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Changes in Mortgages are coming...

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  • Changes in Mortgages are coming...

    New little-touted mortgage finance requirements may spell trouble | The Real Deal | New York Real Estate News

    The article is interesting because it lays out how things change, what I find curious is that previously it was about churning volume and now it will center on maximizing cash flow per borrower by trying to squeeze as much payment from them through "risk pricing". Risk pricing through rates is good the problem is the range seems a bit extreme. Two to three percent simply because you have less than 25-30% equity will translate into 50% higher payments vis a vis those whom do, in essence the payment variance creates risk by being so much higher.
    Under the law, loans that do not meet the strict QRM tests will be pushed into a less-favored, higher cost category: Banks and Wall Street securitizers will need to set aside 5 percent of loan balances into reserves to handle possible losses from defaults. This extra capital cost inevitably will be passed on to consumers.

    Mortgage industry estimates of the interest rate differential between ultra-safe, QRM-qualifying loans and all others range from three-quarters of 1 percent to three percentage points. In today's market, this would mean that mortgages that meet the federal agencies' stringent new standards might go for 5 percent. But all others -- the vast majority of today's conventional loans -- could cost anywhere from just under 6 percent to 7 percent and higher.
    The 5% reserve will most likely coast at least $500 a year per 100k assuming 10% rate of return banks would seek for the risk of default, the problem is that since it gets passed to the consumer they could in effect set aside consumer equity(down payment) as the reserve and charge the consumer for it which is what I think will happen.

    The good thing is of course on the margin prices should fall considerably once this becomes the norm, also the likelihood of default falls and we might get to normal prudent lending.

    Another good thing is once the choices get shafted to the consumer the big national banks will loose to credit unions and mutuals since those will be more reasonable with the customer.
    Originally from Sochi, Russia.

  • #2
    It's government setting a rule for something the free market already does - risk assessment. Friggin morons...
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    • #3
      The agencies' proposal, though not the legislation, exempts mortgages sold to Fannie Mae and Freddie Mac from the rule as long as both remain under federal conservatorship - a date uncertain. FHA and VA mortgages will not be subject to QRM either.
      Well that covers about all of them, doesn't it?
      "We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way." -President Barack Obama 11/25/2008

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      • #4
        Where from the money for the banks bailout came from? The government or the risk assessment?
        No such thing as a good tax - Churchill

        To make mistakes is human. To blame someone else for your mistake, is strategic.

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        • #5
          ^^ It wasn't a lack of ability to assess risk, it was a lack of necessity.
          "We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way." -President Barack Obama 11/25/2008

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          • #6
            Originally posted by highsea View Post
            Well that covers about all of them, doesn't it?
            I get a feeling them remaining under conservatorship and being able to take in more loans is not going to continue.
            The banks are struggling to have cash flowing assets (asset prices are irrelevant in the short term because there is no
            market discover or trading other than to the govt via Freddia/Fannie etc...) so the banks need income streams, this in essense
            allows them to charge up the risk (by a severe magnitude to everyone) without seeming to be picking on borrowers based on ethnicity/social status since there is an outline of "risk assesment" based on equity provided etc...

            this whole checklist of risk pricing is done to legitimize it being enforced sooner rather than later, it still does solve their problem.
            Originally from Sochi, Russia.

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            • #7
              I just seen a rate mortgage advertised on television. It's called a 7/1 Arm Adjustabel Rate. A low 3.47 rate guaranteed for the first 7 years of the loan. They said it was perfect for people who moved around alot.

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              • #8
                Originally posted by Julie View Post
                ...They said it was perfect for people who moved around alot.
                I know there's a statistic for the average length of time someone keeps a home, but I can't imagine buying a house I thought I was only going to live in for 7 years.

                I've been stuck in places for longer than that when I wanted to be doing something else.
                "We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way." -President Barack Obama 11/25/2008

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