As an industry we are all understandably shaken by the uncertainty presented by the seeming double edged sword of QM/QRM. Unfortunately the Qualified Mortgage Rule, with its ancillary restrictions on product types, costs and guidelines, and is now defined and will be effective in January 2014. Now we must wait for the OCC and other regulatory agencies to define the Qualified Residential Mortgage which will affect securities issuers and the secondary market if the rule is substantially different than the QM standards.
(Still not sure what I am talking about? Check out this summary.)
Regardless of how this rule is defined, how will the mortgage process change with the advent of QM or QRM?
We are already verifying every aspect of the borrower's ability to repay, which is the crux of the 800 pages of QM rules. Most underwriting guidelines already barred pre-payment penalties, and required qualifying offsets for borrowers taking adjustable rate mortgages and interest only loans. How many negative amortization, balloon and 40 year loans have you seen in the last 5 years? When these loans were offered, they weren't meant to be delivered to anyone - only those most qualified?
The shocker? Most of these restrictions are common-sense. The theme I have heard repeated by those companies who survived the crash: "We never did any of those hybrids and no-docs."
So wake me up when QRM gets defined.