New legislation will bring more hurt to the housing market

The new FDIC proposal for outlining the rules for the new QRM requirements and risk retention rules was presented a couple of days ago.  As we previously announced, largely the focus was on the QRM requirements.  However, it may be the risk retention rules that may more damaging to the housing market.

It was generally thought that the 5% risk retention requirement would expire after a couple of years.  This is why many large banks such as Wells Fargo had actually pushed for a 30% down requirement for QRMs. The large banks had the capital to hold larger numbers of mortgages on their books and then be released of retention requirements after two years.  But, not so fast! With the FDICs proposal their would no expiration for the risk retention. That means any lender giving out a non-QRM will be required to hold onto 5% of the value of the loan for the life of the loan.

This will dramatically reduce the pool of lenders and with less lenders reduces options and will ultimately be a drag on housing, if this passes.

It is under review for 45 days and this could change.  In its current form it would be more challenging for a housing recovery here in Hawaii.

We are still seeing unattractive exotic loans such as interest only loans out there.  Many people with these mortgages would need to refinance in order to take advantage of these low rates and keep their homes.  These rules would make it more difficult for them to do so.  The rules favor the large banks and investors of mortgage backed securities and not homeowners. As a result, we could see an increase in the number of foreclosures in our islands.