Will Bureaucrats Prevent You From Buying a Home?

What Does This Mean For Me?

If the mortgage rules take effect as proposed, only 15 to 20% of new homebuyers would get a “qualified” mortgage, according to the National Association of Realtors. That means securitizers could bundle and sell only 95% of the remaining loans to investors; securitizers would have to keep the rest on their own books. That would increase their insurance and capital costs, restrict how many loans they’re able to buy and bundle, which would limit the number of mortgages that lenders could sell.

The result: 75% to 80% of new mortgages would become more expensive, according to research by the National Association of Realtors.

Qualified loans “will constitute the lowest-cost credit that’ll be available in the marketplace,” Corso says. The rules “will govern who will have access to that low-cost credit and who will have to settle for something else.”

The rules would probably increase the average loan’s interest rate by 80 to 185 basis points, the Realtors’ association found. That translates to tacking between .8% and 1.85% extra onto the average loan’s interest rate.

The average interest rate on a new mortgage right now is about 5%. If the rules take effect as proposed, that average could rise to just shy of 7%.

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Over the life of a 30-year mortgage, that would cost the buyer of a median-priced house an extra $3,200.

“Non-qualifying loans would be more expensive,” Mechem says. “And if you make that bucket of non-qualifying loans too big, you increase the number of people who can’t get loans, and it could price them out of the market.”

The end result, according to many industry and consumer groups, would be to wrongly classify perfectly safe, credit-worthy borrowers as riskier than they really are.

“A 20% down payment could exclude many consumers who have paid their bills on time, but all of a sudden they find this artificial barrier,” Corso says. That’s because people who can’t afford to put 20% down would find themselves saddled with a higher interest rate, or forced to wait until they can eventually save up the 20%.

What Happens Now?

People and institutions had until August 1 to submit comments about the proposed rule. After that, the six federal regulatory agencies will take a number of months to digest the comments and come up with a final proposed rule. With such strong rebukes coming in from Congress, and with lobbying from a coalition of groups that are steadfast foes under normal circumstances (there’s no love lost between the American Bankers’ Association and the Center for Responsible Lending, for example), it seems likely that the regulators will soften their position.

“That’s one of the things that works in Washington,” Mechem says. “When you have non-traditional allies like bankers to consumer advocates saying the same thing, it helps a lot to make that argument.”

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