). People will still move, people will still need to sell and buy housing. Realtors(tm) will still get their commission.

[flintlock]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

20% down might actually lead to people only buying homes they can afford! Gasp! Some seem to think you should own a $300,000 home by the time you are 21. People have definitely lost the ability to defer gratification these days. Its quite common that I visit homes of 20 somethings that are far nicer than I grew up in. (And my Dad was a home builder so we lived in nicer than average homes!) In the garage I usually see two brand new cars with prestige plates. Nothing less than an Acura will do you know. Several flat screen TVs, Apple computers, and all brand new furniture. Now some of these kids can afford it, and some can't. But almost all of it is bought on credit, regardless, I'd imagine. So the idea of actually accumulating cash is quite foreign to many. Its just become the "norm". I blame their baby boomer parents, not these young adults, who have never known anything but good times and conspicuous consumption.

[don]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

Apologies for pulling out this chestnut but when my parents decided to buy their first house, my Mom took a job on the swing shift at Autolite, banking her check every week for the down payment. My Dad's business paid the bills. The no down/low down is a FIRE trick and little else. Why let the sheeple know how little they're being compensated? Who'd allow that

[lektrode]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

Apologies for pulling out this chestnut but when my parents decided to buy their first house, my Mom took a job on the swing shift at Autolite, banking her check every week for the down payment. My Dad's business paid the bills. The no down/low down is a FIRE trick and little else. Why let the sheeple know how little they're being compensated? Who'd allow that

thats perty much the way my parents bought their ONLY house (the weekend place in NH, they never owned the 'primary' res in MA) - cept my ole man had to borrow money from the mob to fill-out the down pmt req'd as banks werent known for lending to the selfemployed in them daze (mid60's), even tho the cashflow was there, they insisted on something like 25% down (and he knew 'the guys' from a side job he had at wonderland in revere... ;)

imagine: 500bux for a 1/4ac and 10k to build a 1000sqft house in one of the most desireable 'hoods in NH

oh yeah, those were the days - today they paying 300k or so for not much more.

[zoog]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

“In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream.”

Maybe owning a home is slipping out of the American dream, eh?

At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department.

http://realestate.yahoo.com/promo/ho...-40-years.html

[Milton Kuo]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

One other thing the Atlantic article and the various housing shilling groups conveniently neglect is that with higher down payment requirements, housing prices will fall thus lowering the amount of time necessary to accumulate a 20% down payment.

[don]

Re: Qualified Residential Mortgage (QRM) Labeled Bad ... Very Baaad

One other thing the Atlantic article and the various housing shilling groups conveniently neglect is that with higher down payment requirements, housing prices will fall thus lowering the amount of time necessary to accumulate a 20% down payment.

A significant mandatory down is nothing but a loss for FIRE, hence the propaganda campaign against sheeple fiscal sanity.

(No mortgage insurance! The horror . . . the horror)