Mortgage Bankers Association Regulatory Update Regulatory... · 2013. 10. 1. · Mortgage Bankers...

Mortgage Bankers AssociationRegulatory Update

Ross G. Bennett, CMBHamilton Group Funding

NMLS #229369

@WholesaleMtgBkr

Our commitment in giving the best possible service is the key to our success.

Disclaimer

The views expressed here do not necessarily reflectthe views of Hamilton Group Funding and are the views

of

Ross Bennett

Todays Topics

• Consumer Financial Protection BureauCalendar

• Ability to Repay (ATR) a/k/a QualityMortgage (QM) Final Rules

• MLO Compensation Final Rules

• Proposed CFPB Rules on Disclosures

Ghosts of Mortgages Past

QM Final Rules (ATR)

• Found in 12 CFR; Part 1026

• Effective 1/14/2014

• 804 Pages of Rules for “CoveredTransactions”

• Lenders are not prohibited from issuing non-QM loans.

• Rules do not include HELOCs, Time Share,HECM, Bridge Loans or C/P loans (12 mos. orless)

Then vs. Now

2007

• Avg weighted FICO706

• Average LTV 80%

• Average DTI 39.8%

• 17% of loans < 620FICO

2012

• Avg weighted FICO750

• Average LTV 78%

• Average DTI 34.

• 5% of loans <620FICO

Can You Offer a non-QM Loan?

• Though non-QM, Lenders may still offer:

– No-doc, low-doc loans, or “Alt-A” loans

– Interest-only loans

– Option Arm loans, i.e.. a negative-amortization loan

– Loan terms in excess of 30 years

– Teaser rates for qualifying purposes

– No “Safe Harbor” for non-QM loans

“Safe Harbor” Is Not a Port inTampa Bay

• Type 1 QM: includes a “safe-harbor”provision, which eliminates 'ability-to-repay'litigation risk for qualified loans. <=150bpover APOR

• Type 2 QM comes with a “rebuttablepresumption” of safe lending and applies tohigher-cost loans. This loan type ispresumed safe, but can still be challenged incourt >150 bp over APOR

Exemptions to QM

• Agency Loans: Fannie/Freddie/FHA, RH andVA**

• Refinancing a borrower from risky loans:

• adjustable-rate mortgages

• interest-only loans

• negative-amortization loans

• HARP, mods and other Govt programs

These loans will be exempt from the full underwritingprocess required by the new rules.

QM Lender Considerations

• To be considered a QM loan, lender mustdocument:

– Current or reasonably expected income orassets - DTI Caps

– Current employment status

– The monthly mortgage payment

– The monthly payment on any secondliens; i.e. piggyback or combo loans

– Total fees and costs

Ability to Repay Considerations

• Monthly costs for mortgage-relatedobligations: Taxes, Insurance, HOA dues

• Current debt obligations, alimony, and childsupport

• Total monthly debt-to-income ratio (43%)income

• Borrower credit history

• Lenders must use reasonably reliable third-party records to verify the information theyuse to evaluate the factors.

43% DTI

• For a temporary, transitional period, loansthat do not meet the 43% DTI, but meetgovernment affordability or other standardswill be considered as a QM

• Agency Loans (F/F/FHA/VA/RH) exempt for43% DTI during “transitory period”

• **Max 7 years, or phase out of Agency Status

• 85% of 2010 and 2011 borrowers <43%- FHFA

Which Loan Is a QM?

• 37% LTV

• 780 FICO

• 44% DTI

• Jumbo

• 90% LTV

• 620 FICO

• 49% DTI

• GSE Loan

New FHFA GSE PolicyMay 6, 2013:

– FHFA directs FNMA and Freddie to limitpurchase non-QM loans after 1/10/14

– GSEs will not be able to purchase loansthat :• DTI exceeds 43%**

• Term exceeds 30 years,

• Fees exceed 3% cap,

• Non-amortized loans

• **Exception for GSE loans with >43% DTI aslong as loan meets other QM criteria

Max Fees and Costs

• Loan will not be considered to be a QM if:

– The points and fees paid by the consumerexceed (3%) three percent of the total loanamount - ($100k and over)

– $60,000-$99,999 = $3,000

– $20,000 - $59,999 =5%

• “Bona fide discount points” are excluded from3% cap on prime loans. (buy downs)

– APR is >150 bp over the Average PrimeOffer Rate 1026.35(a)(2)

What's in the 3% Cap?

• Upfront/Financed MI premiums

• Affiliated third party fees

• MLO Comp

• Broker Originator comp

• Credit life and disability

• Other 800 series lender fees

• Broker YSP

• Government MIP/FF/Guaranty not included

• Monthly MI fees not included

Mortgage Brokers…Not Feeling the Love

• The final rule counts all YSP compensation amortgage brokerage firm receives from thewholesaler toward the 3% cap.

• Currently, wholesalers pay 100 to 300 basis points inYSP to brokers.

• Under the rule, a bank/creditor only counts thecommission it pays a loan officer toward the 3%cap.

• CFPB is seeking comment on “technical issues” onhow to calculate loan origination compensationunder the points and fees cap.

Affiliated Businesses

Affiliated Service Provider fees are subject to the 3%cap:

• Includes title companies, insurance, search, closingfees

• Appraisal Firms

• Will likely trigger “higher cost” loan

• Even “arms length” costs and fees must be“reasonable”

• How will you prove “reasonable”?

Possible LegislativeRelief to 3% Cap

• H.R 1077- The Consumer Mortgage ChoiceAct

• S. 949 - is the companion bill in the Senatesponsored by Joe Manchin (D-WV), and MikeJohanns (R-NE)

• Seeks to amend the way “points and fees”are calculated.

• Seeks to exclude “affiliated” title fees fromthe 3% fee cap if otherwise reasonable.

H.R. 1077

• Amends the Truth in Lending Act (TILA) withrespect to disclosures of points and fees:

– Excludes LLPAs set by Fannie Mae,Freddie Mac, FHA, or similar governmententity, (Not in S-949)

– Excludes compensation paid by amortgage originator to an broker employeeor bank/correspondent MLO;

– Excludes any escrow for future payment ofinsurance.

H.R. 1077

• Excludes from the 3% cap for reasonablecharges for:

– a bona fide third party charge not retainedby the mortgage originator, creditor, or anaffiliate;

– a fee or premium for title examination, titleinsurance, or similar purposes.

Final Thoughts on QM…What Do You Think?

• Will QM encourage new investors to competeagainst F/F?

• What happens when/if F/F lose agency GSEstatus?

• Will QM tighten or loosen housing credit?

• How will Jumbo/High Cost mkts. be affected?

• Will non-QM loans be the “new subprime?”

Net Results

• American Action Forum predictions:

– Loan volume will decline by 15-20%

– Home sales will decline by 9-13%

– Housing starts thorugh 2015 will be1.1million less

– GDP growth will be 1.1% less

MLO Compensation

MLO Compensation (Reg Z)

• Proposed by the CFPB August 17, 2012

• 713 total comments received

• 475 Pages of rules-Effective 1/10/2014

• Flat fee and 0/0 quotes scrapped

• Required DNA:– The MLO Name and NMLS Originator ID to be

printed on:• URLA

• Note

• Security Instrument

MLO Comp Rule

• Prevents “up-charging” consumers forcompensation purposes.

• Permits mortgage brokers to pay employeesor contractors commission on borrower-paidfiles, so long as they are not based on theterms of the loan originated.

• Generally bans agreements requiringarbitration rather than court resolutions

• Generally bans the financing of credit andlife premiums

MLO Comp cont’d

• Provides guidance on MLO compensationpractices, including the application of profit-sharing plans, 401ks, or bonuses <10% oftotal compensation.

• Provides guidance for proxies for atransaction's terms.

• Prohibits compensation based on steering toaffiliated third party providers.

MLO Comp cont’d

• LO compensation paid by sellers, homebuilders, etc will be considered paymentsmade by the consumer directly to the MLO

• Allows reductions in MLO comp in certaincircumstances to cover unanticipatedincreases in closing costs from non-affiliated3rd parties

Changes at Settlement

• If closing cost changes occur before closing, butafter the original 3 day Disclosure has been given,the consumer must be given an additional 3 days toreview the changes.

• Exceptions exist to this rule for changes resultingfrom buyer/seller negotiations after final walkthrough.

• Exceptions allowed for minor changes <$100 inaggregate increased costs.

• Under discussion is who will provide the ClosingDisclosure to the consumer; Lender or SettlementAgent.

Bank Originators:Join the Party

• Bank MLO Qualification Requirements:

– Mandates additional requirementsimposed by the DFA concerningqualification and registration or licensingfor Bank employed MLOs

– Ensure MLOs meet character, fitness andcriminal background standards, similar toSAFE Act stds

– Provide training consistent with SAFE Act

– Provide annual CE

Questions?