Market News February 12, 2013



The question that we have to take a look at when it comes to mortgaging is the Quality Residential Mortgage, QRM. Remember back last year we gave you the fact that the federal government, CFPB, The Consumer Federal Protection Bureau was taking a look at all mortgaging. And they said what really defined a quality residential mortgage? And different government reports either called it a quality residential mortgage or a qualified residential mortgage, QRM. There were four major considerations. One is what types of products would the mortgage industry be allowed to give? Second was what was going to be the borrower's ratio as far as monthly debt to gross income. And the borrower's ratio to monthly debt to monthly gross income. We talked about the front and the back end debt situations and how was that going to change. We talked aboutwhat was going to be the minimum down payment and what was going to be minimum FICO score. There were four major points – type of mortgage, front end and back end debt, the amount of down payment, and the FICO score. Those were the things that the federal government was going to look at to define a quality residential mortgage. Half of that has already been determined. Product type? CFPB came out some time in January, the middle of January, saying that, alright, we only want real strong conventional mortgages; no crazy negative amortization, no crazy balloon payment loans. The second piece, the monthly gross income vs. the monthly expense, those ratios. That front end ratio is going to stay at 28. They were more lenient than most people thought they were going to be. They originally said they thought the back end ratio should be 36 percent, but when the information came out, when the regulations came out, they said that could go to 43 percent with even some exceptions over that. So those first two pieces, product type and the borrower's ratios – front end and back end – they've already been decided. However, ladies and gentleman, the last two have not and those are the two most important. How much down payment is going to be demanded and what's going to be the minimum FICO score. This is from Bloomberg news. The six regulators drafting the separate QRM rule including the Department of Housing and Urban Development, The Office of Controller and This Currency, and The Securities and Exchange Commission must decide whether to include such a requirement – meaning a 20 percent down requirement, and whether to make it less than a 20 percent they originally proposed. Again, on a previous slide we showed what the original proposals were. They thought that if you were purchasing a home, you should put 20 percent down. I don't think it's going to come out as 20 percent. Most experts don't think it's going to come out at 20 percent. Most experts are kind of guessing it's going to be about 10 percent, but ladies and gentleman, that's going to be a minimum requirement needed. What we're saying here and the FICO score, no one's taking a guess what the minimum FICO score is going to be. But both of those issues are going to be settled over the next couple of months. The only thing I can tell you is what that's going to do is tighten lending standards a little bit. So if you have a buyer looking to buy a house right now, well what do we know? Well in most parts of the country, prices are going up. It seems that interest rates now are heading up north. And the requirements to getting a mortgage are going to become more stringent. If someone's looking to buy a house, I think they should move right now. I think they should jump on that right now. There's a better interest rate, a better price,probably a less expensive mortgage overall. And it will require less money down than it might in a couple of months from now. Again, we need to sit with our buyers and sellers and talk intelligently about what's about to take place in the market. When we're talking to buyers right now, QRM should be part of our conversation. COURTESY OF STEVE HARNEY, KEEPING MATTERS CURRENT