There are a few things to be aware of regarding changes which will occur regarding home loans in next calendar year. On January 10, 2014 the new QRM (Qualified Residential M) rules go into effect. There are rules limiting fees which may make it difficult to get a home loan for less that $150,000. Fees and points cannot exceed 3% of the loan amount.
There will no longer be loans with 40-year amortization terms.
The maximum debt ratio (housing expense + other debt)/(Gross monthly income) will be 43%. It is presently 44.99% for FNMA and 49.99% for FHLMC.
Rules about underwriting debt are not yet clarified. Whatever happens will make it more difficult to get a home loan.
CFPB has defined QRM's as a safe harbor meaning that as long as the lender follows the QRM rules then they cannot be asked to buy the loan back and they call sell 100% of the loan.. Lenders can still make whatever loans they want but will have no safe harbor for loans which do not follow the QRM guidelines.
I think that the result of this will be to eliminate some potential buyers and restrain home prices.
There will probably be some bizarre things said by politicians once these rules take effect. They will question why the housing industry is being hurt as it struggles to recover. In addition we may hear about "disparate impact."
Advocacy groups may complain that lenders are using rules which have a greater effect on one particular ethnic group even though the rules were put in place by the government. It may be claimed that lenders must make non-QRM loans if they want to avoid disparate impact lawsuits. CFBP may be requiring lenders to follow rules which some other part of the government may sue them for following.
Recently, FHFA has made it clear that they intend to lower the comforting loan limits. The conforming loan limit for a given year is supposed to be based on a multiple of the average home price in October of the previous year. Once the housing bubble had burst the comforting loan limit has been held at $417,000 even though, by traditional methods, it should have been lowered. Best guess is that before the middle of 2014 the traditional single family limit of $417,000 will be lowered to $400,000 and the high balance maximum will be lowered from $625,500 to $600,000. In addition FHFA will likely increase once again the guarantee fees essentially adding another 0.125% to rates which will be streamed into accounts to offset any future losses.
In the long run there may be a move to get the taxpayer out of the business of guaranteeing mortgages other than VA and FHA. This might result is an increase in rates of about 0.375%. While this does not help me as someone who does well when rates are low I think that this should be part of a bigger plan for downsizing government so as to achieve fiscal sustainability.
In addition, flood insurance rate have increased substantially. This will have the effect of decreasing the value of many properties in flood zones. Congress legislated these increases because there were large shortfalls (about $25 billion) in the flood insurance program. While one can ask "why should the taxpayer support flood insurance premiums which do not truly reflect the risk" it is simply bad policy to mandate enormous sudden increases. If higher premiums are needed it would be better to phase them in over time so as not to decimate property values in some costal areas. It would be sad if folks lost home due to flood insurance premiums instead of floods.
Comments