Back on January 10th, the Qualified Mortgage (QM) rule was officially implemented into law to help protect consumers by strengthening underwriting standards. However, some have argued that the QM rule will actually raise costs and reduce access for consumers.
Initiated by the Dodd-Frank Act, the new QM rule requires that potential borrowers looking to secure mortgage loans be vetted by more restrictive standards than in the past. The rule is an attempt to put the weight of verifying a borrower’s ability to repay loans more on the shoulders of lenders in order to prevent another significant housing crash like the one seen in 2008.
Dodd-Frank states that QM’s are limited to fully amortizing mortgages only, where the borrower, their income, and their assets have been thoroughly vetted. Loans with interest-only terms—where immediate principal payments aren’t required—are prohibited under the new rule. The QM rule also placed a 3-percent cap on points and fees, and a potential borrower can only qualify if their total debt payments do not exceed 43-percent of their pretax income.
Maneuvering around the new QM regulations is not prohibited. However, if a lender decides to bypass the recently established provisions on a particular loan, they will be subject to legal liabilities if that said loan goes into default.
In order to try to understand the direct consequences of the new QM rule on the industry, the National Association of Realtors (NAR) recently sent out a survey to a panel of 53 different mortgage lenders nationwide. The association’s survey asked them numerous questions about the rule’s impact on their businesses and how it could in turn impact consumers.
Some specific results of NAR’s survey are highlighted below:
- When asked about the extent of the new QM rule’s impact, 55-percent of the respondents indicated that the QM rule would affect 2.6 to 20-percent of their originations.
- The 3-percent cap on points and fees was the feature that concerned respondents the most, as 60-percent indicated that they were “very concerned”.
- A strong majority of respondents indicated that they would defer to investors preferences on how to treat non-QM loans, but 45-percent said that they would not originate a non-QM mortgage at all.
- Roughly a fifth of the respondents didn’t know whether or not they would charge non-QM borrowers higher rates, but the most frequently cited change for prime and near-prime borrowers was an increase of 50 to 75-basis points and 150-basis points for sub-prime borrowers.
- 16.7-percent of the respondents indicated that they had already adapted to the new rule, while 44.4-percent said they would be ready within the next three months. Nearly a third of the respondents indicated that it would take another 3 to 6-months before they were fully adapted, but all would be ready within one year.
To see the full results of NAR’s survey, please visit their website.