30 seconds on QRM: What you need to know

If you don’t know about QRMs — or don’t know enough — you need to. They’re going to be a central part of the mortgage market.

QRM: Qualifying residential mortgage. In other words, a mortgage that meets certain requirements. If it meets them, the U.S. government (through Fannie Mae and Freddie Mac) will be happy to buy that mortgage from the originator. If a mortgage is not a QRM (that is, if it doesn’t meet those requirements), then the originator will be required to hold onto 5% of the loan. That way, they won’t be able to pawn off risky loans onto taxpayers.

But what are the requirements to qualify? Answer: That hasn’t been decided yet. Regulators are still working it out.

The proposal that’s getting a lot of attention — and causing a lot of concern — would require (among other, less controversial things) a borrower make a 20% down payment in order for a loan to acquire QRM status.

Stop here. Keep in mind two things: 1) The “20% down” is just a proposal; and 2) Banks would still be able to lend money to anyone they chose, no matter what the down payment; they just wouldn’t be able to sell the loan to Fannie and Freddie unless they held onto 5% of it.

The idea is that Fannie and Freddie’s role in the secondary mortgage market would decrease in favor of private industry precisely because of such strict requirements. But it would also require that lenders who take a risk to assume the risk — and not pass it on to the goverment.

But it’s one thing to protect the taxpayers against risky bets by lenders. It’s another to make the QRM requirements so strict that loans become too hard to get or too expensive to afford. And that’s a big reason NAR is concerned about exactly what federal regulators will come up with.

To get the word out about the issue, NAR created a website explaining it all. Check it out.

(PS: Fun fact: “QRM” is the international ham amateur radio code for “Are you experiencing interference?”)

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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