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QRM requirements could slash refinancing in hardest hit states

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An overwhelming percentage of homeowners located in states hardest hit by the housing downturn would be shut out of refinancing their mortgage because they do not meet equity standards under the proposed risk-retention rule, according to a study from consumer and industry groups. A coalition of these 44 groups and the lawmakers who wrote the requirement for the risk-retention rule under Dodd-Frank met on Capitol Hill Wednesday. They urged regulators to scale back the requirements on the rule's exception – the qualified residential mortgage. Lenders would not have to retain 5% of the credit risk on a QRM. In addition to a mandatory 20% down payment that could price out many future homebuyers, a white paper submitted to regulators showed existing homeowners would be harmed as well. A borrower must hold 25% equity in the home in order to refinance into a QRM loan and at least 30% equity for a QRM cash-out refinance loan, according to the current proposal. Data from CoreLogic (CLGX) showed the five states most impacted by the proposed equity requirements are Nevada, Arizona, Georgia, Florida and Michigan. Home values dropped so much in these areas that the study found two out of three homeowners in these states would not have the necessary 25% equity to refinance. The study also found six out of 10 would not be able to move out of the home and put 20% down on a new QRM. The study showed 64% of Michigan homeowners do not meet the 25% equity requirement. The percentage goes up in Florida (66%), Georgia (65%), and Arizona (72%). In Nevada, 83% of homeowners do not have 25% equity in their home and would not be able – even if they had never missed a payment – to refinance into a lower-rate QRM loan. "In effect, the proposed QRM would penalize families who have played by the rules, scraped each month to pay their bills, kept their credit clean, and saved for a modest down payment," according to the study. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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