a whole will be clipped 1.1 percent over the next three years if federal
regulators proceed with their proposed qualified mortgage (QM) and qualified
residential mortgage (QRM) rules, and international regulators proceed with
implementation of international capital standards under Basel III.
That’s the assessment of analysts with American Action Forum, a public policy institute.
The analysts say QM, QRM, and the Basel III standards, if implemented in their
current form, would effectively lock in the extremely tight credit standards
lenders have put in place since the mortgage crisis.
“One way to think about the impact . . . is that the rules essentially make
permanent current credit conditions in which originators have independently
scaled back activity in response to the legal and reputational costs associated
with GSE [Fannie and Freddie] ‘put-backs’ and the risk thereof,” the analysts
say in their October 2012 report, “Regulatory Reform and Housing Finance: Putting the ‘Cost’ Back
in Benefit‐Cost,” released yesterday. The authors are Douglas
Holtz-Eakin, Cameron Smith, and Andrew Winkler.
“The bottom line effects of [QM, QRM, and Basel III] may include up to 20
percent fewer loans, resulting in 600,000 fewer home sales,” the analysts say.
“In turn, the resulting tightened lending and reduced sales are estimated to
cost up to 1,010,000 housing starts, 3.9 million fewer jobs, and a loss of 1.1
percentage points from GDP growth over the next three years.
“Taken as a whole,” the report goes on, “QM, QRM, and B3 [Basel III] will
limit the amount and variety of mortgages that banks will hold in portfolio.
They will also cause banks to be cautious in how they originate loans for sale
to the GSEs [secondary mortgage market companies Fannie Mae and Freddie Mac] and
FHA for fear of writing loans that will not be accepted and would then have to
be held in portfolio.”
QM, QRM, and Basel III are slated to be released in early 2013. Banks have
said they’re already locking in their tight credit standards in anticipation of
The National Association of REALTORS® has taken issue with QM and QRM as
proposed, because they would lock in rigid and overly tight down payments and
debt-to-income ratios, and limit lenders’ flexibility in providing reasonably
priced loans to borrowers with less-than-stellar credit profiles. QM sets
underwriting standards to ensure lenders only make loans to borrowers who have
the ability to repay them, and QRM sets additional standards for loans that are
securitized for sale to investors. For securitized loans that don’t meet QRM,
lenders have to hold back 5 percent of the value of the loans on their books,
making them prohibitively expensive for borrowers.