The proposed Qualified Residential Mortgage (QRM) definition ‘has the potential to create false-positive situations that deny creditworthy borrowers affordable loans in this class,’ according to testimony given Thursday by Acting Federal Housing Administration (FHA) Commissioner Bob Ryan.
‘This potential situation then begs one of the questions for which we actively seek comment: What costs will borrowers allocated to the non-QRM bucket have to face?’ Ryan asked in testimony prepared for a House Financial Services subcommittee. ‘In turn, what impact will this bifurcated mortgage market have on liquidity?’
While conceding that larger down payments correlate with better loan performance, Ryan said ‘down payments only tell part of the story.’ Credit scores are also an important factor, he said.
‘FHA uses both down payment and FICO scores to allocate credit assistance, which, together, we have found to be a much better predictor of loan performance than just one of those components alone,’ Ryan said. ‘For instance, FHA insured loans with LTV above 95 percent and a FICO score above 580 perform better than loans with LTV below 95 percent and a FICO score below 580, while loans with a LTV above 95 percent and a FICO score below 580 perform significantly worse than all other groups.’
To read Ryan's full testimony, click here.
SOURCE: House Financial Services Committee