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November 12th, 2013

Lenders: QM rule means more paperwork

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Ticking money bombHome buyers who apply for a mortgage in 2014 should be prepared for heavy documentation requirements.

That’s according to lenders who spoke during a panel discussion at the National Association of Realtors (NAR) 2013 Conference and Expo in San Francisco last week.

Qualified Mortgage or ability-to-repay rule

The trigger for the additional documentation is a new federal rule known as the Qualified Mortgage (QM) or ability-to-repay rule.

The QM rule will require significant documentation from borrowers to justify lenders’ stricter loan approvals. Lenders will face strict penalties if a loan is made outside of the specific criteria, according to a NAR statement. The rule will become effective in January 2014.

Mortgages: Less available

Bill Emerson, CEO of Detroit-based online lender Quicken Loans, said during the panel discussion that QM contains a number of loan underwriting standards that will make mortgages less available and deny credit to some first-time homebuyers.

JPMorgan Chase CEO Kevin Watters also said buyers who have lower or moderate incomes or are self-employed and don’t have consistent income might have a tougher time in the new lending environment.

Mike Heid, president of Wells Fargo Home Mortgage, said the bank is using new technologies to help consumers educate themselves about homeownership before they buy a house.

All-cash buyers are tough competition

Prospective buyers might be concerned that the new standards and documentation requirements will make it more difficult for them to compete against all-cash buyers in multiple-offer situations.

Matt Vernon, a Bank of America home loan sales executive who participated in the panel, said “the way to compete against a cash buyer is to build a process that has no surprises as you go.”

In California, BofA can process and approve a loan in 16 days, Vernon said.

‘Putbacks’ worries are real

Some of the extra documentation is intended to protect lenders from so-called putbacks. A putback occurs when a mortgage security investor forces a bank to repurchase loans that it originated and sold because the borrowers’ creditworthiness might have been misrepresented.

Watters and Heid both said such concerns are legitimate.

“The putback fear is still there and we’re working to put it to rest,” Heid said. “If the government-sponsored enterprises weren’t in conservatorship, the issue of putbacks wouldn’t be there. We need a world where everything is more of a natural market, and we need competition with Fannie Mae and Freddie Mac. The conservatorship should end.”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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