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Opinion

Profitability a ‘Key Concern’ in QM Rule

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WE’RE HEARING that a possible drop in per-loan profitability is among key concerns as the qualified mortgage rule goes into effect.

Roger Fendelman, Interthinx vice president of compliance, said given QM’s 3% points and fees test lenders are asking, “How can we make money when we’re capping at 3%?”

“I think that is going to be a major issue,” he said.

While it is not a question vendors can fully answer, they can help to some extent, said Fendelman. “We can help mitigate it, and we are doing everything possible to do that,” he said. His technology, for example, offers automation that runs an analysis of bona fide discount point exclusions.

Non-QM loans can be done, potentially allowing for wider margins, but how many will be and what the secondary market appetite for them will be like remains to be, he said.

Fendelman said Interthinx works with companies as large as top five originators to community banks and among that group there is a lot of variation. “People are all over the map,” he said, noting that some seem to be focused on QM-only loans while others may allow other products outside of that boundary.

The potential regulatory pressure on margins would come on top of rising costs for compliance with QM and others new rules as well as a shift toward purchase loans. This also puts more pressure on margins because purchases tend to have higher costs to produce than refinances.

“The cost of regulation is increasing the cost of operating,” said Paul Diamond, CEO/president-director, Diamond Residential Mortgage Corp., noting that developments like QM add to overall uncertainty about future earnings and regulation in the business.

He found that given the traditionally piecemeal approach to lending there has been a need for investment in data integrity as his company has had to transition from older technologies in line with developing rule affecting loan profitability factors like QM and loan officer compensation.

There is literally “very little margin for error today,” said Diamond, who is using mortgage accounting technology as a “financial system of record,” matching other systems to ensure an accurate view of its bottom line for both management and loan officers who are governed by new compensation rules.

Brian Lynch, CEO of accounting technology provider Advantage Systems, said the January regulatory deadline has driven increased interest in such automation. “It’s the accounting system that is getting audited,” he said.

Once this kind of technology and data integrity is in place a company is at least in a position to keep doing business in the new regulatory environment, said Diamond.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

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