Changes in Mortgage Rules Ensure Universal Home Buying Capabilities

17 Nov Changes in Mortgage Rules Ensure Universal Home Buying Capabilities

When it comes to buying a home, financing is often one of the biggest hurdles home buyers face. Following the housing market crash in 2008, the government and lending institutions tightened their restrictions on home buyers in order to weed out those who had not financially planned to purchase a home. As a result of these overly cautious policies, many worthy candidates were in danger of not being approved by lending institutions, however measures from the new changes to the QRM mortgage rule could make lending more universal, allowing more families to finance the home of their dreams.

The Federal Deposit Insurance Corporation became the first of six financial regulators to release the final version of the qualified residential mortgage (QRM) rule, which was established as an offshoot of the 2010 banking reform bill enacted after the financial crisis.

Institutions such as the National Association of REALTORS® had long been anticipating the updates to this rule as a solution to the tight lending restrictions that had left out many home buyers over the last few years. When it comes to regulation, NAR requested that the rule be broad rather than overly prescriptive, with factors such as a required minimum down payment left out of the bill.

It seems the agencies in charge of drafting the rule were under a similar understanding as the new rule has lowered the risk for lending institutions, allowing them to take on more borrowers.

“NAR applauds the Federal Deposit Insurance Corporation for finalizing the Qualified Residential Mortgage rule today, which includes a broad definition of QRM and aligns with the Qualified Mortgage standard implemented earlier this year,” NAR President Steve Brown says.

QRM Rule Provisions

The new QRM rule provides a set of requirements a loan must meet in order for it to be a safe loan and suitable for the lending institution to take on. The rule allows the loan to be sold to investors as part of a mortgage-backed security so that the lender does not have to retain the 5 percent of the loan amount on its books. This reduces both the cost and the risk-retention requirement, enabling the lender to take on more loans at a variety of different down payments, or no down payment at all.

While many industry professionals had been calling for a onerous down payment requirement to qualify as a QRM loan, NAR stood strongly against the notion. In the end, the commission again took heed to NAR’s recommendations, removing any trace of a required down payment amount.

“Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous down payment requirement to qualify as a QRM loan,” Brown says. “NAR strongly opposed earlier versions of the rule that included 20 and 30 percent down payment requirements, which would have denied millions of Americans access to the lowest cost and safest mortgages.”

Under these new regulations, home buying should become more universal for all Americans looking to buy a home, without becoming the overwhelming crisis the country experienced a few years ago.