Don't let the odd loan program fool you. A securitization market needs to be developed before there will be any large scale offerings of non-qualified mortgage and other non-agency products.
That's one of the takeaways from a roundtable convened by National Mortgage News at the Regional Conference of Mortgage Bankers Associations in Atlantic City this month. The panelists also discussed the prospects for products such as reverse mortgages, second lien loans and adjustable rate mortgages.
Any development of these loans will be restricted until someone is willing to securitize them and investors are willing to buy them, the mortgage bankers agreed. They also shared their thoughts about the long timeframe it will take to clear up all foreclosures in New Jersey (longer than the two years expected elsewhere) and the future for loan modifications (one panelist claims people will prefer to move rather than stay in their homes).
The panelists were: Stanley Middleman, president and CEO, Freedom Mortgage Corp., Mount Laurel, N.J.; Peter Norden, CEO HomeBridge Financial Services, Iselin, N.J.; E. Robert Levy, executive director, Mortgage Bankers of America of New Jersey; Ralph Vitiello, CEO, Maverick Funding Corp., Parsippany, N.J.; Mike Flynn, president, Keystone Financial Services, Pittsburgh; and Gregory Tornquist, president and CEO, Cenlar FSB, Ewing, N.J.
NMN's Mark Fogarty and Brad Finkelstein moderated the discussion. The edited transcript follows
FINKELSTEIN: So we've had two months now of the qualified mortgage rule and the ability-to-repay regulation. Have any of you had to make any adjustments to your operations since this has gone into effect?
MIDDLEMAN: [Emphatically] No.
NORDEN: We have not made any real changes because most of our production is agency paper, so it really hasn't had a dramatic effect. However, we are actively looking at the potential capability to originate non-QM loans, but have not come to that conclusion.
FINKELSTEIN: I'm hearing a lot of people make mention that they are willing to do non-QM. I haven't heard a lot of it coming out in the market. Is that because of investor concerns or regulatory? A little bit of both?
VITIELLO: I think if you're delivering to the agencies, it's a nonissue.
LEVY: As far as the non-QM product just from that I have heard there are some looking to take advantage of what they feel is an opportunity to open a market that would be productive for them. Non-QM, if you do it properly, it's very controllable. Your main exposure is, in my mind, potential litigation where plaintiff’s counsel might want to take advantage of the fact that it's a non-QM product.
You know, you can always get allegations made, like "Well, that's not what I told them at the time," or "They should have known that my employer was in trouble because it was in all the papers," and therefore they really shouldn't have made the loan.
NORDEN: We have three entities right now that are actively willing to buy non-QM products. However, they will not sign off in writing for a prior approval on any of the loans because once they sign off on a prior approval, they now get the risk, as opposed to the originator. That has basically shut it down because I have no interest whatsoever in doing that product.
MIDDLEMAN: We see the world very similarly in that we need to make sure that there is a take out [investor]. And I think fundamentally that there is going to be a requirement for the capability to securitize this product at some point in time. Nobody wants to hold that paper on their books for an extended period of time or take on the regulatory scrutiny that's attached to that paper.
FINKELSTEIN: On the servicing side of the business, we are seeing New York Attorney General Benjamin Lawsky going after a couple of servicers, Ocwen and NationStar. Furthermore, we have also heard the remarks from CFPB deputy director Steve Antonakes. Are you feeling any pressure now?
TORNQUIST: Yes and no. Even though we don't originate, we service, and we service quite a bit. Obviously, we spent a lot of time preparing for the national servicer standards. I do think it's going to take probably a complete exam cycle before everybody realizes how the regulators are going to interpret those regulations.
CFPB is not a safety and soundness regulator, and that's one of the things that seem to have caught New York's interest, trying to play that role. Whether that exactly what they're looking to do, I don't know that anybody knows yet. But I think that's an issue that comes up quite a bit in some of the conversations that we’re having.
FOGARTY: What do you think the total volume of originations is going to be this year? Everybody is estimating that it's going to be down. Is that what you're seeing so far? Are refinancings entirely gone from the housing purchase market?
FLYNN: I am out of Pittsburgh and the origination market, thank god we're coming into the thaw of spring because from the frontline I see the ice breaking and the numbers increasing after a steep decline since October, November and December. What that's all about, it's hard to say.
You think about today versus 2017. The average (economic) growth rate today is 0.38%. Where will we be in 2017? Probably back to normal, 6%. So it's going to be interesting times. I'm optimistic about this moving forward.
FOGARTY: What products are selling now?
FLYNN: The 30-year fixed is the product of choice, unless you know for certain you're going to be out of the house within 10 years or seven years or five years. There is even a product out there that I've seen, a 5/5 ARM, where the fixed-rate period starts at 2.5% and [the adjustment] caps at 2%. So effectively you've got a 10-year instrument with a cap of 4.5%. It’s the ideal instrument.
FOGARTY: You save a lot of interest that way, right?