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CORELOGIC: QM, QRM RULES REMOVE 60% OF LOANS AND 90% OF RISK About 60 percent of loans written today would not be acceptable under the finalized rules for a qualified mortgage (QM) and the anticipated rules for a qualified residential mortgage (QRM), according to new research from CoreLogic. CoreLogic analyzed 2.2 million loans written in 2010 to determine what percentage complied with QM and QRM guidelines. The firm chose 2010 because underwriting trends during that year were quite similar to current credit parameters. QM criteria would eliminate about 48 percent of the mortgages analyzed, and when QRM—with an anticipated 10 percent down payment requirement—is added to the equation, about 60 percent of the loans fall outside the regulatory framework. The impact of the new rules will be somewhat larger on the purchase origination market compared with the total market because of the likely QRM down payment requirement, which eliminated 27 percent of purchase originations compared with 13 percent of total originations from the test group analyzed. "The combined impact of QM and QRM is that only 25 percent of purchase originations would meet the eligibility requirements of the QM rule's safe harbor," according to CoreLogic. While the effects of the "qualifying" rules will be vast, CoreLogic says any immediate impacts will be minimal because for the next seven years, loans that meet the underwriting requirements of the GSEs and the Federal Housing Administration (FHA) are exempt from the new guidelines. "The irony of the exemption is that it reinforces the role that the GSEs play in the market, making it harder to enact GSE reform," CoreLogic stated in its report. 12 Currently, about 90 percent of newly originated loans are backed by the GSEs or FHA, and the market will likely continue along this path for the next several years given the protections afforded government-backed mortgages. Unlike the conforming market, the jumbo loan market is likely to begin feeling the effects of QM as soon as it takes effect. The impact in this sector, however, is somewhat smaller. More than 62 percent of jumbo loans would pass the QM safe harbor guidelines, and only 2 percent would be disqualified by the 10 percent down payment requirement expected for QRM, according to CoreLogic's estimation. While the "qualifying rules" will be the same across the nation, their impact will vary by region and state, CoreLogic noted. QRM rules will impact lower-income regions—the South and Midwest—more than higherincome regions. About 25 percent of all loans in Arkansas will the impacted by the QRM rule—the largest percentage in any state. QM rules will be felt most in Nevada, where only 42 percent of loans qualify. South Dakota will be the least impacted state, as 67 percent of its loans already adhere to QM guidelines. While CoreLogic makes it clear the impact of the QM and QRM rules will be monumental when their exemptions expire in seven years, the firm also answers the question of whether these rules will, in fact, minimize risk in the market. "In CoreLogic's view, the answer is a resounding yes," the firm stated in its report. When observing the amount of 2010 loans that both do not qualify under the new rules and have fallen delinquent, CoreLogic came to the conclusion that "[w]hile QM and QRM remove 60 percent of loans, they remove 90 percent of the risk." PRICES SUSTAIN GAINS INTO FEBRUARY AS SPRING SEASON NEARS National home prices continued to post strong annual gains in February, while quarterly increases stabilized, Clear Capital reported. Home prices in February were up 6.1 percent year-over-year, the strongest annual growth since August 2010, when the homebuyer tax credit influenced demand, according to Clear Capital's Home Data Index (HDI). The robust yearly gains of late, however, are expected to ease in the coming months. "While February's yearly growth of 6.1 percent is encouraging, let's keep in mind this rate of growth is measured against the market's bottom, which we reported in our March 2012 Market Report," said Dr. Alex Villacorta, director of research and analytics at Clear Capital. Quarter-over-quarter, national home prices grew as well, rising at a slower, but perhaps more normal pace. National quarterly home prices expanded 1 percent in February, and Villacorta says the fact that gains, no matter how modest, are being recorded in the midst of winter is confirmation the recovery has legs. "While 1 percent is weaker in comparison to more recent rates of quarterly growth, the positive trend continues to support homebuyer confidence and is on par with the new normal," Villacorta said. Despite the winter season, all four regions managed to move in a positive direction, though the quarterly gains were mostly flat for all regions except the West, where prices rose 2.1 percent quarter-over-quarter. The South, Northeast, and Midwest saw increases of 0.8 percent, 0.7 percent, and 0.4 percent, respectively. The West also led other regions with its year-over-year gain of 13.6 percent. In the South, prices rose 5.1 percent during the same time period, while the Midwest saw a 4 percent gain and the Northeast experienced a 2.6 percent increase. "Overall, the U.S. housing market continued to hold up well in February and with spring just around the corner, we head into the more active homebuying season on solid ground," Clear Capital concluded. KNOW THIS As of September 30, 2012, 30.2% of the GSEs' delinquent single-family loans were past due by more than 365 days, according to the Federal Housing Finance Agency.

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