It has been exactly a week since the Consumer Financial Protection Bureau's (CFPB) qualified mortgage (QM) rule went into effect. In that week, Congress held a hearing to discuss the potential difficulties surrounding QM and what it means for the industry. The hearing was essentially a group of mortgage professionals explaining that the QM rule would impact lower-income borrowers who don’t have the credit history to qualify, as well as an emphasis put on individuals in distressed areas who were not educated on the rule itself, as well as other programs that may or may not be available to them.
With QM now firmly in place, I wanted to know how this first week has been. And as it turns out, it has been less-than-spectacular for most. While many individuals were keen to play the speculative game of where QM might go, I wasn’t concerned about that. I wanted to know about the immediate impact of this new rule. Some of what I heard surprised me, while most of it did not.
“It has not affected my business or my clients at all. I have, for years, believed in charging no lender fees to my clients. So I am not (and wasn’t before Jan. 10, 2014) ever violating the points and fees rules,” said Ed Conarchy, mortgage advisor with Cherry Creek Mortgage Company.
“So far, nothing has changed drastically. It's till too early to tell the larger impact. What I have learned is that some companies are adopting the rule across the product line while some are mostly applying it to conventional product. I also learned that it is all smoke and mirrors with the three percent cost rule,” said Ted Canto, senior mortgage advisor at Amerifirst Financial. “The three percent rule only applies to what the buyer pays out of his pocket, however; that does not mean that the seller cannot pay the other fees/cost. Just more government smoke and mirrors. It will likely force sellers to cough up seller concessions as most people will become privy to this information.”
“Many wholesale lenders have reduced their fee to help the broker stay under three percent,” said Brad Yzermans, loan officer with Mountain West Financial and a mortgage blogger.
“My company has direct approval with Fannie Mae, so we won’t have the lender overlays you may see with other lenders in our industry. These overlays could affect a buyers mortgage approval, since there are more conservative rules,” said Joshua Bucio, senior mortgage advisor with Waterstone Mortgage. “We also have the option of keeping the loan in house as a portfolio, so if the mortgage did not end up being a ‘qualified mortgage’, we have the ability to place in our portfolio and not worry about selling the mortgage. This will relieve the worry of any buyer who is concerns about the new QM rules.”
“It's too early to say, but we have been studying guidelines for some time and were already easing into changes. Florida and Washington state are the only two states that the processing fee is included in the origination, and that is hampering our ability to originate lower loan sizes,” said Pam Marron, senior loan officer with Bankers Mortgage of Pasco County. “However, the state Florida Association of Mortgage Professionals (FAMP) is working to try and get that changed so that we are on the same playing field as the other 48 states.”
“With all of the time, money, and effort that go into procuring prospects and leads, capturing that business is all the more important. All the marketing in the world serves no purpose if you finally get a call from someone that isn't going to qualify because of score impediments,” said Doc Compton, operations manager with Prevost & Shaff.
It was encouraging to learn that many individuals and companies were already operating in a QM capacity, even before the rule went into effect.
“FGMC’s most important adjustments in preparation for QM have centered around technology and training. Because we operate in so many different platforms, it is important that our LOS be customized with the correct checks and balances to ensure compliance,” said Andrew Peters, CEO of First Guaranty Mortgage Corporation (FGMC). “We have also implemented extensive company-wide training and multiple breakout sessions for each platform. The result, we feel, is that business should remain at about the same pace it was prior to QM implementation.”
“Some lenders have expressed concerns related to QM citing increased difficulties for first time home buyers, reduced accessibility to credit, and increased prices for consumers,” said Mike Copley, head of retail money-out products at TD Bank. “In contrast, TD Bank has been operating under internal lending guidelines similar to those established under QM long before the QM rules were put in place, so we have not needed to make overwhelming adjustments to our lending practices. In fact, the transition following the onset of the Dodd-Frank Act will not have much of an effect on our lending practices and we will continue to offer home financing as usual.”
Some brokers don’t even seem to be explaining the new rule changes to their clients. While one can understand why that would be, misinformation and being uninformed were key points made during the recent Congressional hearing, especially by Rep. Maxine Waters (D-CA). Several of those who responded to inquiry highlighted that they aren’t informing clients of the issue so they don’t “confuse” their clients.
“Since it's almost a non-issue for me and my type of buyers, I don't even invest time educating them on what it is. Explaining to them about something that most likely won't impact them would be like trying to explain how a nuclear bomb works. They only care if it's gonna’ explode … not how it's made or how it works,” said an anonymous source.
Even when they do explain the rule, they’re met with a “deer in headlights” look. Multiple sources who responded expressed frustration at the government for hoisting more confusing legislation upon an industry already plagued by countless rule changes and regulatory shifts over the past few years since the Dodd-Frank Act went into effect.
“What I want to know is how much tax payer money went into the BS policy making. The QM rule doesn’t really do anything but wash the money from one hand to dirty the other,” said one source.
Overall, the qualified mortgage rule hasn’t made much of an impact on business, other than clients being confused when having the rule explained to them and some lenders not even bothering to explain the regulatory change at all. It’s hard to fault the lender in this case, as, more often than not, the rule doesn’t affect the borrower, however; if Congress is concerned about rules being clear, it would make sense that the rules be outlined and made clear before entering into an agreement. You wouldn’t sign a contract without reading and understanding the fine print, after all, right?
“What’s frightening is the fact that every investor in the secondary market has some sort of difference in opinion regarding the QM rule. The Consumer Financial Protection Bureau (CFPB) is quick to say the industry is ready. If the is the case, then why aren’t all investors on the same page?” said John H.P. Hudson, VP of regulatory affairs for Texas-based Premier Nationwide Lending.