After all the webinars, training sessions, program and system changes, the ability-to-repay or qualified mortgage rule is finally going live.
ATR Day is Jan. 10 and this back-to-basics underwriting rule makes the lending process more complex and increases the amount of information lenders have to document and keep to prove a borrower has the financial wherewithal to repay the loan.
But overall, and for all the loud fretting about the rule in advance of Jan. 10, the QM rule is not expected to have much of an impact on loan volumes or access to credit going forward. There are larger forces at work that are responsible for the tight credit conditions, according to Ann Schnare, president of the mortgage finance consulting firm AB Schnare Associates. “The QM rule is really a minor player,” she says.
Paul Anastos, president of Mortgage Master, says he has conducted studies on how the QM rule would have impacted his company’s loan production over the past couple years. “It doesn’t have a significant impact on our business,” he says.
There are a percentage of loans with debt-to-income ratios over 43% that might not comply with the QM rule. And there will be challenges meeting the 3% cap on points and fees. But overall, Anastos is optimistic all of Mortgage Master’s 40 retail lending branches will continue to grow and be profitable in 2014.
“We have always considered the borrower’s ability to repay. In a lot of ways that part of the rule is good because it puts us on a level playing field,” he said in an interview. Mortgage Master is based in Walpole, Mass. The privately held company originates mortgages in 26 states.
To ensure access to credit, the Consumer Financial Protection Bureau created a temporary exemption so Fannie Mae, Freddie Mac and Federal Housing Administration loans will qualify for QM status and the safe harbor from litigation.
“Qualified mortgages cover the vast majority of loans made in today’s market,” says CFPB director Richard Cordray.
Loans that are eligible for approval via the automatic underwriting systems of FHA and the government-sponsored enterprises are considered QM loans even when the DTI exceeds 43%.
Like other lenders, PrimeLending has tapped its loan system providers to install the appropriate controls to ensure they are capturing all the information to calculate the points and fees to stay within the 3% cap.
Due to the QM status for GSE and government-guaranteed loans, PrimeLending’s senior vice president for compliance expects Jan. 10 will be a non-event for the Dallas-based lender.
“Right now we do have the temporary definition of qualified mortgage so we don’t anticipate much interruption to our lending come Jan. 10. We think it will largely be business as usual,” says SVP Cindy Wortham.
Meanwhile, the CFPB director wants banks and credit unions to continue originating mortgages that may be considered non-QM loans but have demonstrated strong performance over time.
“Nothing about their traditional lending model has changed, and they should continue to offer such mortgages to borrowers whom they evaluate as posing reasonable credit risk—whether or not they meet the criteria to be classified as qualified mortgages,” Cordray said Jan. 7 at a housing policy forum sponsored by the National Association of Realtors.
He stressed that all the bank and credit union regulators have agreed not to criticize those traditional non-QM loans that depository institutions hold in portfolio.
So far, it appears banks are willing to make non-QM jumbo loans for wealthy clients when it is easy to document their ability to repay.
But loans that can be sold to Fannie, Freddie or other investors will remain the bulk of loan production.
“As a mortgage lender today, I have decided not to offer non-QM loans,” says Ben Cowen, president of BOKF mortgage group.
“Our business model is primarily focused on sellable product,” he said. “But today I have no place to sell it. The industry is waiting for that market to develop.”
Cowen is in charge of the Tulsa-based regional bank’s retail, correspondent and online lending channels.
United Wholesale Mortgage has been helping its brokers understand and navigate the QM rule. “For the most part, it is not a huge adjustment for the brokers that we work with,” says UWM president Mat Ishbia. He noted at all the loans UWM funds go to Fannie Mae, Freddie Mac and Ginnie Mae.
But some lenders have let up on their marketing and outreach efforts as they adjust to the new regulations, according to the Birmingham, Mich., lender.
“With QM, we look at it as a competitive advantage,” Ishbia says. “If you are ready to go, it is an opportunity to gain market share.”