MReport July 2018

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TH E M R EP O RT | 41 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Weigh in on Rules & Regs A recent report examined whether lenders favor changes to the ATR/QM rules. T ight regulations over the past eight years have impacted mortgage lenders, yet a majority of lenders favor little or no change to the Bureau of Consumer Protec - tion's regulations on Ability to Pay (ATR) or Qualified Mortgage (QR) according to a survey by mortgage advisory firm STRATMOR. For the survey, STRATMOR asked 120 lenders questions on their ATR/QM implementation experience; the impact of ATR/ QM on ongoing loan origination costs; and their attitude toward loosening ATR/QM regulations. "It is understandable that more lenders than not don't want to see changes to the ATR/QM rules," Rob Chrisman, Senior Advisor, STRATMOR said. "Even elimina - tion of the regulations will likely require costly changes in the pro- cesses, systems, and training and lenders will have to spend more time and money to undo what is in place. Lenders are looking for ways to keep the costs down for themselves and the borrower, not add to them." Currently, the survey found, lenders estimated that ATR/QM regulations "added $139 per loan to their ongoing origination costs, with $44 of this additional cost recovered from borrowers through additional loan charges and fees." As a result, lenders absorbed an ongoing origination cost of $95 per loan.When asked about changing ATR/QM regulations, 62 percent of respondents favored little or no change to ATR regulations, whereas 54 percent preferred little or no change for QM.Lenders investing more than $750,000 in ATR/QM implementa - tion were 25 to 50 percent more likely to want a significant scale back or elimination of regula- tions than lenders investing less than $250,000, the survey found. Most lenders said that they esti- mated their average investment in implementing ATR/QM regula- tions at $326,000 with only minor differences between banks and independent lenders. The significant differences between lenders came to the fore when origination costs were broken down by lender size. The survey found that lenders originat - ing more than $5 billion invested $744,000 on ATR/QM regula- tions, whereas the investment cost came down to $177,000 for lenders originating less than $1billion. When it came to implementation, lenders had less difficulty imple - menting ATR regulations than QM, because other underwriting techniques provided a roadmap for ATR processes. The survey found that lenders felt QM processes remained ambiguous leading to more oversight expenses. Low Credit Scores Add Up Zillow looked into how much having a high credit score costs borrowers over time. A "fair" credit score be- tween 640 and 679 could cost a borrower around $720 a year in extra mortgage payments compared to a borrower with an "excellent" score, according to the Zillow report 'The High Cost of Low Credit.' Zillow analyzed Annual Percentage Rate (APR) terms offered to borrowers on Zillow Mortgages and found that "a bor - rower with a 'fair' score will pay 7 percent more over the life of a 30-year mortgage for the same home than an otherwise identical borrower with a credit score above 760." To put that in clearer num - bers, 7 percent would add up to nearly an extra $21,000 during the life of that mortgage. Or, as Zillow puts it to provide context, "roughly equal to one year's tuition costs for an out-of-state student at a public university, or the cost of a new car." Breaking things down further, Zillow created a hypothetical buyer with an 'excellent' credit score in Los Angeles earning the area's median income and purchasing the typical L.A. home. The report calculated that buyer could likely expect to be offered an average APR of 4.50 percent. With a stan - dard 20 percent down payment, that borrower would pay around $31,000 a year on a $645,000 home, eventually totaling $942,000. Were that borrower's credit score to be 80 points lower, firmly in 'fair' territory, and received a com - mensurate APR of 5.12 percent, it would cost the borrower an extra $2,300 per year—or nearly $70,000 more over the life of the loan. "Under these same assumptions, the total additional costs over the life of a 30-year loan on a typical local home for those with fair credit compared to excellent credit range from $129,000 in San Jose to around $9,000 in Pittsburgh among the larger metros," the report stated. "It is understandable that more lenders than not don't want to see changes to the ATR/QM rules." —Rob Chrisman, Senior Advisor, STRATMOR

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