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In top six most affected states, at least six in ten homeowners would face higher costs to refinance.
Nearly 25 million homeowners across the country would face more expensive mortgages if a proposal by federal regulators goes unchanged. A proposal released by six federal agencies to implement credit risk retention provisions included in the Dodd–Frank Wall Street Reform and Consumer Protection Act would require homeowners to have at least 25 percent equity in their homes in order to qualify for a lower-rate "Qualified Residential Mortgage" (QRM) for refinancing.
An analysis of the CoreLogic data shows 24.8 million U.S. homeowners – more than half of all U.S. homeowners with a mortgage - have less than 25 percent equity in their homes.Homeowners looking to refinance but fail to qualify for a QRM will be subject to additional costs associated with lenders' risk retention requirements included in the Dodd-Frank bill. According to the National Association of REALTORS®, consumers in a non-QRM loan could pay between 0.80 and 1.85 percentage points more in interest rate, simply because they could not meet the down payment or equity requirements.
"In short, the proposed rule moves creditworthy, responsible homeowners into the higher cost non-QRM market," stated an executive summary of the analysis by the Coalition for Sensible Housing Policy, a group of more than 40 consumer organizations, civil rights groups, lenders, real estate professionals and insurers, in a recent White Paper on the proposed QRM rule.
The proposed QRM definition is part of the risk retention regulations required by the Dodd-Frank Act, which Congress enacted last year. The risk retention provisions require the issuers of mortgage-backed securities to retain a portion of the risk of potential loss on those assets. Recognizing that risk retention would impose increased costs even on creditworthy borrowers, Congress sought to incentivize more responsible borrowing and lending by exempting some mortgages – QRMs – from risk retention requirements if they met thorough underwriting standards.
The proposed QRM rule ignores compelling data that demonstrate sound underwriting and product features, like documentation of income and type of mortgage, have a larger impact on reducing default rates than high down payment and equity requirements.
The Coalition for Sensible Housing Policy believes that QRM should be redesigned to encourage sound lending behaviors that reduce future defaults without harming responsible borrowers and lenders. For more information, visit www.sensiblehousingpolicy.org.
he remodeling market slipped under pressure from a sluggish economy according to the National Association of Home Builders' (NAHB) Remodeling Market Index (RMI), which dipped during the second quarter to 43.9 from the first quarter result of 46.5. An RMI below 50 indicates that more remodelers report market activity is lower compared to the prior quarter than report it is higher.
The overall RMI combines ratings of current remodeling activity with indicators of future activity, like calls for bids. Current market conditions for the second quarter of 2011 fell to 44.8 from 46.1 in the first quarter. Future market indications dropped to 43.0 from 46.8 in the previous quarter.
"Remodelers have experienced the same hiccup that has rippled through the U.S. economy," said NAHB Remodelers Chairman Bob Peterson, CGR, CAPS, CGP, a remodeler from Ft. Collins, Colo. "After picking up the pace early in the year, the calls from customers dropped off and remodeling slowed down."
Regionally, current market conditions shrank in two areas: the Midwest to 44.4 (from 47.1 in the first quarter) and the South to 42.9 (from 46.1). The West at 48.2 (from 46.1) and Northeast at 48.1 (from 46.1) both climbed modestly.
Two indicators of current market conditions dropped: major additions to 46.2 (from 50.3 in the first quarter) and maintenance and repair to 38.4 (from 39.5). A third indicator, minor additions, remained essentially flat at 48.5 (from 48.0). Future market indicators also descended: calls for bids to 49.8 (from 53.1), backlog of remodeling jobs to 45.7 (from 49.7), and appointments for proposals to 44.2 (from 52.4). The amount of work committed for the next three months stayed level at 32.3 (from 32.1).
"While the RMI indicates that the home remodeling market softened somewhat in the second quarter, this is still the second highest RMI we've been able to report since the third quarter of 2007," said NAHB Chief Economist David Crowe. "There are several barriers blocking the way to a stronger recovery. Home owners who may want to remodel still face stringent lending requirements, and uncertainty about the economy is making them hesitant to undertake major improvements."
