• English
  • Español
AGENTS: Did you know you can share a personalized version of this post? Learn more!

QRM: The Potential Cost to a Purchaser

The Quality Residential Mortgage (QRM), a proposal by the government to tighten lending standards, has initiated quite a debate. The government feels strongly that standards must be raised while others have debated that the new guidelines are an example of the pendulum swinging back much too far.

For the government’s position on QRM, click here. For the other side of the debate, click here.

We do not want to enter this debate today. Instead, we just want to shed some light on the increased cost a buyer should expect under the new guidelines. The fact that it will cost a purchaser more is not argued by either side. The only question is the extent of the increase.

The most complete study we could find on this issue was JP Morgan’s 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.

“…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…”

That’s assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.

“This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”

Let’s assume the eventual increase in mortgage rate is 2% (the middle of that 1% – 3% window). What impact would that have on a purchaser?

Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.

That is an additional $3,009 each year and a total of $90,277 over 30 years.

Bottom Line

It doesn’t matter which side of the QRM debate you are on. If you are considering the purchase of a home, waiting could be expensive if lending costs do increase.


Members: Sign in now to set up your Personalized Posts & start sharing today!

Not a Member Yet? Click Here to learn more about KCM’s newest feature, Personalized Posts.

70 replies
  1. Stephen Foster
    Stephen Foster says:

    I have been telling people they need to get off the fence. Then an article appears on home prices on I think it’s the Huffington Post, title “Back to the Future” and how prices are now down to even below 2000 prices…
    Now, I don’t know how Case Shiller is doing it’s averages but here in Birmingham, that is not the case and I am from the SF bay area Atherton and San Francisco and Prices are down but NOT that down !! Or there would run away buying !! Any comments?

    Reply
  2. jojo
    jojo says:

    Steve Harney June 13, 2011 at 2:20 pm

    ” Buyers should be concerned about the COST of a home, not the PRICE. Check out tomorrow’s blog for more on this.”

    False – Price is what got everyone into underwater housing situations because they bought at the peak. Granted, prices are now deflated but saying they should not be concerned about price is madness. What happens when you want to sell and the house has depreciated 10% and the realtors want a 6% cut on top of that? Then what? Is that not a cost?

    Reply
  3. jojo
    jojo says:

    Why did my original comment get deleted but the realtor trying to convince people to buy buy buy! gets to keep his post on? Oh ya..this is a realtor blog…bye bye. Good luck having a successful site with truly one-sided information.

    Reply
  4. Young and homeless
    Young and homeless says:

    To the responsible buyer in a strong financial position, how would this cost more?? If interest rates do in face go up by 3% for those that never saved then home prices should discounted according. So for the savers and hard working folks this is a definite plus. Even if home prices don’t plummet, the savers will have a much broader choice of homes to choose from due to others not being in the same financial position.

    Reply

Trackbacks & Pingbacks

  1. […] investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.In many higher priced markets, rolling back Conforming Loan Limits means that rates for the […]

  2. Time to Buy? says:

    […] The cost of a loan will increase […]

  3. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  4. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  5. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  6. […] 1. As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  7. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  8. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  9. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  10. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  11. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  12. […] The cost of a loan will increase […]

  13. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  14. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  15. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  16. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  17. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  18. Michael Babbitt : Why They Are Saying Buy a Home Now! says:

    […] 2.       The cost of a loan will increase […]

  19. […] of the mortgage market? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  20. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  21. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  22. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  23. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  24. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  25. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  26. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  27. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  28. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  29. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  30. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  31. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  32. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  33. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  34. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  35. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  36. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  37. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  38. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  39. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  40. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  41. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  42. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  43. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  44. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  45. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  46. […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  47. […] investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.In many higher priced markets, rolling back Conforming Loan Limits means that rates for the […]

  48. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  49. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  50. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  51. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  52. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  53. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  54. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  55. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  56. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  57. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  58. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  59. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  60. […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will tell.Despite Early Headlines, Sales are IncreasingHeadlines earlier in the year […]

  61. […] QRM: The Potential Cost to a Purchaser. […]

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *