In President Obama’s State of the Union address, he called for change in mortgage regulations claiming that they were hindering “responsible young families from buying their first home,” and in turn hindering the growth of the economy.
U.S. bank regulators have said new changes will be proposed by the end of this month, August 2013. The changes to the Qualified Residential Mortgage rule of 2011 will require lenders to keep a portion of the risk in high risk mortgages that are securitized.
The current version requires banks to keep a stake in loans where a borrower is spending more than 36% of their income on their total debt, especially loans where less than a 20% down payment was made. This is what is believed to be holding borrowers back from getting a mortgage.
This does not include Fannie and Freddie Mortgages.
Under the new plan, banks will be required to maintain a portion of the risk when borrowers are spending more than 43% of their monthly income on their total debt, according to Bloomberg News.
These changes are believed to unify the “Qualified Residential Mortgage” and the “Qualified Mortgage,” which was set in place by the Consumer Financial Protection Bureau, CFPB, to protect lenders and coincidentally uses the 43% model as well.
Now, borrowers can still get a mortgage even when exceeding 43% of their income, naturally the cost of the loan will be higher and the bank will have to keep a portion of that risk on their books. However, for the borrower spending less than 43% of their income on debt, they will now be able to acquire a loan much easier, while banks can give more loans.