Will the new Qualified Residential Mortgage (QRM) criteria solve or create more problems?

During the mid 2000’s housing boom, did lenders produce lot of crappy loans – yes.  Is the QRM a solution to crappy loans – yes, in a way – But isn’t it like taking a chainsaw to the table to slice a loaf of bread?

Basically, when the new QRM definition hits the street, any non-Government backed loan will require lenders to keep or holdback 5% or more of the loan amount in case the loan goes south.

Sounds like a reasonable request so lenders don’t get too loose with loans.  The down sides are this will (a) restrict the amount of money the lender will then have to loan out; (b) will require even more stringent financing qualifications which will (c) further restrict the number of loans approved, and thereby (d) reducing real estate sales in an already depressed real estate market.

FHA, VA, USDA (rural properties), Fannie Mae and Freddie Mac (currently government owned) will be exempt from the 5% “holdback” risk retention regulations of Dodd-Frank.

All other loans will need to require 20% or higher down payments and Debt-To-Income ratios of 28/36 or better or they face the 5% holdback.

You now, alot of people, including “elected” US Senators, are griping about this – so what problems does it solve and which ones does it create?

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