Why we fight: 39% of 2010’s home buyers didn’t meet QRM standards

Here’s a beautiful example of why we’re fighting tooth and nail to ensure reasonable lending standards.

According to HousingWire, which used CoreLogic’s data, 39% of homebuyers in 2010 put down less than 20% on their purchase. Meanwhile, the current proposal defining a Qualified Residential Mortgage — one that banks could sell to Fannie or Freddie — would require, among other things, a 20% down payment. Without it, the bank would have to hold onto the loan, making QRM essentially the minimum standard for borrowers.

So CoreLogic crunched the numbers, and found that, were QRM in place in 2010, 39% of buyers wouldn’t qualify. So you can bet that a vast majority of them wouldn’t have gotten a loan.

Can you imagine if 2010’s sales were 39% lower than they were?

Down payment is not an indicator of loan performance. The difference in foreclosures between people who put down 20% and those who put down 5%? About half a percent. In other words, nil. Smart underwriting makes solid loans, not down payment requirements.

Making the folks on Capitol Hill understand that is just one of the battles we’re fighting these days. (You can read a lot more in the upcoming issue of Commonwealth.)

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.
This entry was posted in The Buzz. Bookmark the permalink.

6 Responses to Why we fight: 39% of 2010’s home buyers didn’t meet QRM standards

  1. Jim Duncan says:

    Would a return to lower transactional volume necessarily be a bad result for homeowners and the overall economy?

  2. Tony Arko says:

    Interesting statistic you through into the post regarding foreclosures of loans with different down payment amounts. Can you please give me the source of that so I can research further? Who did the study? What time period? What loan amounts? Who paid for the study? Thanks.

  3. The down-payment info comes from NAR, through VP Steve Brown, at the mid-year convention. And I believe Ron Phipps also mentioned it during his ‘town hall’ Web meeting.

    In other words, I’m punting your question to NAR — its research folks will have all the answers.

  4. Tony Arko says:

    You make me laugh, Andrew Kantor.

  5. Tom Donegan says:

    This is the kind of stuff that makes my blood boil… when you have people who don’t know what their doing making decisions that have a dramatic impact on the market, our industry and people’s lives. Our industry is suffering from over-regulation and it seems like the regulators are just getting warmed up. Get ready for a rough ride!

  6. Melanie Thompson says:

    Amen, Tom! Even the head of HUD, David Stevens, testified before Congress last year that increasing the down payment on FHA loans would have no impact on lFHA oan performance. Now there’s another proposal from HUD regarding FHA down payment increasing from 3.5% to 5%.

    Sensible underwriting is the answer, not increasing down payments. Anyone facing financial hardship, be it long or short term, is better served having more cash in their bank account, not less.

Leave a Reply

Your email address will not be published. Required fields are marked *