MBA Regulatory update speech Tampa 8.13.13

Mortgage Bankers Association
Regulatory Update
MBA of Tampa
Ross G. Bennett, CMB
Hamilton Group Funding
NMLS #229369
Our commitment in giving the best possible service is the key to our success.
The views expressed here do not necessarily reflect
the views of Hamilton Group Funding and are the views
Ross Bennett
Todays Topics
• Consumer Financial Protection Bureau
• Ability to Repay (ATR) a/k/a Quality
Mortgage (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 “Covered
• Lenders are not prohibited from issuing nonQM loans.
• Rules do not include HELOCs, Time Share,
HECM, Bridge Loans or C/P loans (12 mos. or
Then vs. Now
Avg weighted FICO
Average LTV 80%
Average DTI 39.8%
17% of loans < 620
Avg weighted FICO
Average LTV 78%
Average DTI 34.
5% of loans <620
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 negativeamortization 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 in
Tampa Bay
• Type 1 QM: includes a “safe-harbor”
provision, which eliminates 'ability-to-repay'
litigation risk for qualified loans. <=150bp
over APOR
• Type 2 QM comes with a “rebuttable
presumption” of safe lending and applies to
higher-cost loans. This loan type is
presumed safe, but can still be challenged in
court >150 bp over APOR
Exemptions to QM
• Agency Loans: Fannie/Freddie/FHA, RH and
• 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 underwriting
process required by the new rules.
QM Lender Considerations
• To be considered a QM loan, lender must
– Current or reasonably expected income or
assets - DTI Caps
– Current employment status
– The monthly mortgage payment
– The monthly payment on any second
liens; i.e. piggyback or combo loans
– Total fees and costs
Ability to Repay Considerations
• Monthly costs for mortgage-related
obligations: Taxes, Insurance, HOA dues
• Current debt obligations, alimony, and child
• Total monthly debt-to-income ratio (43%)
• Borrower credit history
• Lenders must use reasonably reliable thirdparty records to verify the information they
use to evaluate the factors.
43% DTI
• For a temporary, transitional period, loans
that do not meet the 43% DTI, but meet
government affordability or other standards
will be considered as a QM
• Agency Loans (F/F/FHA/VA/RH) exempt for
43% 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
90% LTV
620 FICO
49% DTI
GSE Loan
New FHFA GSE Policy
May 6, 2013:
– FHFA directs FNMA and Freddie to limit
purchase non-QM loans after 1/10/14
– GSEs will not be able to purchase loans
that :
DTI exceeds 43%**
Term exceeds 30 years,
Fees exceed 3% cap,
Non-amortized loans
**Exception for GSE loans with >43% DTI as
long 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 consumer
exceed (3%) three percent of the total loan
amount - ($100k and over)
– $60,000-$99,999 = $3,000
– $20,000 - $59,999 =5%
• “Bona fide discount points” are excluded from
3% cap on prime loans. (buy downs)
– APR is >150 bp over the Average Prime
Offer 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 a
mortgage brokerage firm receives from the
wholesaler toward the 3% cap.
• Currently, wholesalers pay 100 to 300 basis points in
YSP to brokers.
• Under the rule, a bank/creditor only counts the
commission it pays a loan officer toward the 3%
• CFPB is seeking comment on “technical issues” on
how to calculate loan origination compensation
under the points and fees cap.
Affiliated Businesses
Affiliated Service Provider fees are subject to the 3%
• Includes title companies, insurance, search, closing
• Appraisal Firms
• Will likely trigger “higher cost” loan
• Even “arms length” costs and fees must be
• How will you prove “reasonable”?
Possible Legislative
Relief to 3% Cap
• H.R 1077- The Consumer Mortgage Choice
• S. 949 - is the companion bill in the Senate
sponsored by Joe Manchin (D-WV), and Mike
Johanns (R-NE)
• Seeks to amend the way “points and fees”
are calculated.
• Seeks to exclude “affiliated” title fees from
the 3% fee cap if otherwise reasonable.
H.R. 1077
• Amends the Truth in Lending Act (TILA) with
respect to disclosures of points and fees:
– Excludes LLPAs set by Fannie Mae,
Freddie Mac, FHA, or similar government
entity, (Not in S-949)
– Excludes compensation paid by a
mortgage originator to an broker employee
or bank/correspondent MLO;
– Excludes any escrow for future payment of
H.R. 1077
• Excludes from the 3% cap for reasonable
charges for:
– a bona fide third party charge not retained
by the mortgage originator, creditor, or an
– a fee or premium for title examination, title
insurance, or similar purposes.
Final Thoughts on QM…
What Do You Think?
• Will QM encourage new investors to compete
against F/F?
• What happens when/if F/F lose agency GSE
• 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 be
1.1million 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:
• Note
• Security Instrument
MLO Comp Rule
• Prevents “up-charging” consumers for
compensation purposes.
• Permits mortgage brokers to pay employees
or contractors commission on borrower-paid
files, so long as they are not based on the
terms of the loan originated.
• Generally bans agreements requiring
arbitration rather than court resolutions
• Generally bans the financing of credit and
life premiums
MLO Comp cont’d
• Provides guidance on MLO compensation
practices, including the application of profitsharing plans, 401ks, or bonuses <10% of
total compensation.
• Provides guidance for proxies for a
transaction's terms.
• Prohibits compensation based on steering to
affiliated third party providers.
MLO Comp cont’d
• LO compensation paid by sellers, home
builders, etc will be considered payments
made by the consumer directly to the MLO
• Allows reductions in MLO comp in certain
circumstances to cover unanticipated
increases in closing costs from non-affiliated
3rd parties
Changes at Settlement
• If closing cost changes occur before closing, but
after the original 3 day Disclosure has been given,
the consumer must be given an additional 3 days to
review the changes.
• Exceptions exist to this rule for changes resulting
from buyer/seller negotiations after final walk
• Exceptions allowed for minor changes <$100 in
aggregate increased costs.
• Under discussion is who will provide the Closing
Disclosure to the consumer; Lender or Settlement
Bank Originators:
Join the Party
• Bank MLO Qualification Requirements:
– Mandates additional requirements
imposed by the DFA concerning
qualification and registration or licensing
for Bank employed MLOs
– Ensure MLOs meet character, fitness and
criminal background standards, similar to
SAFE Act stds
– Provide training consistent with SAFE Act
– Provide annual CE

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