These new proposed rules are more than just guidelines, they have liability consequences for the lenders under the new Dodd-Frank. Qualified Mortgages are much more than just redefined Fannie Mae and Freddie Mac loans. If fact, I thought Qualified Mortgages were only going pertain to GSE loans. Qualified mortgages guidelines encompass loan products such as prime, sub-prime, government sponsored, private, jumbo and even seller financed second liens. Appraisals have been targeted too with special conditions for flipping. There have also been new rules defining compensation and fees, but these are not the confusing rules. However, lenders are hiring compliance experts to help interpret and conform to these new Qualified Mortgage rules.
What makes these rules so difficult to understand is that apply to so many different classes of mortgages. Also these rules impact lender responsibility/liability if they originate non-qualified mortgage. Some mortgages will have Safe Harbor protection and some will have less protected status. In addition Dodd-Frank rules will require the banks to retain (risk retention) 5% of all non-qualified mortgages, if fact these rules might even eliminate the secondary market for these types of loans.
To make it simple, I’m going try and put these complex rules in a very small table. The problem is that some mortgages can be in two categories. For example, private loans and private jumbo loans. A jumbo loan is a private loan above the GSE conforming limit, but a private loan can be within the GSE mortgage limits. When identifying the mortgage product I’ll try to be very specific to each type of loan.
| Mortgage | Qualified | Liability |
| Fannie or Freddie Loan | Yes, automatically | Lowest |
| Private conforming (probably very few if any) | Yes | Lowest |
| Jumbo | Yes, if they want sell them on the secondary market | Medium |
| Sub-prime | Yes, but all must be met | Medium |
| Non-Qualified | No, subject to 5% rule and probably no secondary market | High |
| Seller Financed second liens | Yes/No if you originate more than 3 per year | Medium? |
These are the rules in a very small and unsophisticated nut shell. The Fannie and Freddie loans will be further defined under a new set of guidelines called Qualified Residential Mortgages or QRM (aren’t they all residential mortgages?). When the QRM regulation is released in a few weeks it should have the down payment requirement. Anything requirement less than 20% means that it’s a soft rule and the tax payers could bailout the banks again in a future downturn.
Remember these regulations are not just about Debt to Income ratios or down payment requirements it’s the liability to the lender after the loan has been originated. The riskier the loan the higher the mortgage rates, however qualified mortgage rules still need to be followed. The result is that the borrower can’t get a GSE loan, they might have to get a qualified private mortgage but the amount they can borrow can with be reduced if lender wants to maintain the qualified status. Even though these loans will be private they still have to be full documented loans. Remember private mortgages won’t have the government guarantee, but they have meet the qualified mortgage standards.
In fact, some industry experts predict that due the borrowers legal ability to sue the lender under Dodd-Frank that no bank will originate non-qualified mortgages. In fact, some experts are predicting that banks will only originate GSE loans since they will have lowest liability. We will find out on January 10, 2014 when these rules are affective.
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Rental demand to grow by 6.6 million through 2016
By Christina Mlynski January 25, 2013 • 4:42pm
The demand for rental housing is expected grow by nearly 6.6 million units through 2016, with about 4.2 million new renters attributing to the total.
Many factors will play into the rental housing growth trend including more inventory going into rentals as well as an attractive single-family rental sector for large institutional grade investors – national providers that are present in multiple states and/or cities, said chief marketing officer Jim Warren of FirstService Residential Realty.
FirstService Residential Realty is the largest, residential single-family property management company in North America. The company manages residential, ranging from affordable housing to luxury multifamily communities.
As institutional grade investors make a comeback to the marketplace, leverage and securitization will naturally demand better operations as well as more structured operations.
Moody’s Investor Services released a report rating bonds in the real estate-owned to rental space on a less than satisfactory level due to the a lack of third party operations available and warns that the asset class may pose risk not typically found in traditional multifamily and single-family securitizations.
“I think the leverage is about to come — you’re going to see a lot more deals done this year — but securitization is the accelerant that is under that and I think that’s the other growth within the property management side,” Warren said.
Warren also noted institutional investors are focused on markets that have “low hanging fruit right outside the gate” — states that experienced severe downturn during the housing crisis, but are moving firmly up the ranks such as Arizona, Florida, Las Vegas and Nevada.
“You’re going to see more investor activity bringing product to market and inventory going to market for tenants in the easier-to-do business markets then you will in the more challenging markets,” Warren stated.
Another factor contributing to rental demand is shadow inventory and the decline in homeownership.
Barclays similarly noted in a report that homeownership fell from 69% to 65% as well as adjusted for shadow inventory to 61%.
In addition to shadow inventory, vacant homes are also a big factor in increasing rental demand, given there’s roughly 13.5 million vacant homes just on the market, according to Warren.
As a result, rent rates are expected to increase over the next two to three years, roughly between 2% and 4%, nationally.
“Just the natural fact that the property managers and the investors are going to get organic revenue growth because of market conditions makes it very attractive too,” Warren said.
Renting has also become a more attractive option and will continue to be a trend due to lack of consumer confidence and available credit to buy.
As a result, it’s become less of an option for many to participate in homeownership.
“Homes used to be your retirement savings plan and our father’s, our parents, they all pushed us and said ‘you’ve to own your own home, pay for it and get it paid for before you retire.’ I think everyone’s seen their parents take a massive hit in that asset and I think culturally, our generation looks at that and goes ‘that’s not my retirement plan anymore,’” Warren said.
cmlynski@housingwire.com
Freddie Mac monthly purchases drop by nearly half
By Christina Mlynski January 25, 2013 • 3:37pm
Freddie Mac bought $33.6 billion worth of mortgages and mortgage-related securities in November, down almost 50% from $62.5 billion purchases in November.
The government-sponsored enterprise saw its mortgage portfolio decrease at an annualized rate of roughly 13% in December, according to its monthly volume summary report. The ongoing reduction shows Freddie Mac gradually decreasing its presence in the mortgage finance space, which is in line with housing officials goal to shrink the GSEs’ share of the mortgage finance market.
The agency modified 6,288 loans in December, compared to 6,622 loans in November. The total number of loans modified for the twelve months ending in December accounted for 69,581.
The unpaid principal balance of Freddie’s mortgage-related investment portfolio decreased by $5.6 billion in December.
Freddie Mac’s mortgage-related securities and other guarantee commitments decreased at an annualized rate of 12.6%, compared to an increase of 7.7% in November.
The seriously delinquent single-family loan rate remained flat at 3.25%, while the multifamily delinquency rate decreased from 0.24% in November to 0.19% in December.
The measure of the agency’s exposure to changes in portfolio market value averaged $363 million, with a duration gap average of zero months.
cmlynski@housingwire.com
Home Ownership matters??? the new NAR TV ad. I saw this creepy ad stuck in the middle of a Star Trek TNG episode rerun on BBCAM. (BBC America)
Jaw droppingly false pontifications about what owning a loan is supposed to do for your community, career and children. At the same time the glib announcer ghosts fearful negative images of those who don’t rent money for a building and are more able to move to where the next career opportunity might be.
I’ve seen those commercials. They insult everyone’s intelligence. They make renters out to be subhuman doofs whose children don’t do well in school because they refuse to become debt slaves. Repugnant.
They sure do and it’s sadly typical that something so creepy and negative is produced for TV top dollar, I’ll wager, to come off light hearted, positive, even joyfully “down from the mountain” while killing off any and all shreds of truth and reality.
Us old guys who see though such lies must sound like we come from another planet to the unquestioning TV viewer.
Maybe not. This is a lot like those “caring HMO” ads. Is there anyone anywhere who believes a word of them?? –no, it’s just a way to get doctors to spend some of that loot, hahaha.
[...] feel pain in the jumbo market. The jumbo market is not supported by government-backed loans, and as Mike pointed out over the weekend, these loans are subject to new more stringent regulations regarding amortization, appraisal, and [...]
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