edited by Jodi Summers
QM is a newly created set of restrictions on lending guidelines and the products that are available in the secondary market. For example, there will be no more:
– Prepayment penalties
– Loan terms longer than 30 yrs
– Generally no debt ratios over 43%
“The effect of QM will be that many qualified borrowers will have more difficulty in obtaining financing,” reveals Caroline McPherson, Senior Mortgage Consultant @ RPM Mortgage.
Fitch Ratings believes that after the Qualified Mortgage rule goes into effect, it will help to protect investors and provide incentives to originators and issuers to maintain high-quality originations while upholding guideline compliance.
The forthcoming ability-to-repay and qualified mortgage rule will have direct consequences for the primary and secondary mortgage markets. Experts say processes will need to be developed to satisfy secondary market participants, including loan aggregators and residential mortgage-backed securities investors.
For borrowers with a debt ratio is over 43%, solutions include paying down debt so that they can qualify under the new debt ratio guidelines. Another option is FHA Loans. Mortgages insured by the federal government will have somewhat looser restrictions.