TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 47 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SERVICING the latest Qm Plays nice with Other regs New rules work in conjunction with standing policy. F our federal financial regulators released a joint statement addressing con- cerns about how they will review qualified mortgages (QM) and non-QMs with respect to the Ability-to-Repay rule and the Com- munity Reinvestment Act (CRA). The Federal Reserve, FDIC, National Credit Union Administration, and Office of the Comptroller of the Currency emphasized in their statement that "institutions may originate both QMs and non-QMs, based on their business strategies and risk appetites." When assessing loans for safety and soundness, regulators will not make decisions "solely because of the loan's status as a qualified mortgage or non-qualified mortgage loan," according to the Interagency Statement on Supervisory Approach for Qualified and non- Qualified Mortgage Loans. While QM loans face several restrictions, including prohibi- tions on interest-only payments, negative amortization, and large balloon payments, the Ability-to- Repay rule does permit lenders to include some of these characteris- tics under certain circumstances. However, some institutions may choose to work only within the realms of QM standards. Addressing concerns that originating only QM loans will interfere with a lender's compli- ance with CRA, regulators stated, "the requirements of the bureau's Ability-to-Repay rule and CRA are compatible." "Accordingly, the agencies that conduct CRA evaluations do not anticipate that institu- tions' decision to originate only QMs, absent other factors, would adversely affect their CRA evalu- ations," the agencies stated. In October, the four regula- tors made similar clarifications regarding fair lending laws in the Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule. 2016, and trouble may land in 2017 for Pacific and Southeast states. The lodging sector is currently performing well, but because of the cyclical nature of the hospitality business and its strong correlation to economic activity, it has significant potential for volatility, Trepp says. These borrowers trying to refinance should be able to meet loan-to-value requirements in 2014 and 2015, but in 2016 and 2017, borrowers may need to inject more equity to meet tightening standards. Office property loans maturing in 2017 have a much higher LTV ratio than those maturing in 2014. The office sector's recovery has been slow and uneven. Top markets are performing well, but lenders have been more restric- tive in secondary and tertiary markets. In 2014, borrowers should have little trouble refi- nancing, but between 2015 and 2017, refinancing troubles could emerge unless we see significant property value appreciation or a loosening of credit standards. Industrial property borrowers may face significant challenges in refinancing. In 2014, the LTV ra- tios for maturing loans are close to those for recently originated loans, which may limit refinanc- ing problems, but the story changes in 2015. Interestingly, industrial is one of few product types where the LTV ratio for maturing loans decreases in 2017. Retail could prove the most problematic segment. The LTV ratio for loans maturing between 2014 and 2017 is consistently higher than those of recently originated loans. Retail market fundamentals are improving slowly, and investor demand for properties has improved. Even so, ongoing economic uncertain- ty and higher taxes have had a negative impact on spending and retailers, all of which will affect lenders' willingness to refinance maturing loans. In almost every region of the country, Trepp expects retail borrowers will find it difficult to meet current LTV requirements when refinancing. loansifter to Host Qm- Focused Webinars Company offers training to help industry insiders stay compliant. l oanSifter, a Wisconsin- based company specializ- ing in technology for loan originators and secondary departments, hosted two indus- try panels recently to address concerns and strategies revolving around the qualified mortgage (QM) rule. Hosted in partnership with Radian Guaranty and other firms, the Web panels discussed a number of QM-related topics, including common investor concerns, lender compensation, and what companies will need to look for in loan origi- nation software and product pricing engines, among other subjects. "QM has been a very impor- tant focus. Assisting our clients with education and features to be QM compliant is our priority," said Sue Stewart, VP of client services for LoanSifter. "We hope to equip our clients with indica- tors that allow them to make appropriate decisions early on in the pricing/search process." mel Watt confirmed as FHFa director Former democratic North Carolina senator tapped to head the agency. F ollowing a play by Democrats to defang Republicans' filibuster powers, the U.S. Senate voted to confirm Rep. Mel Watt (D-North Carolina) as director of the Federal Housing Finance Agency (FHFA). The vote concluded a debate that started in May, when President Obama nominated Watt to replace Edward DeMarco, who had served as the agency's acting director since 2009. The confirmation vote first went to the Senate floor at the end of October, where it lacked the votes to go forward. The vote went 57-41 in Watt's favor, the Wall Street Journal reported. All Senate Democrats voted in favor of confirmation; they were joined across the aisle by Sens. Rob Portman (R-Ohio) and Richard Burr (R-North Carolina). With Watt's confirmation, analysts at Barclays anticipate another discussion on the topic of principal forgiveness—a move DeMarco has famously opposed, earning praise and criticism alike—and another possible extension of the Home Affordable Refinance Program (HARP). While Barclays noted Watt's support for the administration's housing policies may represent a "policy risk," analysts for FBR Capital Markets say a more supportive approach to borrowing could be a boon for credit availability. Mortgage Bankers Association (MBA) chairman E.J. Burke praised the confirmation vote on behalf of the group. "MBA commends the confirmation of Mel Watt as the next director of the Federal Housing Finance Agency. Because he brings more than two decades of work on the House Financial Services Committee, he will have a strong base of understanding on a wide variety of public policy issues related to housing finance," Burke said, at the same time thanking DeMarco for his work. "MBA looks forward to working with Director Watt on developing and implementing ideas to improve the function of the secondary mortgage market."