patrick.net

Perfect. The stricter, the better. People have no business buying a house they can't put 20% down on anyways, and why would you lend to someone who has shaky credit history?

StoutFiles says

[...] and why would you lend to someone who has shaky credit history?

I particularly liked how the QRM requirements addressed this issue. Hopefully this will help to keep deadbeats priced out of the housing market for the foreseeable future.

I like the criteria too. But... the charts are measuring mortgages, not home purchases. Many of these mortgages are refi's. What I suspect you're seeing is that only people with equity can get a refinance now. During the boom, lenders would refinance 100% or more of the home value.

Good point, payoff. I guess that would affect overall proportions. I was also wondering about that jump in 'QRM-like' mortgages in 2008/2009. Any idea what the ratio of refi's to new mortgages was over this period? I tried to find a figure or chart that showed this info, but no luck.

This is how QRMs compare to mortgages originated in the past:

LOL! this is exactly my first mortgage back in 1991..

back then additionally requirements included..
5 professional references,
uninterupted employment for 5 years,
and a pint of blood.

These stricter standards most certainly have the potential suppress future housing demand.

there will be a new reality and prices will restrest more inline with incomes... welcome to the 90s.

thomas.wong1986 says

and a pint of blood.

Well you have to give the vampires...er, bankers their due, right?

These stricter standards most certainly have the potential suppress future housing demand.

Yes, this is something that every potential home buyer should be watching.

That, and the discussion of capping the mortgage interest deduction, which could significantly impact high end markets like coastal CA.

However you look at it though, the likely changes are decidedly not bullish for housing prices 5+ years out, especially in markets where rent/buy ratios are still way out of whack.

Interesting that even though 90% of loans were GSE loans 2009, only 30% of loans would qualify under this QRM standard.

MarkInSF says

That, and the discussion of capping the mortgage interest deduction, which could significantly impact high end markets like coastal CA.

However you look at it though, the likely changes are decidedly not bullish for housing prices 5+ years out, especially in markets where rent/buy ratios are still way out of whack.

Agreed. I am also curious how shifting demographics (boomers retiring) are going to impact high end markets, particularly those of coastal CA and in the Bay Area over the next 5-10 years. There will be some increased demand from (a shrinking pool of) richish people wanting to retire to the coastal areas, but there will also be increasing supply of sfh's as older natives try to cash out and move elsewhere where the cost-of-living is cheaper.

Seems like a potential mismatch brewing for those with the equity/dough to easily buy in these markets: will the incoming boomer retirees want to buy what the outgoing boomer retirees want to sell?

And to what degree will the debt-laden GenX and GenY crowd will be able to buy in (if currently high house price-to-'effective income' ratios hold) if they are bound by stricter lending standards?

StoutFiles says

People have no business buying a house they can’t put 20% down on anyways

Why do we worship the 20% downpayment? I'm neither for nor against, but why is 20 the magic number? Why not 15% or 25% or, better, However-Much%-to-Avoid-PMI? There typically is an opportunity cost for paying too much cash for a house. Especially now with rock bottom interest rates and A-cup inflation.

QRM or whatever, isn't that the way it supposed to be?

This sounds like just a definition of what they called QRM which is the same ol' traditional 30yr fixed loan w/ 20% down. What about 15yr loan w/ 30% down? Is it not QRM? Why people have to take QRM rather than other loans? Any new incentive? What's the fuss?

thomas.wong1986 says

This is how QRMs compare to mortgages originated in the past:and a pint of blood.

One of the strictest requirements I ever heard of was back in the late 60's one of my mother's teacher friends and her husband applied for a mortgage. One of the requirements was that they both had to take physicals. It was lucky they did because the lady was found to have cancer, but it was in such an early stage that it was able to be cured. They got their home and she lived into her early 90's.

Philistine says

Why do we worship the 20% downpayment? I’m neither for nor against, but why is 20 the magic number?

Dunno... I also don't know why 5% is the magic number for risk retention by the loan originator. Perhaps this is part of the new standard because 20% worked reasonably well in the past:

seaside says

This sounds like just a definition of what they called QRM which is the same ol’ traditional 30yr fixed loan w/ 20% down.

seaside says

What about 15yr loan w/ 30% down? Is it not QRM?

Looks like the answer is no. Not that this seems like a riskier mortgage that a QRM, mind you. I think they are trying to set a single risk standard from which all other mortgages can be priced. Bear in mind this pricing goes both ways, for the homebuyer AND for the purchaser of the note on the secondary market.

seaside says

Why people have to take QRM rather than other loans? Any new incentive?

I don't think people will be 'forced' to take a QRM. They will choose to because the interest rates for a QRM will likely be lower than for *most* other non-QRMs. As your 30% down/15yr example indicated, there will likely be some non-QRMs that carry lower risk than a QRM. However, people (commonly) pick a mortgage based on their monthly income AND savings so those mortgages with a lower monthly payment AND downpayment (like a 20% down/30 yr vs a 30% down/15yr) will continue to be popular.

seaside says

What’s the fuss?

As a standard, the QRM requirements have the potential to affect the ability to originate and sell other loans. For example, if someone who wishes to buy a house with 10% down, they cannot qualify for a QRM. They will be forced to apply for a non-QRM type loan, which *should* be a product that balances out the risk of loaning to a less qualified buyer with higher interest rates. After all the originating bank MUST take on some of the risk (5%) when writing a non-QRM. Not much, but it adds up if you process lots of loans... so there will be FAR less incentive for banks to generate 'exotic' mortgage products to service underqualified buyers.

Thus, if this person has little equity, and an income level below that which qualifies them for a non-QRM loan product, they will be priced out of the housing market until they either save or earn more $.

ULTIMATELY, the QRM standard system has the potential to reduce housing demand by removing underqualified/marginally qualified buyers from the housing market. Essentially, this is the opposite lending environment relative to the zero-down, interest-only, no-doc, pick-a-pay, etc. garbage mortgage market that was present during the boom.