Based on an analysis of loans originated in 2010, CoreLogic has determined that slightly more than half of the loans produced would meet the test for the qualified mortgage safe harbor being imposed by federal regulators. And that test has an even greater impact on purchase money mortgages, which many experts predict will start to predominate the market again later this year.
The analysis, published in an article in CoreLogic’s MarketPulse report, notes that loans originated for the government-sponsored enterprises have an exemption from QM for up to seven years. When this exemption is removed from the analysis, CoreLogic said that only 52% of originations met the safe harbor.
The biggest impact on loans meeting QM is complying with the debt-to-income ratio requirements, which pulled 24% of the loans out of the stack. Low- or no-document loans removed another 16%. The remaining QM rules pulled another 8%.
Downpayment requirements are not a part of QM, but are a part of the qualified residential mortgage test. If to qualify under QRM borrowers have to put down a minimum of 10%, the combined QM and QRM requirements impacts 60% of loans originated to today’s standards.
However, CoreLogic adds that loans originated to meet QM and QRM will remove 90% of the risk.
The DTI requirement will take out 36% of all serious delinquencies, CoreLogic states; removing loans with a credit score below 640 takes out another 28% and a 90% loan-to-value at origination takes out another 18%.
The biggest impact of the 10% downpayment requirement is on the purchase market. While it only takes out 13% of all originations, it affects 27% of purchase originations.
Thus the combined impact of QM and QRM on purchase loans is that only 25% of these mortgages meet the QM safe harbor.
By state, the test will have the biggest impact on Nevada, where only 42% of loans meet the safe harbor test. Hawaii (43%) and Alaska (44%) are also affected, as well as what CoreLogic termed “boom-bust” states as California, Arizona and Florida.
In its conclusions, CoreLogic says that while the QM and QRM rules carve “bright lines to delineate ‘safe’ products and provide consumer and investor protections, clearly they are not a panacea.”
And that is because of the large segment of loans they do not apply to, such as home equity lines of credit and loans originated for one’s own portfolio.
Plus, since many investor deals these days are for cash, these sales impact prices and the spill over into the mortgage market and the resulting collateral risk is not spelled out in any regulation, CoreLogic said.