Wednesday, January 12, 2011


2010 saw the mortgage industry tightening guidelines and requirements to get a loan while at the same time telling prospective new home buyers that 2010 was the year to buy a home.

2011 should be a better year for the housing industry but regulations are getting tighter and now the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act which have yet to be formalized are making mortgage lenders fearful of loaning money again.

Among the things that is spooking the lenders is a requirement that mortgage lenders maintain some "skin in the game" on the mortgages they originate by holding at least 5% of the credit risk rather than bundling the loans and selling them off entirely.  Nothing makes these guys hesitate to loan money more than placing some of theirs at risk also.

The reason for this is to discourage a repeat of those risky lending practices that started the whole mess in the first place.  The legislation does make an exception to the "risk retention" part for what is called a "qualified Residential mortgage" (QRM) but since there has been no specific definition of this and none is expected until spring, lenders will sit on the fence and keep their money close and wait for the new standards to be issued.  

If your prospective buyer hears that their loan is on hold for another 3-6 months because of QRM, now you can explain to them that their bank, the one that they think they are borrowing the money from, doesn't trust them enough to even hold 5% of their loan. 

CLICK HERE to read the entire 848 page Dodd-Frank bill

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