This is a difficult time for American reporting. Most of America’s attention is shifting between the polar magnetism of Casey Anthony (see CNN’s “Essential guide to the Casey Anthony Trial“) and the debt ceiling crisis.
Left to progress under the radar is a substantial change in how Americans buy homes. You may have seen some reference to the qualified residential mortgage (“the QRM”) in the business section of your paper or perhaps from Bank Talk. The QRM is difficult to understand, in part because it is hard to explain what it means without going into a series of double negatives. But it goes something like this: banks will soon have to extract a down payment of at least twenty percent on any loan that they originate in order to avoid having to keep at least 5 percent of that loan on their books.
Banks don’t want to hold on to mortgage debt. The development of a secondary mortgage market solved that problem and it has changed the entire scope of how loans are now made. The QRM would change that in a sudden fashion. Normally, a bank sells a loan less than 90 days after closing. They are not interested in the interest – they write a loan in order to generate fees. Retaining five percent creates a liquidity strain, particularly for small banks.
The Senate Banking Committee held a hearing about the QRM earlier this month. This is an excerpt from one of the testifiers:
The respondent, Peter Skillern, is getting across a point that should be clear to everyone. Most Americans do not have twenty percent to put down on a home. If you live in any kind of big city, then the price of a new home is probably over $250,000. The average cost of a home across the United States fell from as high as $210,000 a few years ago to now a bit over $170,000. Even at the last price point, pulling out $34,000 plus closing costs is going to stretch a lot of people.
First-time homebuyers are a critical constituency, because they tend to be the ones that buy the houses that more well-off people are trying to sell. Think about it – it is hard to move up to a bigger home when you can’t sell your starter home.