The National Lumber and Building Material Dealers Association (NLBMDA) is urging government agencies to reconsider proposed changes to the loan-to-value ratios for Qualified Residential Mortgages (QRM). NLBMDA executive vice president Scott Lynch says the proposed revisions may prevent otherwise creditworthy consumers from qualifying for mortgages and refinancing on home purchases and renovations.
"We are concerned that a rigid application of these ratios will not only limit the opportunities of homeowners and homebuyers, but will also threaten to slow the recovery of the fragile housing market," says Lynch.
He says the change would leave current and potential homeowners with two alternatives: pay higher upfront mortgage rates on home purchases and refinances that fall outside proposed QRM standards or else delay homeownership and home improvement projects for years.
The association states that such a change would go against the guidelines set forth in Section 941(b) of the Dodd-Frank Act, which, Lynch says, "created a framework for improving the quality of mortgage lending and restoring private capital to the housing market while carefully balancing the need to maintain homeownership opportunities for American families and doing no harm to the fragile housing market."
According to Lynch, the goal of Section 941(b) was to discourage excessive risk taking by forcing those in the debt-securitizing business to retain 5% of the credit risk on loans sold as mortgage securities. He says that because of an "across-the-board" risk retention approach that would impose significant costs on creditworthy borrowers, Congress created an exemption on QRMs to prevent burdens on homeowners.
Lynch argues that changes to the ratio will disturb the balance between borrowers and investors in the home mortgage market. Lynch says the changes are "inconsistent" with congressional intent when it comes to minimum down payments due to the success of past loan-to-value ratios on loans.
Lynch also says the changes will impact refinancing requirements for homeowners: "The Dodd-Frank Act appropriately responded to the excesses of Wall Street while recognizing the well-underwritten, low-down payment home loans have been a significant and safe part of the mortgage finance system for decades. The proposed QRM exemption ignores this fact and imposes unnecessarily high down payment thresholds and equity requirements for refinancing."