Hello Everyone, A lot has changed in the past couple of years since I last sent out an update and yet in many respects nothing has changed at all. Housing issues contain to stymie our economic recovery (but housing is most definitely improving). Interest rates remain at incredibly low levels (but they too are up from recent lows). Most importantly (from my point of view anyway), regulation of the lending business continues unabated. Please allow me a brief sidebar before I get into my rant today. For those that know me this isnt necessary and most of you do know me. For those that dont (or who may have forgotten me) Im Blaine Bailey and Im an NMLS licensed residential mortgage loan originator. If you like what I have to say or at least find it interesting and informative, please pass it along to others. I do this to spread awareness of issues relevant to those of us who buy, sell, own, or intend to own residential real estate; and to the professionals that work in the related industries. My intent is to add value and by doing so earn your trust and referrals whenever you or someone you know needs a home loan. Now, on with the rant! I know many of you are wondering just what it could be thats ticked me off enough to get me off of (or sit on - to be more exact) my butt and send something out after a 2 year hiatus. Well, its this new term being floated around called a Qualified Mortgage. Actually, its not that new, it came about in 2009 or so as part of the Dodd-Frank Act and it goes into effect early next year. The bottom line goal of a Qualified Mortgage or QM for short is that it is a loan made to a borrower that is qualified to repay it! Wow, what a concept! What Rhodes Scholar came up with this idea? And to think those in Washington believe we need regulations or laws about this! Clearly, theres nothing wrong with the concept of a QM, but the rules behind QM and how it will affect housing are where the trouble lies. What bugs me most is that the geniuses we send to Washington DC to make laws forget that for over 65 years we made nothing but qualified mortgages. And guess what, todays home loans are being underwritten more stringently than at any time before in my 37+ years of being a lender. Damn, Im old. Heres the background for those too young to remember. FNMA and FHA were created in the mid 30s to draft uniform lending guidelines and standards (aka Qualified Mortgages). The need for these agencies came about due to the Great Depression which was caused by the popping of an economic bubble in the late 20s. We did fine using these FNMA, FHA and later FHLMC and VA guidelines up until about 2000 when we began inflating another bubble. Theres no denying that WE (and I mean all of us) lost our minds when it came to real estate and lending and securitization of loans and the creation of loans that anyone would have known could never be re-paid. Im not going to point blame at any one sector, though many do. But frankly, we all had a role in it and theres no good that can come from finding the fault. Lets find the solution. Unfortunately, that solution appears to be the Governments definition of a QM. Instead of going back to common sense and using what worked for decades theyve gone over the top. The long story short is that for a lender to make a QM and not be required to retain credit risk on that loan the borrower must make a 20% to 30% (thats being debated) down payment. The net effect of this will be that low down payment loans will be harder (if not impossible) to obtain and significantly higher in cost. Yet for decades weve proven that loans with 10%, 5% and even 3% down payments can be made to qualified borrowers without any negative side effects to housing or our economy. Unless you were living under a rock from around 2000 to 2009, you know that it was a housing bubble that nearly destroyed our economy when it popped. That bubble was fueled by no down payment loans. Loans made to borrowers with a proven unwillingness and/or inability to repay debt. Loans with teaser payments that where well below the amount required to repay the debt. Loans made to real estate investors and/or speculators who had little or none of their own capital at risk. Loans made to borrowers who were allowed (if not encouraged) to lie about their income in order to obtain the loan. Remember this insanity? The good news is, weve learned our lesson. Loans like that dont exist anymore. We are in an environment where only good loans (dare I say Qualified Mortgages) are being made. And this is without abiding by the proposed QM standard. Many of these borrowers are putting less than 20% down. Only now we are underwriting those loans so that we know they can afford their payment, and that they have a proven ability to repay debt! So in order to prevent or fix a problem that the market itself (a system far more efficient than Government) has resolved, our leaders want to put restrictions on lending that will all but force borrowers to put 20% down. By some estimates that puts 60% of the potential home buyers out of the market. Guess what that does to your home value and/or your livelihood? The bottom line is that I think this QM regulation is a bad idea (as if you had any doubt). My point here is to inform and perhaps persuade you to see this as I do. If you agree with me, heres where you do your part. The comment period on this regulation is open and we ALL need to let the regulators know what a bad idea this is. But we have to ACT NOW, the deadline is October 30th. All you have to do is go to regulations.gov. Once on the site, type Credit Risk Retention into the search bar. A copy of the proposed rule for each of the six agencies will appear in the results. You can click the Comment Now! button on the right to submit a comment to any or all of the agencies. Be courteous and polite, but let them know that this definition of QM is too restrictive and will negatively impact our economy and the ability of people to become home owners. The economy and the job you save from this action could be your own! Thanks for the read, have a great rest of the week and be on the lookout for more updates from me. Oh, and by the way, please send me a referral, I need the business! Sincerely, Blaine R. Bailey NMLS #183991 For All Your Mortgage Needs 404-402-7184 (mobile) [email protected]
Posted on: Wed, 30 Oct 2013 01:28:09 +0000
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