WASHINGTON – Jan. 8, 2014 – A new qualified mortgage (QM) rule goes into effect on Friday, and a few observers predict a real estate slowdown as banks make it more difficult to get a mortgage. Some even predict dire consequences, such as a loss of half the home market.
But others disagree.
Some, in fact, suggest that mortgage approvals have been so challenging over the past few years that the new rules will allow some lenders to ease up a bit and approve even more buyers for a mortgage under the Consumer Financial Protection Bureau’s (CFPB) QM rule. Even if stricter, the rules bring clarity to lenders, and that understanding could entice more lenders to relax current standards.
For now, however, it’s too early to tell what will happen, with a lot depending on the way lenders interpret the new rules as they move forward.
“Realtors® will be on the front lines as homebuyers access safer mortgages that meet strong underwriting standards,” CFPB Director Richard Cordray said yesterday at an event held by the National Association of Realtors (NAR).
“These regulations will go a long way to protecting consumers from receiving loans that may be inappropriate for them and gives them additional legal protections,” said NAR President-elect Chris Polychron. “NAR supports these changes and has provided input throughout the rulemaking process.”
Cordray acknowledged concerns that the new rules could further constrain credit in an already tight lending environment.
The rule includes a 3 percent cap on points and fees, which NAR believes unfairly discriminates against affiliated lenders who have to count many more items toward fees and points than large retail financial institutions, such as title insurance charges and escrow for homeowner’s insurance.
“The problem is that under this rule, affiliated and non-affiliated firms are treated differently,” said Polychron. “It’s NAR’s view that this would be a disadvantage to many real estate affiliated lenders and reduce the choices available to consumers of where they can get a mortgage, and because the unaffiliated lender must still use a title company, the consumer pays the same amount either way.”
Cordray said that Congress drew a line on points and fees, but that going forward, regulators, consumers and Realtors can observe the market and evaluate the cap’s impact on access to credit.
NAR says it will continue to monitor the rule’s impact on consumers, including the new protections, and will work closely with CFPB and others to ensure that consumers have access to affordable mortgage credit.
© 2014 Florida Realtors®