One-Fifth of Today's Mortgage Loans Don't Meet QM Standards
By: Krista Franks Brock
One in five loans originated in today’s mortgage market will not meet the requirements of the Consumer Financial Protection Bureau’s (CFPB) Qualified Mortgage (QM) rule that goes into effect in January, according to California-based ComplianceEase.
ComplianceEase reviewed the loans audited through its ComplianceAnalyzer, a loan auditing software, to determine what percentage of current loans would meet the new QM criteria.
Of the 20 percent of loans that would not qualify, ComplianceEase determined fee levels would be the
disqualifier for about half. The QM rule allows for points and fees of up to 3 percent.
Loans that exceed the 3 percent maximum typically do so by about $1,500, according to ComplianceEase.
The other source of loan disqualification is annual percentage rates (APRs) that exceed what is allowed through the QM rule, according to the company.
Fannie Mae and Freddie Mac will not guarantee loans that do not meet QM standards in the new year.
“Moreover, due to lack of marketability, lenders generally try to avoid originating loans known as ‘high-cost’ loans, which are subject to restrictions in the Home Ownership and Equity Protection Act (HOEPA),” ComlianceEase stated.
About three percent of loans in today’s market will be considered “high cost,” under the new regulations, according to ComplianceAnalyzer’s data. These loans generally carry fees exceeding the new cutoff by more than $1,000.
“Banking and mortgage executives need to evaluate their technology providers very carefully because the QM rule can create legal liability for the life of a loan,” warned John Vong, president of ComplianceEase.
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