WE’RE HEARING that Fannie Mae and Freddie Mac’s quality control units will go easy on lenders as they adjust to the qualified mortgage rule, which goes into effect Jan. 10.
This approach reinforces the stance the Consumer Financial Protection Bureau is taking. CFPB director Richard Cordray has stated repeatedly that his examiners will go easy on lenders that are making a good-faith effort to comply with the QM rule.
GSE officials are telling lending officers at conferences and meetings that they will not be testing for compliance with the 3% cap on points and fees during the initial phase-in of
This announcement drew applause from attendees at a mortgage conference in Washington.
If the lender is making a good-faith effort to comply with the rule and they have controls in place, Fannie will not push for repurchase, according to Becky Pratt, chief credit risk officer at Altisource.
However, there is an important exception. Fannie will require repurchase if the loan is cited by a regulatory agency or a court finds a loan is not QM compliant.
A Freddie Mac spokesman also confirmed that Freddie will not be testing for points and fees initially.
The CFPB specifically granted QM status to Fannie and Freddie loans so the new rules would not constrain the availability of GSE loans. Seller/servicers just have to limit their points and fees to 3% of the loan amount.
However, Fannie and Freddie are changing their automated underwriting systems and their terms and conditions to reflect the QM rule standards. And that may run counter to CFPB’s intent.
“Fannie and Freddie are tightening their requirements,” Pratt said in an interview. “So it is starting to trim away that pool of saleable mortgages.”
The credit risk expert also noted that the requirements for verifying the borrower’s debts and income have become more stringent because of the QM rule.
“If documentation is not stellar, it could increase the risk of repurchase,” she says.
Even portfolio lenders are becoming more cautious, she noted, when it comes to the borrower’s debt-to-income ratio. The general DTI limit is 43% for QM loans.
Just to be sure the loan is QM compliant and they can sell it three or four years down the road, some portfolio lenders are talking about limiting the DTI to 39% to provide a margin of error.
“They want to go to 39% in case they find later that some of their documentation is off,” Pratt says.
Altisource is the parent of Lenders One mortgage cooperative, which is based in St. Louis.
We are also hearing that the CFPB might release its final rule to revamp the RESPA-TILA disclosures at a Nov. 20 hearing in Boston. The CFPB has completely redesigned and merged the RESPA settlement sheet and TILA loan disclosures.
Lenders are praying the CFPB will delay the effective date for at least a year—preferably until January 2015, according to RESPA attorney Phillip Schulman. “There are going to be all new forms, all new calculations and nothing is going to be the same,” the K&L Gates partner said.
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.
