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The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.
When asked how non-QM status would impact mortgage rates, respondents indicated that mortgage rates would rise for all non-QM borrowers, but that the rate increase would vary based on credit quality. One third of respondents indicated that rates for borrowers with non-QM loans and FICO scores between 640 and 720 as well as those with scores greater than 720 would face rate increases of 50 to 75 basis points, but the distribution of respondents suggested better pricing for prime borrowers as compared to near prime. However, 50% of respondents indicated that borrowers with FICO scores of 640 and below would face rate increases of 150 basis points or more and no respondents indicate the rate increase would be less than 50 to 75 basis points. A significant share indicated that they did not know how much rates would rise for the various degrees of credit quality, but no respondent indicated that rates would not rise for non-QM borrowers.
What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers. However, if your client falls into the other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.