We research, you save.
Got Questions On Rates? (855) 610-2972
June 23rd, 2011 (Modified on June 26th, 2011)

Elected officials seek weakened lending standards

by Peter Miller


Housing Market Trending DownAre tighter mortgage standards causing a slow-down in real estate sales?

That’s the essential claim made by the National Association of Realtors earlier this week. The NAR says that May’s existing-home sales were down 15.3 percent when compared with a year ago and part of the reason is that lenders are requiring more of borrowers:

“Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards,” [NAR’s chief economist, Lawrence Yun] said. “There’s been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction–this overreaction is clearly holding back the recovery.”

Have lenders overreacted?

To which one must ask: What overreaction?

The standards which lead to the financial meltdown were not just loose, they were so sloppy that large numbers of mortgage investors are yelling foul and demanding their money back. Claims by pension funds and insurance companies worth billions of dollars are now in court and more are sure to follow.

Does anyone really want to return to the loan standards of the recent past?

Prior to the meltdown, lenders were offering “non-traditional” mortgage products and “affordability” loans, toxic mortgages that failed in large numbers. Do we really need another bout of such dangerous lending?

Elected officials seeking looser lending standards

There is now an effort to return to the good old days of the recent past, and, no surprise, a lot of our elected officials are signing up to support their good friends in the financial community.

A letter from more than 150 members of Congress tells federal regulators that “we strongly urge you in this process to consider lower down payment loans that have mortgage insurance (MI) as constituting a QRM.”

Are lower down payments necessary for QRMs?

You have to wonder why lower down payments are necessary for qualified residential mortgages, or QRMs.

For instance, an FHA-insured loan only requires 3.5 percent down. VA loans are available with zero down. Loans sold to Fannie Mae and Freddie Mac can be had with 5 percent down. Loans which lenders keep in their portfolio can surely be had with 5 percent down or less. All are within the QRM definition.

Letter seeks to expand the definition of a QRM

The congressional letter seeks to expand the definition of a QRM to include a bunch of iffy loan products, mortgages which are not FHA, VA or conventional financing, loans which under the new rules would require 20 percent down because they represent high risk to borrowers.

According to the congressional letter, “An unnecessarily strict QRM definition would particularly harm first-time and minority homebuyers.”

How so? FHA, VA and conventional financing are readily available under the current QRM definition.

The congressional signers are concerned, adds the letter, “that the proposed regulation establishes overly-narrow debt-to- income guidelines last seen more than a generation ago that would further reduce access to credit for a broad range of Americans.”

Overly-narrow to whom?

How many foreclosures did we have a generation ago?

Just how many foreclosures did we have a generation ago? Would you rather have the real estate market of a generation ago or the market we have today?

The letter closes by telling federal regulators in a not-so-subtle way that “we urge you to revise the proposed rule to reflect the intent of Congress by including prudently underwritten privately insured loans within the QRM definition.”

Actually, the intent of Congress was spelled out with Wall Street reform. It’s not as though the legislation was not debated or that that all sides were not heard. The purpose of the congressional letter is to undo the intent of Congress, to provide fewer protections for borrowers and investors, and to generate more fees and executive bonuses.

Leave a Comment

Receive Updates via Email

Delivered by FeedBurner

About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

Connect With Us

  • rss feed icon
  • facebook icon
  • twitter icon

Compare Lowest Mortgage Rates