Zero down mortgages preserved in new rule

Maybe a victory for prospective homeowners, but certainly a victory for anyone dependent upon a speedy housing market, the new proposal for the Qualified Residential Mortgage rule (QRM) is quite a bit less-restrictive than the original version.

The new standard would allow a no downpayment option similar to that allowed by the CFPB - that rule protects banks from being sued by mortgage investors on zero-down loans as long as the borrower's debt to income ratio is less than 43%.

The new plan also requires banks to hold onto a slice of mortgages (for those with less than 20% down) when debt/income is above 43% as opposed to 36% in the initial proposal.

The agencies will await public comment before a vote on the final rule.

Homebuilders, mortgage bankers, and realtors look on with interest.

Related: WFC, BAC, C, JPM, XHB, ITB, RLGY.

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Comments (21)
  • KJP712
    , contributor
    Comments (469) | Send Message
    The balloon begins to be inflated again.Not much choice as everything else has failed.
    28 Aug 2013, 11:49 AM Reply Like
  • RobbyRob
    , contributor
    Comments (362) | Send Message
    War is the other tool to inflate this failing Ponzi economy.
    28 Aug 2013, 12:00 PM Reply Like
  • Hubert Biagi
    , contributor
    Comments (862) | Send Message
    Zero down, but banks keep a stake in these risky mortgages as an incentive to manage them properly? Sounds like another setup like the CRA, where banks were ended up targeted and sued for "unfair" lending practices against poor people. Yeh, this'll work, lol...
    28 Aug 2013, 12:05 PM Reply Like
  • Kathy 1
    , contributor
    Comments (961) | Send Message
    Hard to believe.... have we not learned? Or have we already forgotten 2007-8? BRING Back the Seaglass Act of 1932! Do not use your house as a cash cow.
    28 Aug 2013, 12:13 PM Reply Like
  • Yorick
    , contributor
    Comments (774) | Send Message
    How do you spell moral hazard? Starts with zero downpayment...unbeliev... ENTIRE premise of a healthy lending ecosystem is COLATERAL. When the borrower doesn't have any, they shouldn't be looking for loans and the lender is on the hook for the asset price decline which is okay until an entire region or country goes bad and then you have 2 choices...A. Allow the bank to NOT mark-to-market or backstops by the god, did we learn nothing in the last 4 years?
    28 Aug 2013, 12:34 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (4006) | Send Message
    What is also ridiculous is the must hold a slice rule. They say the banks must hold a slice of "risky" mortgages but then they give so many exceptions that in over 98% of all mortgages the bank doesn't have to keep a slice. The rule was passed to make it sound like Congress was doing something to cause us from getting back into the same mess while not actually doing anything.


    The reason why banks don't lend is it is more profitable to first launder the money through buying Treasuries, then repoing them for clean cash, which they can then invest in the market. Afterall, they are doing it with extremely cheap money, provided by us sand the upside is better than a mortgage. If they win, they get to keep the majority of profits via bonuses and if they lose the US taxpayer gets the losses. Chase uses less than 35% of assets to make mortgages. The rest goes into equity investments. Yet we give them access to 0% interest rates and backstop them if they fail.


    It is outrageous! It encourages volatility, risk taking and short term thinking at the major banks.


    Bring Back Glass-Steagall. If a money center bank wants to make risky investments in the market, let it be with their own money, not the taxpayers.
    28 Aug 2013, 12:47 PM Reply Like
  • Kathy 1
    , contributor
    Comments (961) | Send Message
    Darren, Thanks for the correct spelling on the Glass-Steagall Act. ( I do not have an economics background-my dad( a conservative banker) said that they should not have gotten rid of that in 1998--both parties voted to throw it out. ).Maybe you could comment on the
    parts of Dodd-Frank legislation that were made to make us think things were ok.
    28 Aug 2013, 01:43 PM Reply Like
  • minecanary
    , contributor
    Comments (1272) | Send Message
    The problem is that we (including the bankers and politicians) did learn..that the public is so ignorant and uncaring that they accept whatever lipstick the media puts on the pig. Why question whether we're hearing the truth on Fukashima,whether we're starting a war so Bennie can keep printing, or is the NSA breaking every law in the book. As long as Obama and the Dems keep sending me those checks every month, all is well. What channel was Idol on again?
    28 Aug 2013, 12:58 PM Reply Like
  • jonnie14
    , contributor
    Comments (143) | Send Message


    What are the exceptions that allow banks to get rid of their "risky" loans?
    28 Aug 2013, 12:59 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (4006) | Send Message
    Under Finreg banks must keep a 5% or more portion of mortgages they sell so they have skin in the game. Sounds good right? Except they don't have to if the mortgage is a "Qualified Residential Mortgage" (a.k.a. QRM).


    If its bought or guaranteed by Freddie, Fannie, Ginnie Mae, FHA, VA or any other government sponsored entity it is exempt. That alone negates well over 90% of all mortgages. If you got 20% down it's exempt. There's more, but you get the idea, basically more than 95% of all mortgages are exempt. The real effect of this was not much if anything as far as preventing the next crash or reducing systemic risk. It did however make for a nice headline for politicians who were getting pressure to do something. Typical, heavily watered down legislation due to lobbiest pressure is what we got.


    Remember, before the crash banks did not care whether the loan they made was going to be paid back as long as it qualified to be sold to Fannie or Freddie. The only underwriting was, "Does it qualify for Fannie or Freddie guidelines? Can we sell it to Fannie or Freddie?". It wasn't the banks problem if a day laborer was buying a $1M home with nothing down and no proof of income, because Fannie and Freddie would buy it. The QRM exception means there's no change to that. The banks still retain no risk, as long as Fannie or Freddie buys it. Systemic risk is still completely defined by Fannie and Freddie guidelines. Guidelines that are very subject to political pressure and whatever the latest whims are of the guy trying to get elected.
    28 Aug 2013, 02:35 PM Reply Like
  • American in Paris
    , contributor
    Comments (5495) | Send Message
    But those agencies are going way.
    28 Aug 2013, 02:55 PM Reply Like
  • BruceInKY
    , contributor
    Comments (445) | Send Message
    Uh-huh, right after the Department of Education, the Department of Labor, and the Department of the Interior. And long, long after Depardieu gets sick of living in Belgium.
    28 Aug 2013, 11:03 PM Reply Like
  • HPBunker
    , contributor
    Comments (217) | Send Message
    The logical next step is to permit negative down payment mortgages; for example, the buyer gets a 20% kickback for buying a house with no money down. The government will need to ensure these too, of course...
    28 Aug 2013, 01:35 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (4420) | Send Message
    Nice! I'll take three, please.
    28 Aug 2013, 01:47 PM Reply Like
  • BruceInKY
    , contributor
    Comments (445) | Send Message
    I'd like one on the beach and one in the mountains, please. Will change my party affiliation to qualify.
    28 Aug 2013, 11:04 PM Reply Like
  • caupachow
    , contributor
    Comments (524) | Send Message
    here we go again...
    28 Aug 2013, 01:36 PM Reply Like
  • Kathy 1
    , contributor
    Comments (961) | Send Message
    Here is the link from Rueters:


    The new plan for public comment is in the 5th paragraph.
    Contact your representatives.
    28 Aug 2013, 01:59 PM Reply Like
  • American in Paris
    , contributor
    Comments (5495) | Send Message
    I believe in a minimum 20% down payment should be legally mandated. I go well beyond this measure myself. I bought four apartments using cash and then renovated using cash.


    But there is a minor issue. The big issues are requiring income and asset verification and ensuring that mortgage backed securities are properly rated.


    Toxic waste need to be disclosed as such.
    28 Aug 2013, 03:01 PM Reply Like
  • mostserene1
    , contributor
    Comments (3697) | Send Message
    Special interests are killing these needed reforms.


    Should require 20% down on a mortgage, or an insurance fee in its place (used to be called PMI). When the industry eliminated that, the bubble inflated. Don't we ever learn?
    28 Aug 2013, 05:05 PM Reply Like
  • dickja
    , contributor
    Comments (3) | Send Message
    Still being a helpless victim? Are you really that envious of the 1%


    This country was built by adventurous and ambitious individuals who left the security of the masses (yes, that means you) (don't feel too bad, it gets worse) of the religious pilgrims (who can put the Arabs to shame)
    I know you can't pick your parents.
    Of course, these individuals were the type that wanted to get ahead and they certainly didn't feel guilty about giving their families the best they could. Your turn
    28 Aug 2013, 08:48 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13475) | Send Message
    Yay banks got 10,000 people to complain they can't buy a house. Let's make it 2007 again because requirements for skin in the game and a down payment is preventing growth in mortgage sales. Their request is sickening to read.
    29 Aug 2013, 12:37 AM Reply Like
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