The qualified mortgage rule remains the big unknown in the mortgage industry just three months before it is scheduled to become the law of the land.
At the recent New York Association of Mortgage Brokers convention in East Meadow, N.Y., National Mortgage News sat down with the officers of the organization, and even these relatively well-informed industry participants have lots of questions about what kind of impact the rule will have on lending.
NYAMB treasurer Bonnie Nachamie says she went over her own closed loan files and found a significant number of borrowers that would have not gotten loans because their debt-to-income ratios are above the proposed standard.
NMN talked to association president Lou Borsellino; Martin Pfieffenberger, president-elect; Irene Amato, vice president; Nachamie; Gene Tricozzi, legislative chairman; and John Commons, education chairman about their prep for the brave new world arriving in January.
We hear lenders are starting to pull some of the out-of-the-box products like longer-term mortgages ahead of the QM implementation. How is that affecting business?
PFIEFFENBERGER: I see a lot of different products being pulled back or lenders are changing them. There is no final definition of QM yet. There are still a lot of questions about what is going to happen come January, so a lot people are still having issues what they are going to do. We still have a lot of banks all over the place. There is no definite answer yet. It is very hard to manage your business right now when you are three months away and there is no clear cut definition on what it is really going to entail.
What have you been telling your clients about QM and how it affects them?
PFIEFFENBERGER: We tell them to keep looking for houses. There will be a way for them to get loans if they qualify. But a lot of times, you tell them "hey listen, buy now if you're on the fence because you don't know what is going to happen Jan. 1," especially if they are on the borderline of the safe harbor.
TRICOZZI: We're starting to see people are jumping in before it comes up so they can enter into contract now and hopefully lock in a rate now because who knows what they are going to be.
Are we seeing people making the decisions to lock their loans before things start to get hairy?
AMATO: Anybody who comes to me for a mortgage, if they have a set time to close, 30 or 60 days, I prefer to lock them. They feel the same way. With the instability in the market, you might as well just lock in if you are comfortable with the rate and payment as it is. To wait for it to come down an eighth, it can go up a lot faster.
NACHAMIE: I think one of the concerns that the industry has to face as we move from a refi market to a purchase market and we look for first-time homebuyers, traditionally they have had higher (debt) ratios and they are building their income streams. They are going to be in jeopardy of not being able to qualify for a loan. That is a segment of the population that we need to really watch and make sure that there is a way to serve them. Because if housing starts are reduced, then everything falls, from the banker to the guy who provides the house to contractors to the paint supply people to the fixtures.
BORSELLINO: The problem that I see is the CFPB is more concerned with how the consumer groups are going to react to everything, instead of really looking at how the consumer is going to be affected.
In New York, you had an issue earlier this year that when rates increased so quickly, loans were bumping against the state's subprime state statute.
NACHAMIE: We got temporary relief from the Department of Financial Services but (a permanent fix) is going to require a legislative change. The problem is, I could have a guy who applies for a loan one week and another guy who applies for a loan two weeks later with similar credit profiles and one is a subprime loan and one isn't even though the loans are identical. So the trigger needs to be tweaked; we had (rising) rates, we hit the limits for those who applied earlier and that was a significant problem.
That sounds like disparate impact.
NACHAMIE: That was my argument to Rholda Ricketts (DFS deputy superintendent who oversees mortgages).
BORSELLINO: She's aware of it, she is addressing it.
PFIEFFENBERGER: They made a change on Sept. 30 for FHA loans.
NACHAMIE: For FHA loans, they reduced the APR margin.
PFIEFFENBERGER: Still, if you have somebody building a new home and it takes 11 months to lock in, and you go through a rising interest rate market, you're not going to be able to close the loan. You're going to have TO kill the loan and start anew.
NACHAMIE: Those gyrations don't help the consumer. I don't know if it is disparate impact becauseit may be disparate impact, but it is not an Equal Credit Opportunity Act or fair lending disparate impact.
AMATO: When you say educating the borrower on the QM, we don't even understand the full QM. It is not even out yet. I think the more important thing and what I'm doing is educating consumers on what to do and what not to do. It is all about training them on how to become prepared when it is time to get that mortgage. That is about all we can do with our consumers right now. The debt-to-income ratio is going to become a big issue. We don't want to scare people from buying home. We want to educate them about the rules and regulations on their level. What they need to know is to keep their debt-to-income ratios low.