Interesting October/November Lending Notes

a few interesting snippets from a local lender newsletter....

JPMORAN GETS WACKED

 

“JPMorgan has agreed to pay $5.1 billion to Fannie Mae and Freddie Mac to resolve claims stemming from the housing bubble, federal housing regulators announced Friday. The bank has also been in talks with the Justice Department and other government officials over another potential settlement based on similar claims. That settlement will likely be even more expensive for the bank.” (cnnfn.com)

FEARS OF RISING MORTGAGE FRAUD

As mortgage applications for refinance transactions decline, purchase applications are on the rise; and so is the fear of mortgage fraud.

“With the implementation of the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay standards for the Qualified Mortgage (QM) rule and a focus by underwriters on ensuring the proper income is available to support mortgage payments, falsely claiming the required income to support the loan application could become a bigger problem in the future, CoreLogic said.” (housingwire.com)

Strict underwriting guidelines and tougher regulation will make loan approvals more difficult to come by. This will lead to some loan originators and borrowers to do anything possible to approve loans leading to the increased likelihood of loan fraud.

MORTGAGE LENDING ABOUT TO GET TIGHTER

Dodd-Frank’s ability to repay rules (Qualified Mortgage / QM) hits the mortgage industry in January of 2014. The new rules change how fees to the consumer are calculated and regulated. Once again, on the surface, these changes look promising to the consumer, but will likely prove disastrous in some markets; particularly lower income. 

“The ability-to-repay rule in its current form, calculates points and fees by including fees paid to affiliated title companies, salaries to loan-paid originators, insurance and taxes held in escrow, loan-level pricing adjustments and payments by lenders to correspondent banks, credit unions and mortgage brokers dealing in wholesale transactions, the National Association of Federal Credit Unions warns in a letter to Congress.” (housingwire.com)

Due to the new rules, most lenders will be unable, or unwilling to make loans for lower income housing under the new rules.

20% OF LOANS ORIGINATED TODAY WILL FAIL QM IN 2014

The biggest question that the mortgage industry currently faces is how will the Qualified Mortgage rules impact loan originations going forward. A recent study conducted by a mortgage compliance company found that 1 in 5 of all mortgages that are currently being originated will not meet the Qualified Mortgage (QM) standards that go into effect in January of 2014. According to the study, more than 50% would have fees in excess of the 3% threshold, and the rest violate APR maximums. Lenders will not likely just lower fees in order to originate these loans; they will simply not do them. The massive financial burden the new regulations place on lenders just to stay compliant is forcing the cost to originate a loan up. Some estimates as much as 15%. No, lenders are not going to be lowering fees. The cost of doing business is going up, and the consumer is ultimately going to pay.