Prime mortgages originated in 2011 mirror proposed QRM: DBRS
Many in the housing industry fear the qualified residential mortgage will hinder origination levels. However one credit ratings agency found those seemingly arduous standards are common in today's tighter credit environment. According to DBRS, the standards for originating a prime loan in 2011 are very conservative. Indeed, the criteria is extremely similar to some aspects that would be mandated under the QRM. The DBRS finding shows how difficult it is for borrowers to currently qualify for a prime mortgage. Borrowers must have an 80% loan-to-value ratio along with a credit score between 680 and 720 to even be considered for a prime mortgage in 2011, for example. This is already a common down payment on prime mortgages this year, DBRS finds in a report. This year, underwriters also typically required two years worth of W-2 forms and verification of employment within 10 days of closing the loan. A qualified residential mortgage is one with a maximum 80% loan to value, on a property that is owner-occupied and has a 30-year amortization period with full documentation. A borrower must have a track record clear of 60-day delinquencies, according to regulators who defined the terms. If a loan is originated outside of this criteria, banks must keep a 5% risk retention, or "skin in the game." One controversial aspect of the QRM is the requirement for borrowers to put down 20% of the loan at closing. According to the National Foundation for Credit Counseling, roughly half of all borrowers would never be able to afford this. Lawmakers in the House of Representatives recently sent a letter to federal regulators asking to lower that down payment. However, if a borrower puts down 20% of the loan, it implies his or her LTV is 80%, which is what DBRS found is already being originated. Still, analyst Kathleen Tillwitz said current origination standards give the market little leverage for recovery. "Based on the minimum FICO score, maximum loan-to-value (LTV) and the requirement that a foreclosure, short sale or deed-in-lieu be at least seven years old, it is likely that most of the U.S. population will not be able to qualify for a mortgage any time soon," commented Tillwitz. "Consequently, DBRS expects the housing recovery to continue to lag for many years to come unless there is a loosening of underwriting criteria by the major lenders." See DBRS' findings below (click to expand). Write to Christine Ricciardi.