U.S. Realtors and mortgage bankers say they hope President Barack Obama’s call for streamlined mortgage rules in his State of the Union speech will help them persuade regulators not to set a strict minimum down payment for home loans.
“Right now, overlapping regulations keep responsible young families from buying their first home,” Obama said Feb. 12. “What’s holding us back? Let’s streamline the process, and help our economy grow.”
The president was speaking broadly about a variety of rules that may be hampering credit availability, according to a White House aide who spoke on condition of anonymity because the deliberations weren’t public. Still, real estate agents, mortgage bankers and others who are angling for changes to a proposed regulation requiring lenders to keep a stake in risky loans say they will use Obama’s comments to help make their case.
At issue is the so-called qualified residential mortgage rule, which six banking regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are aiming to complete this year. The regulators drew protests in 2011 when they released a preliminary draft requiring lenders to keep a stake in mortgages with down payments of less than 20 percent and those issued to borrowers spending more than 36 percent of their income on debt.
Bankers and consumer groups said such a requirement would shut creditworthy borrowers out of the market. The rule will reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards.
Now, industry participants and some lawmakers are pressing for the regulators to align the QRM rule with a measure with a similar name that is also aimed at preventing risky home lending: the qualified mortgage, or QM, rule. That guidance, issued by the Consumer Financial Protection Bureau in January, offers legal protections to banks that issue loans to borrowers spending no more than 43 percent of their income on debt.
Housing industry participants want the regulators writing QRM to drop the down-payment requirement and raise borrowers’ allowable debt load to 43 percent, essentially setting the same requirements in both the QM and QRM rules.
“The industry, consumers, and legislators on Capitol Hill are all saying QRM should equal QM,” said Joe Ventrone, vice president for regulatory affairs at the National Association of Realtors. “A revised QRM definition should track the QM to ensure that all qualified borrowers have access to affordable and safe mortgage credit without a stringent down-payment requirement.”
The concept has drawn support from lawmakers. Senator Bob Corker, a Tennessee Republican, is drafting a bill that would merge the two rules. He’ll offer the measure only if regulators don’t act on their own, said Laura Herzog, Corker’s communications director.
Meanwhile, a bipartisan group of senators who drafted the language requiring the QRM rule in the 2010 Dodd-Frank Act wrote a letter to regulators yesterday urging them to drop a strict down-payment requirement.
“Our intent as the drafters of this provision was, and remains, clear: to incent the origination of well-underwritten mortgages with traditional terms,” Georgia Republican Johnny Isakson and Democrats Mary Landrieu of Louisiana and Kay Hagan of North Carolina said in the letter. “We intentionally omitted a specific down payment requirement and never contemplated the rigid 20 percent or 10 percent as discussed in the March 2011 notice of proposed rulemaking.”
It will probably be months before regulators, also including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, come out with the QRM rule. Still, officials testifying at a Senate hearing today said they would be open to the idea of aligning the two rules.
Making the two rules “congruent” should be “on the table,” Fed Governor Daniel Tarullo told the Senate Banking Committee.
“We want to be careful here about the incremental rulemaking not beginning to constrict credit to middle- and lower-middle-income people who might be priced out of the housing market,” he said.
Not everyone in the housing industry favors merging the two rules. Private mortgage insurers, which protect lenders against defaults on loans with down payments below 20 percent, stand to gain if the QRM rule allows its down-payment limit to be waived in some cases when the borrowers buy their coverage.