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Six months after the implementation of the QM/ATR rule, the market appears to be shifting modestly. This survey serves as both a measure of change in the 2nd quarter and a bellwether for originators' impressions of market dynamics in light of regulatory changes under the QM/ATR rule as well as changes at the FHA, FHFA, and new credit scoring models. The panel was expanded in the 2nd quarter to include members of Community Mortgage Lenders of America.
The Qualified Mortgage Rule and Its Impact
On Friday, January 10th, 2014, the requirements of the ability to repay and qualified mortgage (QM) rule went into effect. The Dodd-Frank act requires that originators make a good faith effort to verify a borrower's ability to repay their mortgage and imposes stiff penalties if they do not. The QM rule allows for varying degrees of assumed compliance with the ability to repay rule, which is advantageous to lenders as it allows them to minimize and to budget for potential penalties and litigation expenses. All mortgage applications received on or after January 10th are required to comply with the ATR/ QM rule which includes full documentation of income, assets and employment, a maximum of 3% for points and fees, a cap of 43% on the back-end debt-to-income ratio, and limitations on the type of mortgage products that qualify and prepayment penalties among other requirements.
NAR's first Survey of Mortgage Originators queried originators about their expectations for the QM/ATR environment and their anticipated operational changes. This survey is the second that measures the impact of the QM/ATR on production.
Key Findings
- The non-QM share of originations more than tripled in the 2nd quarter to an originations-weighted 2.6% from 0.8% in the 1st quarter. Rebuttable presumption expanded as well to 12.8% from 9.8% over this same time frame.
- Respondents were less sanguine about their comfort with the QM/ATR rules in the 2nd quarter, with just 61.9% indicating that they had fully adapted compared to 73.7% in the 1st quarter.
- The share of lenders offering rebuttable presumption and non-QM products in the 2nd quarter improved, but willingness to originate non-QM and rebuttable presumption mortgages fell from the 1st quarter to the 2nd quarter. Lenders were more willing to originate prime mortgages, though.
- Over the next 6 months, nearly half of respondents expected improved access to credit for prime borrowers with FICO scores between 620 and 720. However, the vast majority expected no change for rebuttable presumption and non-QM borrowers. Respondents expect improved investor demand for all mortgage types.
- Half of respondents indicated that the premium reductions under the FHA's HAWK program were insufficient or the education fees were too high, while 55% indicated that the program would not expand credit.
- Only 15% of respondents felt that FHA's program of early reviews would help to alleviate overlays.
- However, 85% of respondents indicated that a reduction of LLPAs directed at high LTV and low FICO borrowers would stimulate access to credit.
- Finally, 60% of respondents indicated that the Fair Isaac Company's new FICO 9 scoring model would help to stimulate access to credit. Only 35% expected no change as they either defer to their investors' or the GSEs' scoring models.
