Salvador
Dali commented, "What is
important is to spread confusion, not eliminate it." As we all
know the QM rule became effective January 2014. Some say that if the first
victim of the rule is clarity, the second is the consumer, with the industry a
close third. Already there are as many ways to calculate the three percent
points and fees cap as there are lenders who are concerned about safe harbor. One
question that has been raised by several originators is how does the
requirement to include lender paid compensation paid to a non-self-funding
originator play into the disclosed APR? It seems that the answer to this
question is not shared by all lenders. According to Bill Kidwell with IMMAAG,
"attorneys at the CFPB, before and during a November roundtable discussion
with the Director and several of his staff, responded that the answer was
straightforward - lender paid compensation only counts toward the
calculation of the 3% Points and Fees cap for determining if the loan is a
Qualified Mortgage. It DOES NOT get 'double counted' in the APR. Remember
that the interest derived from the base rate is already in the APR and that is
the source of the same lender paid compensation." Bill continued,
"So, if you have a lender mandating that you include, or if their TIL
disclosure increases the APR because they include the lender paid compensation
as an addition to calculate APR, please push back and have them contact the
CFPB for clarification." (IMMAAG, an industry information and
compliance company is gathering information about QM problems so they can be
collected and submitted to the Bureau in a solutions oriented way. If you have
issues or questions about the implementation of QM and you want to discuss them
with someone who is concerned and wants to help solve them you are invited to
send an email to admin@immaag.com, subject "QM
Questions.")
Interestingly
enough, home loan programs tied to state programs have escaped the QM
confinements, per Bloomberg. "Every state has one of these
little-known agencies, which legislatures set up in the 1960s and 1970s to
promote affordable housing. Now, as regulators tighten mortgage rules and big
banks resist lending to riskier middle-income Americans, HFAs across the U.S.
are rapidly expanding to restore the fading dream of homeownership. The state
agencies got a boost from the Consumer Financial Protection Bureau, which
exempted them from stricter mortgage regulations that it rolled out this
month." Remember that the CFPB has gone on record as saying non-QM loans
are not bad loans! Here is the article about
state-assisted loans. But there is an entire industry that knows that
these aren't "higher risk borrowers" as the title
suggests - someone should have put a little more thought into that
headline.
I'm
sure in the Top 10 list of movie quotes for business people, Glengarry Glenn
Ross' "ABC....always be closing" is somewhere right behind "Greed,
for the lack of a better word....is good," and, "You feeling lucky,
Punk, well do ya?" OK, so that last quote isn't officially in a business
movie yet, but I HAVE incorporated it into my own screenplay about a non-QM
underwriter coming to terms with a QM world. You know who else is interested
in closings? That's right, the CFPB. The agency is seeking information
about the mortgage closing process from industry, consumers and other members
of the public; specifically, information on key consumer "pain
points" associated with mortgage closing and how those pain points might
be addressed by market innovations and technology. The CFPB wants "to
encourage the development of a more streamlined, efficient, and educational
closing process as the mortgage industry increases its usage of technology,
electronic signatures, and paperless processes." This can all be
considered a part of the CFPB's incremental steps towards their "Know before You Owe"
initiative.
What
are vendors, investors, and agencies up to lately?
On January 9 the USDA sent
out a "Status Update on Proposed Changes to Eligibility Areas Based on
2010 Census Data". "As January 15, 2014 approaches, many are
wondering whether Rural Development will be implementing the Future Eligibility
maps based on the 2010 Census data. At present, the eligible areas
remain unchanged and we continue in a 'holding pattern' until either an
appropriations bill or a continuing resolution is passed. Notification
will be sent pertaining to changes to this status."
HUD has
delayed the implementation of Financial Assessment and Reserve Requirements for
HECM loans that were originally scheduled to go into effect on January 13th.
Updated guidance will be published shortly and will apply to all HECM case
numbers assigned 90 days from the release date.
Flagstar, which
laid off 600 last week, announced its earnings. Mortgage banking income fell to
$44.8 million from $75.1 million in 3Q. Total mortgage originations came in at
$6.5 billion, down 16.9% from $7.8 billion in 3Q. Rate lock commitments fell
22% to $6.5 billion from $8.3 billion. The gain-on-sale (GOS) margin (based on
closings) fell to 0.66% from 0.90%.
In response to QM, Bank of
the Internet has made several guideline changes, including eliminating
prepayment penalties on all loans registered after January 10th.
Loans registered and cancelled before January 10th will be subject
to a .375 adjustment rate (equal to the prepayment penalty buyout) if they are
re-registered within 120 days of the cancellation. BofI will be
continuing to offer Interest Only Portfolio products and will require that all
HPML borrowers receive a copy of their appraisal.
Secondary folks are out there
hedging locks! Despite no economic data, distractions from an ABS conference in
Las Vegas, and snow on the East Coast, MBS volume was above normal (above $1
billion) with Tradeweb reporting at 118% of the 30-day moving average, and
Treasury prices worsened. The rumor is that Treasury prices worsened due to
hedging of upcoming corporate debt pricings - but all on one day? Does anyone
really know for sure? The 10-year note closed out at a yield of 2.860%.
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