With the January implementation of the qualified mortgage rule, there has been confusion about which borrowers will and will not be impacted by the new restrictions. While the rules will push some borrowers outside of its safer-status for lenders, possibly restricting access and raising borrowing costs, the vast majority of borrowers will qualify for the safer “QM” status. The comprehensive scope of the final rule is important for a healthy transition for the housing market and access for most credit worthy borrowers and should be adopted in another forthcoming rule, the qualified residential mortgage rule (QRM).
- Today’s report on mortgage applications from the Mortgage Bankers Association indicates that the government shutdown has had an impact on the housing market. The purchase component fell 4.8% this week relative to last, the third consecutive decline. The three-week decline in applications came at the same time that average mortgage rates fell nearly 0.25 percentage points.
- Due to the government shutdown, lenders have been unable to get the form 4506-T from the IRS. Lenders use this document to verify a borrower’s income. However, lenders can also use W-2s and tax records to verify this information though it is more time consuming, costly, and requires more scrutiny. As a result, the shutdown of the IRS has been more of an inconvenience. However, the shutdown has furloughed the majority of FHA employees so transactions requiring special treatment like condos are not being completed. The complete closure of the USDA’s rural housing program is also having an impact as this program serves nearly 125,000 borrowers a year. As a result, applications through government programs fell 7.4% this week as compared to 3.9% in the conventional space, a reflection of the direct impact of the furloughs.
- Mortgage rates have crept up in recent days in response to market jitters that the US might hit the debt ceiling, but they remain relatively low. However, applications have fallen due to the direct impact of the budget impasse and government furloughs. While the immediate impact has been relatively modest, the impact will grow if consumer confidence erodes. Still, inventories remain tight, underwriting is sound, construction is tepid, and affordability is strong, so the near term impacts would be muted relative to the last recession.
When it was announced that the Federal Housing Administration would extend its mandatory monthly mortgage insurance premiums to a minimum of 10 years up to as long as the life of its 30-year loans depending on the size of the down payment, many market observers were incredulous. Others felt that it was a political move to shore up the FHA’s books in the short term only to be reversed in the long term as the financial pressures on the agency abated. However, given long-term prospects for the mortgage market, this change due June 3rd is wiser than first blush, likely to stay and it may benefit some consumers and the market. On the other hand, others will be hurt and more should be done to limit the impact on borrowers who would hold these loans to term.