A new report from CoreLogic claims that under the new Qualified Mortgage rules, half of the loans made in 2010 wouldn’t qualify.

But CoreLogic neglects to mention a very, very important piece of information, and that has led to a bit of hyperbole from the media that’s picked up the story.

Here’s the offending sentence, from CoreLogic’s February 2013 MarketPulse newsletter. Sam Kahter wrote:

It is estimated that only 52 percent of originations will meet the eligibility requirements of the QM rule’s safe harbor.

That tidbit was turned into headlines such as HousingWire’s “Only half of today’s mortgage originations meet QM requirements” and DSNews’s “CoreLogic: QM, QRM Rules Remove 60% of Loans, but 90% of the Risk.”

Wow. Thanks to QM, half of all loans will be denied!

Um… no.

Don’t miss the detail

The key, you see, is in the last part of that CoreLogic quote: “the eligibility requirements of the QM rule’s safe harbor.”

There are two standards of QM loans as defined by the Consumer Financial Protection Bureau: prime and subprime.

Subprime QM loans give lenders the same protections they have today — that is, a borrower can sue if he defaults and thinks the lender shouldn’t have given him a loan in the first place.

But a new standard, prime QM loans, give lenders extra protection — “safe harbor” from such suits, if the loan meets stricter requirements.

What CoreLogic found was that 48 percent of today’s loans wouldn’t meet the stricter standards that guarantee safe harbor for lenders. They would still qualify, if the lenders were willing to take the same risks that they take today.

It’s possible that some lenders will refuse to make loans that don’t meet those stricter standards. But they still can make sub-prime loans, and would have no more risk than they have today. So suggesting that almost half of all loans wouldn’t qualify at all is a bit misleading.

Here’s an analogy

Imagine the government makes a new rule: For every car a dealer sells that gets 50 MPG or more, he gets a $10,000 tax credit. Suddenly news stories come out, “75% of today’s cars wouldn’t meet new government standards!”

That’s slightly misleading. Maybe 75% of cars wouldn’t make the dealer eligible for that bonus, but they would still be sellable.

Same idea here. Maybe 48 percent of loans wouldn’t be eligible for the safe harbor ‘bonus,’ but they would still be qualified. Dealers may prefer to sell 50+ MPG cars, but that doesn’t mean they can’t sell others.

Finally, a translation

The bottom line is that this sentence:

It is estimated that only 52 percent of originations will meet the eligibility requirements of the QM rule’s safe harbor.

Should be read as:

It is estimated that only 52 percent of originations will qualify lenders for the extra protection to be offered under the safe harbor provision.

Then again, that doesn’t lead to headlines nearly as interesting.

Now that the election is over — you did know we had one of those, right? — depending on who you listen to we’re either in for a nightmare of Biblical proportions, or we’re going to see the dawn of a new utopia of peace and prosperity. (Although Nate Silver would probably tell us there’s a 92.4 percent chance it will be somewhere in the middle.)

But now that we have at least four three two more years before the robo-calls start, it’s time to look at what we’ll be looking at.

US News & World Report has a nice overview of “5 Housing Issues Hanging in the Balance Going Into Obama’s 2nd Term.” A brief summary:

1. More refinancing efforts, especially the “Responsible Homeowner Refinancing Act” (endorsed by NAR, btw), which would expand the existing HARP refinancing by eliminating loan-to-value limits, reducing fees and costs, and ‘encouraging’ second-lien holders to get with the program.

2. Regulatory certainty. Regulatory uncertainly has been held up for a while as a big issue for businesses — they don’t know what to expect. Well, they can expect that to change: Love or hate QM, QRM, Dodd-Frank, etc., they’ll be certain soon enough. (And I suspect that, like with every other law, rule, or regulation, lenders will deal with them with aplomb.)

3. The mortgage interest deduction. Expect to hear plenty about this. With the “fiscal cliff” approaching and deep cuts on the horizon, you can bet the MID — at least in part — will be brought up in discussions. Primary residence only? A cap? That’s not to say it will change, or that suggestions for change will even gain traction, just that you should expect to hear about it.

4. Principal reduction. Will Fannie and Freddie finally consider principal forgiveness? FHFA acting director Ed DeMarco has been vehemently against it, and President Obama seems likely to keep him on the job, even while disagreeing with him. So… who knows? (For sure we’ll here tons of arguments pro and con.)

5. GSE reform. The consensus seems to be that a government-run safety net is fine, but that Fannie and Freddie need to get out of the wholesale secondary mortgage market business. (Today they own 90-something percent of it.) Then again, they’re both turning a profit and repaying their bailout funds….

OK, that covers what US News thinks are the biggest issues. Now here are a couple that we’ll be watching:

1. The foreclosure pipeline. One of the best indicators of recovery is what percentage of homes sales are distressed property. Right now, it’s pretty high — but dropping. So we’ll be keeping an eye on Virginia’s numbers as we track the housing comeback.

2. Rental pricing. These days it’s up, up, up — in many cases, it costs more to rent than to buy, thanks to increased housing demand (think foreclosures). Investors have snatched up properties, not to flip but to rent. And with credit hard to come buy, demand for them is up and supply is low… and we know what that means. But will it stay that way?

And, of course, all the usual things: prices, building, transportation, and more.

Let’s be about it, then, shall we?

If you start to type a query into Google, its autocomplete feature will suggest what you might be about to type based on what other people have entered. For example, if you start to type “how fast is…” Google will suggest “how fast is my internet,” “how fast is a knot,” “how fast is the speed of sound,” and more. It can save time, but it’s also a fun way to see what other people are looking for … or thinking. (Mitt Romney is … a unicorn and Barack Obama is … your new bicycle, in case you’re interested.)

Renee DiResta, a venture capitalist and apparently inquisitive type, decided to see what she could learn about the states of the union via Google.

I started wondering, how do Americans really think about “those people” in other states? What are the most common stereotypes? For each of the fifty states and DC, I asked Google: “Why is [State] so ” and let it autocomplete. It seemed like an ideal question to get at popular assumptions.

So what “is” Virginia? According to DiResta, the country thinks we’re boring, humid, strict, and important. (The latter most likely because of our swing-state status in national elections.)

Since she did her research there’s been a little shift. If you try today,”why is virginia so expensive” is now #2 on the list.

Things to keep in mind when you’re speaking with out-of-state clients, no?

One of the provisions of the Dodd-Frank Act creates two categories of mortgage loans that you have heard — and will hear — a lot about: QM and QRM.

As a Realtor, you’ll need to know about them because your clients are going to ask, and because starting sometime next year most of your clients’ loans will fall into one of those two categories.

The idea of both QM and QRM is to set a nationwide standard for mortgage loans that makes sure qualified people can get mortgages, but that lenders don’t offer (and borrowers don’t borrow) more than they can realistically pay back. It stems from the fact that, without such standards, lenders were offering loans to people without taking reasonable care to be sure they could afford them.

The standards have to be tight enough to protect consumers and taxpayers, but loose or flexible enough to ensure that just about everyone who should qualify for a loan does qualify. (The fear in both the real estate and mortgage lending industries is that these restrictions will be too tight, and qualified consumers would have trouble getting a loan.)

In other words, QM and QRM are going to have a profound effect on Realtors.

So here’s what you need to know about QM and QRM loans.

(Obviously this is a broad-brush treatment. There are lots of details about the requirements of each — e.g., limits on points and fees, balloon payments, and so on — that are simply beyond the scope of this piece.)

Keep in mind that lenders are certainly free to offer loans that do not meet these standards, but those loans (and any securities they’re packaged into) will not be backed by the government, nor will the lenders be safe from borrower suits if the default.

QM

The standards for a qualified mortgage — QM — are being set by the Consumer Financial Protection Bureau (with input from other agencies and industry groups).

The idea of a QM is centered around “ability to pay” — what standards a borrower must meet in order to qualify for a QM loan. Those standards include all the things you would expect: current and expected income, debt-to-income ratio, employment status, credit history, other equity, and so on.

A QM loan will also require the lender to retain at least a five percent interest in the loan — so called “skin in the game.”

What are the issues with QM?

The main issue mortgage lenders have with QM is how protected they are from borrower lawsuits if they follow the rules. There are two possibilities for the final rule.

A) “Safe harbor” — borrowers who meet the QM standards will not be able to sue lenders if it turns out they didn’t actually have the ability to pay. Following the rule essentially grants lenders 100% protection.

B) “Rebuttable presumption of compliance” — If a lender follows the QM guidelines and a borrower sues, the lender has the benefit of the doubt (“presumption of compliance”) but the borrower still has the ability to sue (that’s the “rebuttable” part) in the case of unforeseen circumstances. It leaves the door open a crack.

Mortgage lenders are concerned about option B), because they feel that defending against lawsuits — even if they prevail — will be prohibitively expensive (especially for smaller lenders). The government should make the standards high enough and clear enough that meeting them provides “safe harbor.” Further, without 100% protection they say, many lenders will shy away from making loans to anyone without top-tier credit.

Consumer groups, however, argue that it’s not right to close the door completely on borrowers, because loopholes and unforeseen circumstances might arise.

As Eric Stein, senior vice president for the Center for Responsible Lending told a House subcommittee, rebuttable presumption “gives lenders a considerable litigation advantage but allows a borrower to bring a case when there is a rare, starkly unaffordable QM loan and strong evidence available at the outset… a safe harbor standard would prevent borrowers from bringing any claim concerning an unaffordable QM loan even in situations where the lender has acted in bad faith.”

A second issue is exactly what the QM standard will be. For example, the CFPB is considering additional requirements if a borrower’s debt-to-income (DTI) ratio is above 43 percent. (About a quarter of Fannie/Freddie loans fit that description.)

But the National Association of Mortgage Brokers doesn’t like the idea of too many specific standards. Chairman John Hudson told a House subcommittee that “the entire mortgage industry is already adhering to the general ability to repay standards,” and “It will be unfortunate to both consumers and industry alike should the CFPB create a one-size-fits-all underwriting standard with relation to DTI ratios, assets, employment, etc.”

On the other hand, having vague or incomplete standards would not only defeat the point of the law, it would likely mean no “safe harbor” for mortgage lenders. (It’s hard to say you’re adhering to standards if those standards aren’t crystal clear.)

The bottom line is striking a balance between standards that are tight enough to protect lenders and consumers, but loose enough not to shut out too many qualified people.

QRM

A Qualified Residential Mortgage — QRM — is a loan that meets stricter standards than QM loans. Most importantly for lenders, they don’t need to maintain a five percent stake in any loan that qualifies as a QRM.

The QRM standards are being set by a list of Federal agencies, including the FDIC, Federal Reserve Board, FHFA, HUD, OCC, and SEC. Those standards are still up in the air, and probably won’t be finalized until 2013. One requirement that had been considered at one point was a 20 percent down payment, but that was taken off the table because of industry pressure that it was too strict.

What are the issues with QRM?

Simply put, what exactly the standards will be. Lenders will want most of their loans to be qualified as QRM, because they don’t want to have to hold that five percent stake. So they’re concerned that the requirements (which will by definition be stricter than for QM loans) will be too strict. Then they’ll have to choose between keeping skin in the game, or losing a large portion of their market.

But loose lending standards were a major cause of the housing bubble and the Great Recession. It’s clear that, left to their own devices, lenders will take extreme risks with lending knowing that taxpayers will (and did) bail them out. To protect taxpayers from another multi-billion-dollar bailout, QRM standards must be reasonably high… the key word being “reasonably.”

Various government agencies are still discussing and debating the details of the QM and QRM standards, so you’ll be hearing a lot more about them, pro and con. The QM standards will probably take effect around the end of the year, with QRM following soon after, but even that isn’t certain. We’ll keep you updated.

tl;dr

QM and QRM are meant to set reasonable nationwide loan standards that protect consumers and taxpayers.

QM: Set by CFPB, sets basic loan standards, requires 5% skin in the game. Main issue is whether lenders are completely protected if they comply or only mostly protected.

QRM: Set by SEC, FDIC, FHFA, HUD, OCC, and FRB, stricter than QM, removes 5% requirement. Main issue is how strict these standards will be, and whether too few borrowers will be able to meet them. (Lenders don’t want to have to hold 5%.)

The Consumer Financial Protection Bureau is leading the effort to define “qualified mortgages” and “qualified residential mortgages” — QM and QRM, both of which will have a profound effect on your business. (Remember, at one point a 20% down payment was being considered as a requirement for the best loans.)

Today — Monday, July 9 — is the last day for public comment to the CFPB about the potential “ability to pay” rule.

In the run-up to the financial crisis, many borrowers were sold mortgages that they could not afford to pay back. In response, the [Dodd-Frank Act] requires lenders to make a reasonable and good-faith assessment of consumers’ ability to repay their mortgages.

As part of the broader ability-to-repay mandate, Congress also designated “qualified mortgages,” which are structurally safer and are underwritten according to standards that make it reasonable to expect that borrowers have an ability to repay.

Luckily, this isn’t Ye Olden Days, and you don’t have to call or send a telegram or whatever — there’s a handy Web-based form. So take a minute to fill it out and let the CFPB know that Realtors are very, very interested in what the rules for lending are going to be.

Housing Wire is reporting that Federal officials have confirmed that qualified residential mortgage standards and rules won’t be released/in place in 2012.

Reminder:

QM = qualified mortgages; all mortgages must meet these broad standards.

QRM = qualified residential mortgages; a stricter standard a loan must meet if the lender wants it to be backed by the Federal government

Both standards are up in the air. QRMs will likely have a down payment requirement (at one point 20% was being considered, but that’s pretty much off the table).

The Consumer Financial Protection Bureau, which is leading the effort to develop the standards, has already said that QM rules won’t be in place in 2012. And today other regulators said that QRM rules would be developed after QM.

Ergo, no QRM in 2012.

Read all about it.

Federal regulators look like they won’t require a 20 percent down payment for loans to qualify for federal protection. That was a proposal that’s been floating around Washington and getting lots of press.

But now the rumblings — and they’re just that, rumblings — are that the rules are going to be a bit more conducive to buyers.

First, the 15-second review:

The Dodd-Frank act requires federal regulators to come up with two sets of mortgage guidelines. The one we’re talking about is for Qualified Residential Mortgages (QRMs). This would be a reasonably tight set of standards for loans to meet if the lender wants them to be backed by the government. (Lenders are free to offer non-QRM loans, but they can’t expect Uncle Sam to help if things go south.)

Regulators have been working to set those standards. One idea that’s getting a lot of press would require lenders to hold onto five percent of the loan (“skin in the game”) and to require a 20 percent down payment.

Naturally, lots of folks saw that down payment requirement as excessive. Sure, it would help guarantee that borrowers could afford houses, but not a lot of borrowers could come up with that kind of cash. (Maybe you have 60 grand laying around, but not all of us do.)

So we (i.e., VAR and NAR, not to mention other organizations such as the Mortgage Bankers Association) have been putting pressure on regulators and policymakers to rethink that 20 percent proposal. And Congress, for the most part, is on our side.

Now all that lobbying, pressing, nudging, cajoling, and general shoe-leather work is paying off. (Yes, these are your RPAC dollars at work.)

According to a HousingWire story,

A group of federal regulators will likely lower the proposed 20% down payment requirement for home-loan lenders who wish to avoid holding added credit risk on the securitization of mortgages.

Rep. Barney Frank, D-Mass., was pretty straightforward: “They’re not talking about 20% anymore,” he said. And David Stevens, CEO of the Mortgage Bankers Association, also said that he expects those QRM standard to be lowered.

(For the record, the Obama Administration, through HUD, suggested a 10 percent down payment requirement.)

Now remember, this requirement is only for loans that lenders want to be backed by the government. There’s certainly an argument — as made by former FDIC chair Sheila Bair — that QRM standards should be high because the federal government shouldn’t be in the business of insuring private-sector loans.

But our position is that, right now, any impediment to home purchases is a bad idea, because we don’t want to risk derailing what’s becoming a solid recovery.

We’ll keep you posted. Meanwhile, click here to read more over at HousingWire.

I hate hearing about a quarterback’s passer rating. Hearing that Joe Schlabotnik’s is 96.3 means absolutely nothing to me because there’s no context for it.

Contrast baseball’s “batting average” which makes sense: It goes from zero to 1.000. Meanwhile, a perfect NFL passer rating is 158.3 (in college it’s 1261.6). Huh?

Sure, there’s a detailed formula for calculating it — five of them, actually — and I’m sure the math is solid, but the final result doesn’t have a connection to reality. There’s no context. At least in baseball you can say that a guy who bats .500 gets a hit 50 percent of the time — twice as often as a guy who bats only .250.

Without context, even the most accurate numbers are, as far as I’m concerned, meaningless. (Just think about the kid who brags, “I got 100 on the SAT!”)

But baseball isn’t off the hook. Sure, batting average makes sense, but even sensible numbers aren’t useful if they aren’t the right numbers. Batting average, it turns out — as anyone who read Moneyball can tell you — isn’t very useful. It doesn’t take into account how often a player walks, or whether he gets extra bases. A guy who hits 25 triples in 100 at-bats will have the same average as a guy who hit 25 singles.

Finally, numbers have to be complete. If I told you I save 25 cents a gallon on gas by using a different station, that sounds good… until I mention that I have to drive 30 miles out of the way to do it. “Save 25 cents a gallon” is accurate and useful, but it’s not complete. (Think about that next time a politician claims to have created a gazillion jobs. What kind of jobs?)

So numbers have to have context, have to be useful, and have to be complete. Otherwise they’re just fancy squiggles. That’s why we work like gangbusters when we put together our Home Sales Reports. Tossing a lot of figures around is easy — but that doesn’t help you much. We want to be sure that not only are the numbers we give (and get) accurate, but that you can actually use them.

In real estate more than just about anything, numbers aren’t just numbers — they’re people’s homes and your livelihoods. So we’ve taken the extra steps to put these particular squiggles in context, and to talk to people about what they mean. You’ll see the fruits of our labor starting on page 22 of the February/March Commonwealth, which should be hitting your mailbox any day now if it hasn't already. Enjoy.

Because lenders have shown that they can’t necessarily be trusted to evaluate potential borrowers, the federal government will be setting standards that lenders must used to determine whether someone can repay a loan.

No, I’m not being snarky about lenders. That’s the sentiment of Consumer Financial Protection Bureau Director Richard Cordray.

When discussing the forthcoming QA rule — which tells lenders what they have to consider when deciding whether a borrower has the “ability to repay” — Cordray quipped, “You wouldn’t think that you would really need a rule that a lender would have to pay attention to whether or not a borrower could repay a loan.”

The definition of a qualified mortgage — a QM (not to be confused with QRM, which is a stricter standard) — is expected this summer.

Back in May, we told you that 39% of 2010 homebuyers wouldn’t meet the proposed standards for qualified residential mortgages, which included a requirement for a 20% down payment.

Now LendingTree says that its data show that no state averages 20% or more down on mortgages — in other words, confirming that not a lot of people meet that requirement.

Luckily, the 20%-down proposal is all but dead, as lawmakers and regulators work to come up with a QRM standard that’s realistic and also protects taxpayers from having to bail out banks yet again.