New Rules Tighten Mortgage Lending

by Gwen Moritz  on Monday, Jan. 27, 2014 12:00 am  

Chuck Quick

Will fewer people be able to get the mortgages they seek?

“Maybe around the edges,” McElmurry said. “The vast majority of people who qualified on Jan. 9 still qualified on Jan. 10.”

Lenders and borrowers are not forbidden from making more exotic mortgages, but they will have to either keep some or all of the risk on their own books or find a private secondary market to which to sell them because government-backed Fannie Mae and Freddie Mac can now only buy qualified mortgages. And only QMs can be insured by those other federal agencies: VA, HUD, FHA and USDA.

A secondary market for loans that don’t meet the qualifications hasn’t sprung up, but Quick said it won’t be long.

“There will be a market, and it will probably be here sooner rather than later, for non-QM loans,” he said, predicting that large loan aggregators like Wells Fargo and J.P. Morgan Chase & Co. will be the first to fill the void.

Standard of Care

The CFPB regulations also include a more rigorous system for tracking the originators of loans. Every application and subsequent note, mortgage and deed of trust now includes the Nationwide Mortgage Licensing System & Registry identifying number for the originating organization and for the state-licensed mortgage loan officer, and that number follows the loan officer from employer to employer.

There are two reasons for the new accountability:

• Loan officers now owe a “duty of care” to each borrower, a fiduciary duty to match the mortgage product with the borrower. And one of the old incentives that tempted unscrupulous lenders to steer borrowers into higher-cost mortgages is now against the law: The commissions paid must be the same regardless of the terms of the mortgages originated.

• Borrowers who feel they were not treated fairly during the loan origination process have recourse throughout the life of the loan, which could be 30 years.

This is part of the new regulation that Quick especially likes.

“I like the idea that there is a duty of care from that loan officer,” he said. “Our business needed to be a professional business. You didn’t see it in Arkansas, but it was going on out there that people were making loans to anyone who would walk in without any accountability.”



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