Most mortgage officials feared Jan. 21, 2013 much more than the abortive Doomsday that was supposed to have happened a month earlier. And now that Jan. 21 has come and gone, it’s time for them to lift their heads and take a vigorous look around.
Jan. 21, of course, was the day the qualified mortgage rule went into effect (though lenders actually have another year to get into compliance). The QM’s biggest job, as detailed by articles we published online and in print, is to make lenders ensure their borrowers have the ability to repay.
When we started covering the mortgage industry many years ago, there was a single word to describe this: underwriting. Should be second nature, rather than an onerous duty. And a 43% DTI? Back then the Fannie/Freddie limits were 36%, meaning this is actually an easing.
Some of the rule seems actually to benefit lenders, as in the “safe harbor” provision that will hold them free from being sued if they are in compliance. Lost lawyer hours aside, this sounds like a good thing.
Smart mortgage lenders should file this under the category “Pay the Piper” for the mortgage mess and comply. Put in a few more years of stellar books of business and the leash will be loosened. Regulations, like mortgages and real estate, are a cyclical business. The pendulum will swing again, no fear.
Objections that the rule will crowd out nonagency lending neglect the fact that there is very little nonagency lending now. Will it dampen future enthusiasm for financing at a cost and margin above what you can get from the agencies? There will always be creative souls that spark creative financing, that’s the nature of the mortgage entrepreneur. It’s when things get too creative that the dam breaks.
True, it seems as if there’s a huge overdose of regs coming down the pike. The CFPB’s servicing rules, and LO comp rules, and the continued rulemaking for Dodd-Frank must be a burden for the business to bear. But we can’t remember an era when government regulation stifled the mortgage business below a critical mass. It won’t this time, either.
Of course, there’s always the qualified residential mortgage to look forward to. Maybe the QRM’s risk retention rules will be the straw that buckles the camel’s back.
But where there’s a will, mortgage lenders will find a way.
