ComplianceEase announced that ComplianceAnalyzer will audit loans for compliance with the Dodd-Frank Act, including identification of the highest-impact barriers to meeting the Qualified Mortgage (QM) standard. ComplianceEase quantified the areas of greatest industry impact in the QM rule, all of which will be included in ComplianceAnalyzer audit reports at least two months before the effective date of January 10, 2014.
ComplianceEase analyzed the effects that the QM rules will have on current mortgage loans audited by ComplianceAnalyzer, finding that more than one in five loans originated today would not qualify for the QM Safe Harbor. Specifically:
►More than half of such loans have fees that exceed the new three percent points and fees threshold
►Loans with fees that exceed the three percent threshold typically exceed it by nearly $1,500; and
►The rest have APRs that are too high to qualify for the safe harbor classification
Based on current guidelines, these loans also will not be eligible for purchase, insurance or guarantee by government-sponsored enterprises (GSEs) or government agencies. Moreover, due to lack of marketability, lenders generally try to avoid originating loans known as “high-cost” loans, which are subject to restrictions in the Home Ownership and Equity Protection Act (HOEPA). With new, stricter points and fees thresholds in the amended HOEPA, close to three percent of loans in the study that previously weren’t HOEPA loans would move into the federal “high-cost” category. On average, those loans would exceed the new HOEPA points and fees threshold by more than $1,000. ComplianceEase has designed the new capabilities in ComplianceAnalyzer to target these areas of high exposure.
ComplianceAnalyzer offers compliance protection to financial institutions with real-time, loan-level audits for federal, state and local laws, regulations, and secondary market investor requirements. Lenders can quickly correct violations using detailed analysis reports before a loan closes.
“We used ComplianceAnalyzer, together with proprietary loan data modeling, to simulate current lending patterns under the forthcoming rules. The results have given us a good idea of the impact that the new rules and, in particular, the new thresholds will have when January comes around," said Jason Roth, CMT, senior vice president of Product Development at ComplianceEase.
As part of the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is implementing broad regulatory changes to require that mortgage lenders verify that borrowers have the ability to repay their loans. The QM designation offers an alternative to those provisions in exchange for tighter limits on fees, APR, and other terms of the loan. Starting in January, loans that aren’t eligible for purchase, insurance, or guarantee by GSEs or government agencies must also comply with new underwriting standards.
Whether a loan is originated according to QM rules or the ability-to-repay provisions of Dodd-Frank, compliance requirements are both comprehensive and challenging. Lenders are especially concerned about non-compliance with the new rules because legal liability can potentially be assigned to their institutions and any secondary investors or servicers for the life of a loan. In all cases, lenders will need to retain detailed records of their process and their data to substantiate their findings, making technology a must in order to stay in compliance.
“Banking and mortgage executives need to evaluate their technology providers very carefully because the QM rule can create legal liability for the life of a loan,” said John Vong, CMB, CMT, president of ComplianceEase, “We’ve built our QM audits on a compliance platform that the industry has trusted for more than a decade. It’s easy to say that you have a QM compliance solution but our experience tells us that the devil is in the details.”