We often discuss the difference between the PRICE and the COST of a home. We want buyers to realize, in many ways, the cost of a home is more important to them than the actual price. Obviously, price is part of the cost equation. The other piece, available financing, is also crucial. Soon, there will be major decisions finalized by the government regarding house financing moving forward. These decisions could negatively impact many buyers.
“QM” is a new term which stands for qualified mortgage. The new Bureau of Consumer Financial Protection (CFPB) will be responsible for defining QM thereby setting the consumer guidelines banks and lending institutions must follow before issuing a mortgage.
Richard Cordray, the Director of CFPB, plans to finalize the definition this summer. The Center for Responsible Lending quotes American Banker on this timeline:
“The Consumer Financial Protection Bureau will issue a final rule by the end of June defining what constitutes a ‘qualified mortgage’ that will be exempt from new rules compelling lenders to verify borrowers' repayment ability.”
The fear of many is that the definition will be too ‘narrow’ resulting in many purchasers not being able to qualify for a mortgage under the QM definition. In a letter to Director Cordray, several industry organizations talk to this issue:
“Most economists and housing market analysts in government and in the private sector agree that today’s underwriting standards are tight and are contributing to a slow housing recovery. Our organizations believe that an unnecessarily narrow definition of QM that covers only a modest proportion of loan products and underwriting standards and serves only a small proportion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a sound mortgage market…
We are convinced that the choices around this important rule, including in large measure the breadth of the QM standard, will affect sustainable homeownership for generations to come.”
What Could This Mean To a Home Buyer?
If a buyer does not qualify under the new ‘QM’ rules, the cost of financing a home will increase. As the letter mentioned above states:
“A narrowly defined QM would put many of today’s loans and borrowers into the non-QM market, which means that lenders and investors will face a high risk of an ability to pay violation and even a steering violation. As a result of these increased risks, these loans are unlikely to be made. In the unlikely event they are made, they will be far costlier, burdening families least able to bear the expense.”
Securing a mortgage before these new guidelines take effect may make sense to many buyers.