The lengthy document now known as the Qualified Residential Mortgage (QRM) rule is expected to make significant changes to the lending process. On one end, as we covered a few weeks ago, are legal protections for borrowers with poorly documented and underwritten loans, essentially allowing them recourse when a property goes into foreclosure. On the other are guidelines, such as ARM lending standards, to prevent borrowers from ending up with mortgages they cannot afford.
Although these points are nearly solidified, the aspect still in negotiation before the final document is a down-payment rule for home loans. At the moment, the Department of Housing and Urban Development, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission are considering the requirement.
Originally, in 2011, 20 percent was proposed; lenders, as well, would have been required to better oversee and monitor such mortgages and those with lower down payments. At the time, bankers and consumer groups claimed this rule would prevent qualified borrowers from obtaining a mortgage.
Proposals of a down payment requirement have, so far, ranged from as low as five percent to the original 20 percent.
Should a down-payment rule be finalized, it and other QRM requirements would go into effect in January 2014. Other changes that will go into effect are legal safeguards for borrowers whose loans are no higher than 43 percent of their total income, points and fees totaling no higher than three percent of the loan, limits on the foreclosure process while the borrower is going through loan modifications, and warnings of interest increases added to bills.
Currently, down payments for conventional loans vary. Because of stricter lending standards since 2008, borrowers may be required to come up with a 20-percent down payment for a conventional loan. For government loans, on the other hand, borrowers may only be required to make a 3.5 percent down payment, such as for an FHA loan, or none at all, such as for a VA mortgage.