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.
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.
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.
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 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.
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