The qualified mortgage rule essentially aims at reducing layers of risk in a loan by specifying debt-to-income thresholds and higher underwriting standards. The question is: Will it succeed?
According to Core Logic, the rule, while eliminating 60% of today's loans, will also succeed in getting rid of 90% of the risk. The serious delinquency rate -- the share of borrowers behind on their payments for more than 90 days -- drops 36% under the new debt-to-income threshold, for instance.
A 1% reduction in originations of loans with a down payment of less than 10% and a credit score of less than 640 could reduce serious delinquencies by 2% and 6%, respectively, the study showed.
-- Written by Shanthi Bharatwaj in New York