Market braces as final qualified residential mortgage rule nears

This means if the bank want to sell their mortgages on the secondary market, then mortgage will have be on properties where the buyer put down 20%.  If not, then the bank will charge either high PMI fees or a higher mortgage rate, but it will probably a combination of both.

While the rulemakers work to define the appropriate range for the rules, others are concerned over who would fill the nonconforming loan gap.

"The question is what happens to those with less than 20% down. Some regulators, in our view, believe the private sector will respond with a home loan product for consumers with between 5% and 19% down," said the Washington, D.C., policy think tank MF Global.

But these loans will most likely be priced like a Federal Housing Administration mortgage and would be more expensive for homebuyers, MF Global said. Lenders and issuers may have to make representations and warranties to investors, possibly creating "a situation where less-than-perfect borrowers have no ability to get mortgages, which could make an already tight mortgage market even tighter," MF Gobal said.

The final decision would have to come by April 2010.

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