But our panel of experts at the recent Northeast Conference of Mortgage Brokers in Atlantic City, N.J., attributed the further tightening more to what is happening with the secondary market purchasers, as they have been requesting loan buybacks from their seller/servicers in unprecedented numbers.
National Mortgage News associate editor Brad Finkelstein moderated the discussion, whose participants in this segment included Joseph Heisler, president of the New Jersey Association of Mortgage Brokers; Paul Logan, president of the Pennsylvania Association of Mortgage Brokers (the two groups co-sponsored the event along with the Maryland Association of Mortgage Brokers); John J. Amrhein, past-president of the Mortgage Bankers Association of Pennsylvania; and E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey and NJAMB.
During the show, Levy announced the creation of a regional trade group through a merger of PAMB, NJAMB and MBA-NJ, to be called the Mid-Atlantic Association of Mortgage Bankers and Professionals.
FINKELSTEIN: This is still one of the most interesting times in the history of the mortgage industry, especially with all of the unknowns facing it. One of the biggest is the qualified mortgage definition and on the NationalMortgageNews.com website there was a report that lenders are starting to tighten their underwriting guidelines in anticipation of what the Consumer Financial Protection Bureau will come out with. What would that mean from both the standpoint of third-party originators and for consumers?
HEISLER: I’ve certainly recently seen underwriting guidelines tightening, but I don’t know if it has anything to do with what coming down the road with QM or if it’s simply the direct effect of the push-back that the aggregators are getting from Fannie and Freddie for loans (in regard to repurchases). We are getting more and more onerous criteria for underwriting some of which makes no sense whatsoever and has nothing to do with the loan itself. What it does to the consumers, all it does is drive costs up for all of us. The more time we have to spend, the more energy and effort we have to put, and bodies we have to put, at problems, ultimately the costs go up and the costs always go back to the consumer.
AMRHEIN: I would agree with that. I think clearly we have to be reactionary to what the secondary market is dictating. I don’t know that what we’re looking at is a direct response to QM. We originate loans in Pennsylvania; Pennsylvania for a number of years has had the ability to repay analysis. Are we moving away from a risk standpoint with automated underwriting, back to the rules-based system where we have specific front-end and back-end ratios that we have to follow—I think there is a migration to that. But there’s a migration to that concept in direct response to the actions of Fannie and Freddie with respect to repurchase risk.
FINKELSTEIN: Do you think Fannie and Freddie have become a little too heavy handed with their repurchase request demands?
AMRHEIN: When you get the first notice, some of their conclusions might not be accurate. And when afforded the opportunity to provide your thoughts and rational (when the loan was sold to the agency), a substantial number of the actual repurchase requests get rescinded. The issue we see on repurchases that we have the most difficulty with is when they attempt to use the retro appraisal. We have to deal with a retro appraisal looking at a property five or six years ago. I think that is very subjective and creates substantial concern for the industry.
HEISLER: One of the things I am seeing with documentation is that a lot of the things we are being asked to do have absolutely no bearing on the loan or the performance of the loan itself, or the ability to repay of the consumer. They’re horrible conditions. They have nothing to do with debt-to-income ratios; they have nothing to do with credit quality. It’s simply paperwork, and dotting i’s and crossing t’s.
LOGAN: Also, we’re going to see more of this from the appraisal side, is that the appraisal management companies are increasing their fees for reviewing appraisals. Because the appraiser has to go out two or three times to answer these questions over and over. And back to Joe’s point, these are being passed on to the consumer. They’re not helping the consumer. Although the intent may be to have good loans—of course, that is important—but you can go to an extreme where you can’t move. There is not breathing room.