June 2014 Mortgage Originators Survey

Cover of the June 2014 Survey of Mortgage Originators — Download PDF

The mortgage market was buffeted by a number of changes in 2013 and 2014 among them higher fees at the FHA and changes to underwriting as required by the Ability-to-Repay and Qualified Mortgage Rules. This survey queries a sample of mortgage lenders about the impact of the QM rule three months after implementation in addition to questions about the impact of changes to the FHA program.

Key Findings

Non‐QM lending accounted for 1.6% of production by respondents in this sample and 8.3% were rebuttable presumption.

Bar graph: Share of production for safe harbor QM, rebuttable presumption QM, and non-QM

An encouraging 73.7% of respondents indicated that they had fully adapted to the new rules, well ahead of expectations reported by respondents in the January survey.

Bar graph: Length of time expected to adapt to new regulations

Investor preferences are important. 68.4% of respondents indicated that they did not produce non‐QM loans based on investors’ preferences and a surprisingly high 50% indicated a reluctance by investors to purchase rebuttable presumption QM loans.

Bar graph: Treatment of non-QM and rebuttable presumption QM mortgages

Non‐QM lending was restricted to high balance and/or high-quality lending.

Stacked bar graph: Willingness to originate mortgages in 2014 vs 2013

Since January 10th, nearly half of respondents indicated they had some issue closing a loan due to the ATR/QM rule.

Pie chart: Inability to close mortgages due to new QM rule

For loans that did not meet the 3% cap on points and fees, the most-cited method for handling them was to reduce the fees, but second was not to originate the loan. Financing fees was the least frequent response.

Bar graph: Methods for loans with points and fees greater than 3%

Roughly half of respondents did not use buffers ahead of the 3% cap, 43% DTI, or rebuttable presumption boundary, and 5.3% eliminated them in the three months since inception. Buy‐back risk and inability to discover all information about the consumer’s ability to repay the loan were the most often cited reasons for the use of buffers.

The vast majority, 73.7% of originators have adapted to the rules, but 22.2% of respondents indicated that they would not phase out buffers on QM safe harbor and rebuttable presumption parameters even once they are fully adapted.
FHA’s premium increases for its mortgage insurance since 2010 and permanent MI policy have undermined an average of 5.7% potential purchases where the consumer could not afford FHA’s fees or conventional financing.

Bar graph: Effect of higher FHA rate on closings

In most cases, a consumer faced with the higher fees chose not to buy or to put off buying indefinitely or were able to qualify for VA or an RHS loan. Conventional financing was cited nearly half as often as an option and originators indicated that it is decidedly more difficult to get financing in the conventional space for a borrower with a higher LTV or lower FICO.

Bar graph: Impact of increase in 30-year fixed-rate mortgage basis points

Finally, roughly 10.5% of originators indicated that the FHA’s 100% mortgage insurance guarantee was not important for lending to high LTV or low FICO borrowers, while 26.3% indicated that they would not lend without it. An additional 57.9% indicated that it was important to different degrees and 5.3% were uncertain.