Although, there was some fear in the air when a series of mortgage reforms were launched in 2014, ostensibly to make it harder for consumers to qualify for a home loan, a report from Home Buying Institute explained that mortgage standards at the start of the new calendar year are not as bad as what was once expected.
According to the report, mortgage standards at the start of 2015 are “more relaxed in several key areas,” at least when compared to the standards that existed in the immediate aftermath of the housing crisis. Statistical data does back up this postulate; while no specific numbers were stated in the report, Home Buying Institute said that lenders are indeed allowing consumers to take out loans with lower down payments, and lending to consumers who have lower FICO scores and would not have qualified in the past. Be that as it may, the publication believes that the “sky is not falling after all.”
Cutting things down to smaller pieces, Home Buying Institute also took a look at one reform launched in 2014, the dreaded qualified mortgage rule, or QM. In a nutshell, the QM reform was launched by the Consumer Financial Protection Bureau pursuant to encouraging safer lending by banning a number of “risky’ mortgage loan features, such as interest only payments and negative amortization.
With only a few exceptions to this limitation, balloon payments were also restricted, while the life of loan was capped at 30 years. All in all, QM’s announcement had caused an uproar among financial institutions and consumers alike, with lenders in particular “threatening to choke off lending” to everybody, save for those with truly pristine credit.
According to the publication, lenders were overreacting, as QM did not make much of an impact after all. Lenders, furthermore, are still allowed to make “non-QM” loans, though these products will not enjoy the same benefits as those that are compliant with the QM reforms. In fact, the Federal Reserve’s Senior Loan Officer Survey revealed that QM “had almost no impact in the government sponsored enterprise or government agency market,” referring to loans sponsored by Fannie Mae and Freddie Mac in the former category and Ginnie Mae in the latter.
In addition, 2014 saw a number of hints that mortgage lending standards may be easing, as other types of reforms had positively impacted these standards and made credit more easily accessible to consumers. Examples of these include the Federal Housing Finance Agency’s announcement that Fannie Mae and Freddie Mac would start accepting loans with an LTV (loan-to-value ratio) of 97 percent, thusly allowing consumers to pay down payments of as low as 3 percent.
For 2015 lending standards could be, in business parlance, in a Goldilocks situation; standards will not be as permissive as they were in the run-up to the global economic crisis/U.S. housing crisis of the late 2000s, but they will not be as draconian as they were in the immediate aftermath of said crisis. Specifically, down payments should be lower in 2015, as with FICO credit score requirements.