June 24: Mortgage jobs; QM’s impact on lending, and the NAR and MBA weigh in on it and on H.R. 1077/S.949

Here in Missouri, at the Mortgage Bankers Association of Missouri’s annual conference, one of the concerns is, of course, rates. I told some folks that on Friday, walking through a lender’s office, I overheard some interesting conversations. Things like, “You probably heard that rates went up…we have 10 days left on the rate lock…no, it hasn’t gone to underwriting yet…hey, don’t hang up – the secondary gal owes me a favor!” and, “Do you really need a full 30 years? The rates on 5 & 7 year ARMs are a heckuva lot better and on the FHA program you’ll qualify at the start rate – did you really think you’d be in the house for 30 years?” The mortgage industry will survive!


There is certainly continuing activity on the job front and first a correction to a listing for Freedom Mortgage Corp. that was run on Thursday. Freedom is searching for wholesale account executives, especially in the Pacific Northwest, but the link shown was for Freedom’s retail group. The link to more information on its wholesale channel is http://www.freedomwholesale.com. And inquiries can be sent to Keith Bilodeau at keith.bilodeau@freedommortgage.com.


West Town Savings Bank is growing, and is looking for successful, professional, purchase-oriented Loan Officers or Loan Production Offices nationwide. West Town Savings Bank has been around since 1922, and so is a well-established depository institution with a small servicing portfolio. WTSB offers a full range of products and a “progressive customer service and professional national lending team, and is looking for highly motivated individuals regardless of experience. Please email your resume and cover letter to resumes@westtownsb.com, and more information can be found at http://www.westtownsavingsbank.com/mortgage.


The Community Mortgage Lenders of America (CMLA) is moving from Boston to Washington DC and finds itself looking for a new Executive Director. The CMLA was founded in 2010 out of concern that emerging federal policies threaten to severely diminish community based banking and lending, while increasing concentration among the nation’s largest financial institutions, to the detriment of competition and consumers. CMLA members include community banks and non-banks who survived the mortgage crisis because of close attention to prudent and traditional underwriting standards with a strong commitment to sound lending. The Executive Director is the chief staff officer of the Association and recommends and participates in the formulation of policies and procedures and makes the appropriate implementation decisions within existing policies as approved by the Board of Directors.  The Executive Director plans, organizes, employs, directs and coordinates the staff, programs and activities of the Association. He/she maintains effective internal and external communications and relationships. Please send inquires and resumes to the current Executive Director Kevin M. Cuff at kmcuff@thecmla.com.


Rob, at what point with Congress, the regulators, and the Fed see how badly rates and prices for the average borrower have been impacted by their actions in the last few years?” Whoa! That is quite a question. First off, I highly doubt that regulators or Congress check rate sheet before or after writing a law or announcing a ruling. In general, the regulators and Congress are, in theory, focused on protecting the consumer and also making sure the industry provides fair and ample credit for those wanting to refinance or borrow to buy a home. And indeed, the NAR and the MBA have weighed in on Qualified Mortgage regulations. (Remember, however, that non-QM loans are not, and won’t be, “against the law,” but liquidity will be a huge issue.)


The National Association of Realtors, America’s largest trade organization and a group that you’d want on your side, said that Congress should consider redefining the new ability-to-repay requirements for Qualified Mortgages to avoid limiting affordable borrowing options for creditworthy buyers. NAR President Gary Thomas implored Congress to revisit the definition of fees and points applied to affiliated mortgage lenders that require the counting of title company charges, the amount of homeowner’s insurance held in escrow, loan level price adjustments, and payments made by lenders in wholesale transactions towards the 3 percent cap in the QM rule. Thomas said the current calculation of fees and points discriminates against affiliated title companies, small and mid-size lenders, community banks and credit unions.


“Many of the mortgages available from affiliated businesses might not qualify as a QM without a higher interest rate,” said Thomas. “As the leading advocate for housing issues, NAR is committed to working with Congress to fix the unintended consequences of the ability-to-repay rule. To that end, NAR supports the bipartisan H.R. 1077/S.949, the Consumer Mortgage Choice Act, which would address the problematic fees and points definition and ensure broad consumer choice and access to safe, affordable mortgages.”


In his testimony, Thomas said that H.R. 1077 is essential to maintain competition and consumer choice in mortgage origination. Without this legislation, one-quarter to as much as one-half of loans currently being originated by affiliated lenders would likely not be eligible for the QM safe harbor, he said. Consequently, those loans would likely not be made or would be concentrated amongst the largest retail lenders, thereby limiting consumer choice. Thomas said another area of concern about QM underwriting standards is the 43 percent debt-to-income limit on jumbo and non-government backed loans. He said it is particularly problematic in high cost areas where high-income borrowers are more likely to obtain jumbo financing. Thomas urged support for greater flexibility with regard to DTI limits so that credit would not be restrained in high cost communities. Thomas also urged Congress to support regulatory changes to the proposed Qualified Residential Mortgage standards to substantially mirror the broad QM definition. NAR believes that this would prevent possible issues with creating another class of loans, such as those that are QM but not QRM, which could affect their overall marketability and cost. I could go on, but for the full testimony go to http://www.ksefocus.com/billdatabase/clientfiles/172/1/1807.pdf


As a quick aside, Tim K. writes, “You can learn more about the QM rule and NAR’s position here: http://www.realtor.org/articles/summary-of-new-qualified-mortgage-qm-rule.  And in a letter to CFPB director Richard Cordray, NAFCU president and CEO Fred Becker asked the CFPB to re-evaluate the rule that exempts credit unions that have $2 billion or less in assets and that originated 500 or fewer mortgages per year. While the change would help many smaller credit unions, Becker’s letter notes that there are a number of small lenders already approaching or surpassing the 500-loan threshold. To address that issue and allow small creditors to continue operating, Becker and NAFCU suggest to Cordray to raise the threshold to 1,000 loans. Rob, as a small broker I find it confusing that I am being lumped in with the big lenders as far as QM is concerned. I close about 120-180 loans per year and can guarantee you that we have less than $2 billion in assets. 95% of the loans we originate are within 20 miles of our office and 100% come from personal referral. We write a higher percentage of loans to minorities and emerging markets than the percentage of the general population and for many of these we have to work like crazy to get them approved. We spend months helping these potential borrowers along their path to homeownership. Many of whom have been referred to us by the local banks and credit unions that do not have the ability to find the proper lender or the willingness to spend the time. In essence we are the true community lender. Where is our exemption?”


The Chairman of the Mortgage Bankers Association also delivered the MBA’s message. Deb Still testified today before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit at a hearing titled, “Examining How the Dodd-Frank Act Hampers Home Ownership.” Of all of the Dodd/Frank rules, QM will have the single most significant impact on consumer access to credit and a vibrant, competitive marketplace…The industry applauds the CFPB for getting a lot right, using a deliberative and inclusive approach.   Most notably, the CFPB established a safe harbor for most QM loans and a temporary QM – both critical provisions for borrowers. But there is still serious concern that certain aspects of the rule will be prohibitive to otherwise qualified consumers. QM takes effect at a time when credit is already overly tight, and underwriting standards are well above industry norms.  In its current form, this rule could unintentionally harm the very consumers it was designed to protect and make lenders even more cautious than they are today. In the foreseeable future, MBA believes that lending will be substantially limited to loans that meet the definition of a Qualified Mortgage with a safe harbor provision. QM loans with a rebuttable presumption and non-QM loans will have little market liquidity and if available at all, will be more costly for borrowers. The element with the greatest potential for unintended consequences is the three percent cap on points and fees. The points and fees test is a threshold requirement for all QM loans. The calculation is highly complex, and is based on criteria unrelated to credit quality – and penalizes both affiliate and wholesale lenders.  This inconsistent treatment impairs a consumers’ ability to shop – and choice in settlement service providers. Any negative impact will be on smaller loan amounts and fall most heavily on low-to-moderate-income and first-time home buyers.”


Ms. Still went on. “I want to thank Congressman Huizenga for introducing H.R. 1077, the Consumer Mortgage Choice Act, and also the many members of this subcommittee who have given this legislation the broad bipartisan support it currently enjoys. The Ability to Repay rule must stay centered on consistent consumer protection, regardless of business model. H.R. 1077 will fix the points and fees calculation, leveling the playing field.  By passing the bill before January 2014, Congress will ensure a vibrant, competitive marketplace for consumers. “For the same reason, we also suggest that an additional way to reduce QM’s impact would be to raise the small loan limit to $200,000 and increase the points and fees limit to four percent, and up to 8 percent for very small balance loans.


“The QM rule is so vital, it is imperative that it be aligned with other federal regulations. Lenders are seeking clear guidance on reconciling QM with other compliance obligations. “Specifically, HUD’s Disparate Impact Rule makes lenders liable under the Fair Housing Act for mortgage lending practices if they have a disproportionate effect on protected classes of individuals, even if the practice is neutral and non-discriminatory. If a lender limits its lending to QM loans only, the lender may face exposure under the Disparate Impact rule. Lenders must have more certainty that their decisions with respect to QM will not place them in jeopardy. Of equal significance is the need for clear alignment between QM and the definition of a Qualified Residential Mortgage within the pending Risk Retention rule. The MBA believes it is essential that QRM equals QM, particularly as it relates to the elimination of the prohibitive down payment requirements in QRM.  Any variation between these two rules will increase the cost of credit, discourage private capital and add to the complexity of mortgage finance for industry participants and consumers alike.” Let’s hope someone is listening – here is her complete testimony: http://mba.informz.net/MBA/data/images/publicaffairs/mba_still_qm_testimony_061813.pdf.


Yes, rates have gone up, and in the very early going this morning they are up even more (and stocks are pointing down, mostly due to concerns about a cash crunch in China). Bernanke’s confirmation that the Fed is getting closer to pulling back its scale of bond purchases crushed MBS prices and sent stocks in the same direction. But moderate growth is expected to lead to an improving job market, with the argument being that the Fed’s willingness to scale back is a clear indication that the economy is growing at a sustainable rate. The Fed still has the option, of course, to stop reducing or increase its rate of bond purchases if its forecasts prove to be too optimistic. The industry hopes that rising home prices compensate for higher rates.


Regardless, 30-yr fixed rate mortgages were at record lows of 3.25% in mid-January and a quick scan of rate sheets shows them at 4.5% now. And it thought that the follow through from the Fed will outweigh bits of news, but we still have quite a bit this week. Tomorrow we have Durable Goods, Consumer Confidence, and New Home Sales. Wednesday will have the U.S. Gross Domestic Product (GDP) will produce the total value of the country’s production during the period. Thursday is the usual Jobless Claims, and on Friday, June 28th, Chicago PMI will produce a composite diffusion index of business conditions in the Chicago area. Friday’s close showed the 10-yr yield at 2.51%, and early this morning we’re at 2.60% – worse by about .5 in price and the highest level since August of 2011. Agency MBS prices are worse between .250-.375.



For today’s humor, John Lee, president of BluFi Lending, writes: “I sometimes wish Ben Bernanke interviewed like Bill Belichick from New England Patriots.”

Media: “How’s the economy doing?”

Bill Belichick:  “It’s moving.”

Media: “Where do you think the rates will go?”

Bill Belichick: “It changes every day.”

Media: “When do you expect the Fed to stop QE3?”

Bill Belichick: “When it’s time.”

Media: “When is the right time?”

Bill Belichick: Stares at the person who asked this question for 15 minutes and doesn’t answer.



If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life after QE3.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers. Rob (Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)


Rob Chrisman