The Psychology Behind the Recovery

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44 | Th e M Rep o RT 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 Pitfalls Still abound Industry experts gathered to discuss QM hiccups. a ccording to the Consumer Financial Protection Bureau (CFPB), the new lend- ing rules that went into effect January 10 are meant to take a back-to-basics approach to mortgage lending and lower the risk of default and foreclosure among borrowers. However, many industry veterans feel the rules may hurt those they are designed to protect, primarily low-income borrowers. On January 14, Congress' House Financial Services Committee held a conference to discuss how homeowners may be harmed by the new CFPB rulings. Speakers said low-to-moderate-income bor- rowers stand to lose the most if lenders cannot write loans outside of the Qualified Mortgage (QM) guidelines. "In rural areas, it is crucial to tailor mortgages to fit borrowers' needs and risk profiles," one law- maker noted. Another lawmaker, who represents a state where 50 percent of the homes consist of manufactured housing, said most of the housing loans in his state will not meet QM standards. Speaking on "Mortgage Markets Today," Chris Whalen, EVP and managing director for Carrington Holding Company, discussed the pitfalls in the new regulations with Louis Amaya, host of the Five Star Internet radio show and CEO of iServe Companies. "I think these concerns are well founded," Whalen said. "Under the new CFPB rules, about half the prospective home- owners in this country can't get a mortgage from a bank because the new laws have greatly re- stricted credit access." Whalen warned this indi- cates the mortgage industry will be tightening. "We're basically replaying what happened in the late 1920s and 1930s in terms of stifling credit creation," he said. Under the new QM rules, a borrower must have a FICO score of 740 or higher. In addi- tion, debt-to-income ratio can be no higher than 43 percent. Whalen explained that although these rules disqualify a lot of bor- rowers, they give the lender as- surances about possible lawsuits. "If you write a Qualified Mortgage following these rules, then you have what is essentially a safe harbor against many types of litigation," Whalen explained. "However, it's still possible for a borrower to sue. There is arguably more litigation risk for lenders today than there has been in the past." Whalen said there is still a demand for non-QM loans- financing for borrowers with FICO scores down into the mid-600s but who can also pay 20 to 25 percent down. However, the problem is most investors will not buy these loans. "You can't sell them to the government, which is 95 percent of the market today," Whalen said. "It's relatively easy to find inves- tors for jumbos and high-quality

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