When the qualified mortgage (QM) patch expires in January 2021, some homebuyers could be pushed out of the market because Fannie Mae and Freddie Mac will lose its exemption from Dodd Frank’s 43% debt-to-income ratio cap.
The cap could be extended, but in case it isn’t, builders could find themselves stuck in markets where some home loan underwriting would shift to Federal Housing Administration (FHA) loans that have lower lending limits, as much as 50% less in some metros like Phoenix, Ariz.; Orlando, Fla.; Tampa, Fla.; Charlotte, N.C.; and Las Vegas, compared with current Fannie and Freddie loan limits.
Rick Palacios Jr., principal and director of research for John Burns Real Estate Consulting recommends builders “pivot away” from homes priced between the FHA and Fannie/Freddie loan limits.
Along with an interactive map that identify communities at risk where mortgages needed could bump into the gap between FHA and Fannie/Freddie loan limits, Palacios offers recommendations for reducing risk exposure, including selling out of communities that have buyers with high debt-to-income ratios before January 2021.
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