TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/106030
the latest ORIGINATION s e r v ic i ng At What Cost? As Capitol Hill continues to press forward with housing policy decisions, new regulations are on the horizon for high-cost mortgage loans. presumed to have determined that the borrower has the ability to repay. Consumers can challenge the presumption by proving that they did not actually have the income to repay the mortgage and other living expenses. The second type of QMs are those that have a safe harbor status—generally lower-priced prime loans given to low-risk consumers. They offer lenders the greatest legal certainty that they are complying with the abilityto-repay rule, and consumers can only legally challenge their lender if they believe the loan does not fit the criteria of a QM. While QM status does not grant a lender complete immunity from borrower challenges, but said the organization applauds the approach and effort given. "This is a very complex rule. We remain concerned that certain aspects of it could curb competition, increase costs, and tighten credit availability for borrowers. In particular, the 3 percent cap on points and fees appears to be overly inclusive as it relates to compensation and affiliates," Still said. "Additionally, we will be looking carefully at whether the interest rate threshold for the safe harbor, which is set at 150 basis points above the benchmark rate, will adversely impact too many borrowers," she continued. "Ultimately, the final verdict on this rule will be made by the market." ontinuing the organization's high-profile start to 2013, the Consumer Financial Protection Bureau (CFPB) followed its issuance of a finalized qualified mortgage (QM) rule with the release of guidance on policies to protect borrowers purchasing high-cost mortgages. By the CFPB's definition, high-cost mortgages include loans with an annual percentage rate (APR) or points and fees that exceed specific threshold amounts. For example, a first mortgage with an APR that is more than 6.5 percentage points higher than the average prime rate would be considered high-cost. Through the Home Ownership and Equity Protection Act (HOEPA), consumers with these highcost mortgages are provided certain protections. For borrowers with high-cost mortgages, the bureau's final rule bans potentially risky features such as balloon payments (with some exceptions) and penalties for borrowers who pay off loans early. The rule also bans and limits certain fees and practices, such as fees for modifying loans and fees for requesting a payoff statement. Borrowers also can't be charged late fees that are higher than 4 percent of their monthly payment. Certain "bad" practices are also banned, such as encouraging borrower to default so they can be refinanced into a high-cost mortgage. Consumers who decided to take out a highcost mortgage are also required to receive housing counseling. HOEPA's protections for highcost mortgages cover first mortgages for homes, loans to refinance, and a home equity loan or home equity line of credit (HELOC). The protections for high-cost mortgage begin January 2014. HOEPA does not apply to reverse mortgages. "Addressing problems in the mortgage market is critical to helping our economy recover," said CFPB director Richard Cordray, in a statement. "Today's changes will better help consumers to understand the real costs of owning a home while protecting them from harmful practices that can trap them into high-cost mortgages." The CFPB also established another rule for escrow accounts that states escrow accounts must be established for at least five years for certain higher-priced mortgage loans. However, the bureau noted certain creditors in rural or underserved areas are exempt from the rule in an effort to preserve credit. The M Report | 39 se c on da r y m a r k e t "Ultimately, the final verdict on this rule will be made by C the market." —Debra Still, Mortgage Bankers Association a na ly t ic s Cordray said in prepared remarks he believes the CFPB has "limited the opportunities for unnecessary litigation" by setting up clear guidelines. Mike Calhoun, president of the Center for Responsible Lending, said in a response that the new rules "strike a balanced, reasonable approach to mortgage lending—for the most part." "But the rules also leave a pivotal issue unresolved: how the fees that lenders pay to mortgage brokers will be counted when it comes to defining a qualified mortgage. The CFPB should not create a loophole that allows high-fee loans to count as a qualified mortgage under DoddFrank," Calhoun said. "If the broker payment issue is appropriately resolved, the rules will be—all in all—good for consumers, investors, and the economy." Debra Still, chairman of the Mortgage Bankers Association, expressed her own reservations, Or ig i nat ion of QM-related regulations in January 2014. Revealing other features of the QM rule, the CFPB mandated that mortgage loans must limit points and fees (including those used to compensate originators) and have no toxic or risky loan features, such as interest-only payments or terms that exceed 30 years. There is also a 43 percent cap on the acceptable debt-to-income ratio, though there will be a transitional period during which non-qualifying loans that meet other affordability standards will be considered QMs. In addition, the CFPB explained there are two kinds of QMs that have different protective features for consumers and legal consequences for lenders. The first kind, QMs with a rebuttable presumption, are higher-priced loans given to consumers with insufficient or weak credit history. Legally speaking, the lenders who give these are