Roughly half of today’s mortgage originations do not meet the standards of the Consumer Financial Protection Bureau’s qualified mortgage rule, according to analysis by CoreLogic.
As CoreLogic explained in its February MarketPulse Report, 52 percent of today’s originations would not meet the eligibility requirements for a qualified mortgage.
QM Standards – Too Harsh?
Different aspects of the qualified mortgage rule, as HousingWire pointed out in its own analysis of CoreLogic’s report, will affect different parts of the U.S. mortgage market:
- The debt-to-income ratio ceiling, for instance, which tightens standards to a 43-percent level, would eliminate 24 percent of today’s loans from eligibility.
- Similarly, without GSE exemptions, 48 percent of today’s qualified originations would not be eligible.
- Also to keep in mind, CoreLogic notes, are the pending qualified residential mortgage regulations, which could mandate a minimum downpayment for all government-secured loans.
- The QM-QRM tag team, CoreLogic estimated, would render 60 percent of today’s originations as ineligible, leaving “just 40 percent of the market QM- and QRM-eligible without a GSE exception.”
The Upside of the QM Standards
However, it’s not all doom and gloom in the world of QM, and for one main reason – risk. Though less mortgages would be able to qualify for a mortgage, CoreLogic noted that 90 percent of the possible risk in today’s mortgage landscape would be eliminated, with the debt-to-income rules alone removing 36 percent of all serious delinquencies.
But in the end, such analysis is nothing more than pure speculation, because the QM rule is unlikely to have much impact on the mortgage markets in the foreseeable future. All government secured loans, which include loans backed by Fannie Mae, Freddie Mac, the FHA and the VA, are exempt from QM regulations for up to seven years; and considering that those entities guarantee roughly 9 out of every 10 new mortgages nowadays, that means the vast majority of today’s loans will remain outside of QM’s influence.
What is ironic, though, is what such a scenario does to GSE reform. The reforming of how Fannie and Freddie operate remains one of the main long-term goals of the Obama White House, but if private financing is beholden to QM standards – and government-secured financing is not – it could embolden the government’s role in mortgage financing that much more.