The Quality Residential Mortgage rule of the Dodd-Frank bill required 20 percent of borrower's mortgage in a down payment caused quite bit of backlash among lenders two years ago. Most mortgage originators worried that such a high requirement would keep many worthy borrowers from obtaining loans, and keeping the housing market from fully recovering. With the Consumer Financial Protection Bureau's recent proposal that there would be no requirement, it is still vital that originators lend to qualified borrowers so the original rule isn't needed in the future.
Mortgage News Daily found that a number of industry experts were pleased with the new rule, many explaining the importance of loosening standards since so many banks are still lending at more cautious rates than necessary.
The new requirements, which will be in effect next year, will include limits on the lengths of the terms of loans as well as point and fees caps. However, it will still be very much up to originators to determine if a borrower is qualified, further emphasizing the importance of risk management software.
The Basel Committee on Banking Supervision had a similar idea when the capital requirements announced last week were lower than what most expected. In a similar way, the reduction of requirements, created to help the financial sector recover, could still cause reckless lending.
Once these softened rules – not only with the QM proposal but with recent Basel III requirements as well – are in place, global financial institutions need to remember it is still necessary to keep delinquency and foreclosure rates down to prevent more stricter rules from appearing.