Quantcast

Don't Push Your Luck with QM

MAR 3, 2014 12:06pm ET
Print
Email
Reprints
Comments (2)
Twitter
LinkedIn
Facebook
Google+

Since the qualified mortgage rules went into effect, one of the more interesting interpretations is that loan brokers are able to utilize an affiliate title company without impacting the 3% cap on points and fees. The rationale is that the QM rules provide generally that monies paid directly or indirectly to a creditor, originator or an affiliate of either must be counted toward the 3% cap in points in fees. However, a more specific provision states that real estate-related fees, otherwise excluded, are included if they are paid to a creditor or an affiliate of a creditor. Many believe that because originators are not mentioned in regard to the re-inclusion of real estate related fees (which include charges for title insurance) it permits brokers to maintain an affiliate title relationship without impacting the QM cap on points and fees.

While a technical reading of the language does support this interpretation, it would not be wise to risk the QM status of loans in the absence of a specific interpretation by the Consumer Financial Protection Bureau. Indeed, uniformly, brokers have not been given preferential treatment (to say the least) when it comes to regulations. It would thus be surprising—and wholly inconsistent with the expressed rationale for including payments to an affiliate in calculating points and fees–to permit brokers to maintain these relationships without impacting the cap on points and fees, while prohibiting creditors from doing so. In fact, I can think of no reason for such a distinction, and the CFPB's authority is certainly broad enough to interpret the QM rules as requiring that all affiliate title relationships impact the 3% cap on points and fees.

From a practical standpoint, of course, the creditor takes all of the risk if it omits broker affiliated title fees from the QM calculation. Moreover, it receives none of the benefit (if indirectly it received any benefit the charges would plainly be included in the cap). Absent CFPB clarification confirming a distinction exists in the treatment of broker and creditor affiliated title companies, the best bet is to assume such a pointless distinction was not intended and act accordingly.

Comments (2)
I think the bureau intentionally left out 'Broker' from its language when the bureau wrote: "an affiliate of the creditor' because the bureau knows it already double hit brokers when the bureau included the broker's compensation into the 3% calculation. A lender's loan officer compensation is NOT included in the 3% but a broker's LO compensation IS included. This already put brokers to a disadvantage compared to lenders.

The Bureau has always been careful about what words are in and out. One could alternatively argue that the bureau mistakenly didn't ADD a lender's loan officer compensation to the 3% as it did with brokers. I think both examples are intentional.
Posted by | Monday, March 03 2014 at 5:37PM ET
I couldn't agree more with Chris.
Posted by | Wednesday, March 05 2014 at 2:06PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
Twitter
Facebook
LinkedIn
Already a subscriber? Log in here
Please note you must now log in with your email address and password.