Mortgage rates are currently low but mortgages themselves might soon be hard to come by. After the financial crisis, the Consumer Financial Protection Bureau created something called a “qualified mortgage patch.”
This allowed Fannie Mae and Freddie Mac to buy mortgages from borrowers who had debt-to-income ratios that were higher than normal.
There were a lot of these mortgages — 3.3 million over the past five years, or over a quarter trillion dollars’ worth in the last year alone. In fact, mortgages that fell under this “patch” accounted for 19% of all loans bought by Fannie and Freddie. That’s a huge chunk of the market, considering that Fannie and Freddie guarantee roughly half of all mortgages out there.
Now, here’s the news: The “qualified mortgage patch” is set to expire in January of 2021. Proposals that have come out in the past month seem to favor abolishing the patch, so Freddie and Fannie could no longer buy mortgages at the greater debt-to-income ratios.
How might this affect you? Well, one obvious impact would be fewer homebuyers.
At least some of the homebuyers who got a “patch mortgage” probably wouldn’t have gotten a mortgage if the patch weren’t in effect. In other words, abolishing the patch might mean fewer homebuyers, which will make it more difficult to sell a home.
Second, there is likely to be an effect on home price growth. The fewer buyers there are, the lower the demand. And lower approved mortgages means less money to spend on homes. In time, this could lead to a slowdown in home price growth or even a decrease in home prices.
Third, these changes might make it more difficult for you to personally get a mortgage. The large number of homebuyers who would no longer have access to Freddie and Fannie credit would have to look elsewhere. This might put added pressure on mortgage lenders — and make mortgages more difficult to obtain for everyone.
So are these changes something you should worry about?
Well, it’s not 100% certain the qualified mortgage patch will be allowed to expire. Even if it is allowed to expire, it won’t do so for another 18 months. But if it does happen, it’s not likely to benefit those who are looking to buy or sell a home.
If you have been considering buying or selling, it might be a good idea to get the process going before these changes come into effect.
If you have any questions for us or want to get the process started today don’t hesitate to reach out and give us a call or send us an email today. We look forward to hearing from you soon.