Will the QM Rule Last?

The Qualified Mortgage Rule went into effect Friday. By Tuesday The House Subcommittee on Financial Institutions and Consumer Credit had already held a hearing entitled, “How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.” The goal of the meeting was to take a closer look at the qualified mortgage (QM) rule and its potential effects on borrowers. I believe some unintended consequences are going to take place with the QM rule. Below are some quotes from different politicians and business leaders expressing their concerns:

“Individuals might be shut out of lending. Farmers, for example, without much credit, young farmers, who are trying to take over the family farm, may not receive a loan under QM,” said Jack Hartings, president and CEO of The People’s Bank Company, on behalf of the ICBA.

“Housing is making a recovery—though not as fast or as vigorously as we all hope,” said Bill Emerson, CEO of Quicken Loans and vice chairman of the MBA. “Housing starts are generally up. Sales prices have increased in many areas across the country, pulling many homeowners above water for the first time in years. I think when you look at low income areas, there will be a lot of people who will feel left out with the QM rule.”

Rep. Sean Duffy (R-WI) stated flatly, “I don’t think this rule serves communities well. In the past, we spoke out against predatory lending and now, with QM, we’re basically saying it’s okay, even though we said it was wrong.”

QMDuffy is making an interesting point. He is saying that lenders have to hike up fees to cover the cost of non QM loans because of insurance and legal fees. This has the unintended consequence of harming lower-income borrowers and keeping them out of the housing market.

Currently, approximately 10% of the mortgages being made are non QM loans. The 10% are mostly made up of jumbo loans, loans in high-cost areas that require higher ratios to qualify, and lower income areas that Mr. Duffy addresses. Basically, all the loans that should not have been made during the financial crisis are gone including stated income, no asset, option arms, interest only 100% financing, etc.

Will QM go away? I don’t know. But the unintended consequences could change the playing field around. If 10% of the mortgages being made are suddenly gone, what does that do to a fragile housing market? Like all of us, I don’t want to see another mortgage crisis. But I believe the issues have already been addressed and taken care of. The QM rule is just piling on. The pressure from the Banks and Credit Unions is already great. If the housing market remains fragile The Administration will need to do something to get it going. If they believe the 10% of mortgages being made under non QM will boost the economy and not have a harmful effect down the road, then the potential is there to end QM. We will see!

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