In the early next year, the mortgage industry will come face to face with some new rules. Mortgage bankers and realtors are of the opinion that these new rules may even make it difficult for the borrowers to qualify for a home loan.
The regulators are planning to release two rules which might take effect in January. These rules will be mainly for setting standards for non-abusive lending. The rules will also require the banks to hold a slice of risky mortgages on their books. Mortgage credit is already quite tight. Federal Reserve and the U.S. Department of Housing and Urban Development have expressed their concern that qualified borrowers can't take advantage of the low rates due to Fed's quantitative easing strategy.
Rectifying the crisis…
Experts who are a part of the Obama's National Economic Council has said that the administration is still concerned with the mortgage market. They opined that though it is necessary to rectify what happened in 2005 but it should avoid any such steps which would lead to a stuck up.
It should also be noted here that the real estate market has been gaining steam in recent months. The home prices jumped 1.3% in the third quarter, the largest gain since 2006. But it is also true that about 28% of existing-home sales are all-cash transactions as investors snap up distressed inventory.
Unnecessary fear…
Most consumer advocates are of the opinion that the fear of the mortgage industry is overblown. They have opined that all the rules have come up as a reaction to the failure to regulate the mortgage market over the last decade. In the coming few months, regulators will start off with the implementation phase of the new rules which is actually a government response to the financial crisis of 2008. It is expected that these new rules will help prevent another housing bubble. The Consumer Financial Protection Bureau is updating the other regulators about its plans for the Qualified Mortgage rule. This rule will make it necessary for the lenders to determine the ability of the borrowers to pay off the loans. In case, the banks meet the standards for a non-abusive mortgage as per the rule, then they will be offered a legal protection.
Safe Mortgages…
Lenders are of the opinion that they will most likely make only the safest mortgages as defined by the rule which is now commonly known as the QM regulation. The CFPB has a deadline of Jan. 21, 2013 to implement this new rule. It has told the regulators that it is considering issuing a rule which might offer the strongest legal protections for loans to borrowers who spend less than 43% of their income to repay their debts. Again, this will include about 80% government backed loans.
It should be noted here that once the QM rule is set, regulators will come up with a second measure with a similar name - Qualified Residential Mortgage Rule which will require the lenders to retain stakes in risky mortgages when they pack them into securities.