Mortgage Bankers Association Regulatory Update MBA of Tampa Ross G. Bennett, CMB Hamilton 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 reflect the views of Hamilton Group Funding and are the views of Ross Bennett Todays Topics • Consumer Financial Protection Bureau Calendar • 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 Transactions” • 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 less) Then vs. Now • • • • 2007 Avg weighted FICO 706 Average LTV 80% Average DTI 39.8% 17% of loans < 620 FICO • • • • 2012 Avg weighted FICO 750 Average LTV 78% Average DTI 34. 5% of loans <620 FICO 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 VA** • 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 document: – 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 support • Total monthly debt-to-income ratio (43%) income • 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 Jumbo • • • • 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% cap. • 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% cap: • Includes title companies, insurance, search, closing fees • Appraisal Firms • Will likely trigger “higher cost” loan • Even “arms length” costs and fees must be “reasonable” • How will you prove “reasonable”? Possible Legislative Relief to 3% Cap • H.R 1077- The Consumer Mortgage Choice Act • 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 insurance. 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 affiliate; – 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 status? • 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: • URLA • 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 through. • 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 Agent. 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 Questions?