Written By: Bonnie Wilt-Hild
As if there are not enough acronyms in the mortgage industry, the federal government has moved forward in coining a new one, QRM, this being the acronym for the newly defined Qualified Residential Mortgage. Ok, I know that everyone is thinking that all mortgages are QRM’s if they meet guidelines but in this case, the guidelines or standards which will eventually define what a QRM or “Safe” mortgage is, will differ vastly from what defined a qualifying mortgage of the past.
With housing reform at the top of every legislators agenda these days, Washington has become over run these days with politicians who can’t wait to put their two cents in where housing reform is concerned, and unfortunately most of them wouldn’t know a mortgage if they tripped over it. Albeit, there have been a few useful suggestions as well a legislative changes that will ultimately impact lending policy and the housing market as we know it in a positive manner, however based on the more recent information put out there for public comment, I have a feeling that a safe mortgage will ultimately imply that it is safer to assume most American’s will never qualify for one.
Several federal agencies have joined together in order to implement across the board chances to national lending policy with the hope of ultimately creating what has been termed as a QRM or “safe” mortgage. Congress at this point has not defined exactly what a “safe” mortgage should look like, but has requested that the agencies consider all matter of underwriting practice and overall risk assessment when considering what will ultimately fit the bill.
Some of the suggestion to date include things like strict mandatory debt to income limits not to exceed 28/36 (compensating factors are not applicable to safe mortgages, apparently, neither is common sense), maximum LTV for a rate term refinance transaction a whopping 75%, so if you are looking to reduce your interest rate and obtain a lower monthly payment, and improve you overall long term financial position, you will need 25% equity in your home and if you need to tap the cash equity of your most prized asset to say put your kid through college, you are going to need 30% equity remaining in your home before you can pull that one off. As far as credit standards go, pristine is the word of the day so if you are like me and find credit scoring not only useless but as annoying as automated underwriting, your life is about to get more difficult as will the lives of many borrowers who will now find that they may never qualify for a safe mortgage. The only bright side is that in 15 years, the federal government will be so busy reforming rent control, the will leave the mortgage industry alone.
In the end everyone, we will still have the FHA and VA programs available to us, and hopefully the other federal agencies will leave those agencies alone, kind of if it’s not broken don’t fix it. Additionally, as long as FNMA and FHLMC stay under the conservatorship of the federal government, business with these agencies will still be something we can identify that will prove useful for the average American. In closing I would like to mention that just a couple of weeks ago I had said to a co worker that I thought all loans should be FHA or VA loans and if the regulations for a “Safe” mortgage are implemented, I might just get my wish!. Happy underwriting all….
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
