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Possible negative impact of “Qualified Residential Mortgage”

Chris Dodd - Co-Author

The Wall Street Reform and Consumer Protection Act of 2010 – aka The Dodd-Frank Act included a bit of somewhat obscure language about lenders leaving “skin in game” when they sell mortgages to investors. To sum it up it is a good idea but risky business.

The definition is being written and adjusted by the FDIC and we should know very soon what that definition is. On the “bad” side for first time home buyers, sellers who had to take cash to closing to pay the difference between their payoff and sales price, and buyers who make enough to live but not enough to say is that this could result in private loans all requiring 20% down. (This is not a set fact, just a possibility.)

The intent is to get the government out of the mortgage business by dwindling the holdings of Fannie Mae and Freddie Mac. With the goal of allowing private investor back into the game through the well practiced method of mortgage backed securities, a result of the securitization of pools of mortgages sold on Wall Street, the steps are precarious and the definition must be clear. The government is not always the best at being clear with definitions which causes a knee-jerk panic in the mortgage banking industry like the current brouhaha over how to compensate loan officers.

This short post is designed simply to give awareness to the reader there are, possibly, some major changes coming to the way lenders and banks make loans and to whom. Watch the video, Google “Qualified Residential Mortgage”.

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