Magazine article Mortgage Banking

Discover Home Loans Chief Economist Comments on QM

Magazine article Mortgage Banking

Discover Home Loans Chief Economist Comments on QM

Article excerpt

Cameron Findlay, chief economist for Discover Home Loans Inc., Irvine, California, believes the newly effective Qualified Mortgage (QM) rule is negatively affecting more homebuyers than earlier estimates predicted. Coupled with lower loan limits on government-insured loans, housing markets are feeling the pinch. Discover Home Loans is a subsidiary of Discover Financial Services.

In an interview with Mortgage Banking, Findlay said that Consumer Financial Protection Bureau (CFPB) Director Richard Cordray had estimated that he thought roughly 5 percent of loans might not qualify for QM status that were getting approved in the past. But Findlay says that the actual lending data coming in is showing the number might be closer to 10 percent or 12 percent.

Findlay says the borrowers who might be disproportionately affected are the minority segment of homebuyers. He says that the Federal Housing Finance Agency (FHFA) mandates that Fannie Mae and Freddie Mac charge certain risk premiums for high-loan-to-value ratio (high-LTV) and lower-credit-score borrowers in certain geographic markets. Those extra fees get translated into higher points and fees charged at the closing table on those loans. And the QM requirements put a cap on total fees and points, which lenders can't exceed if they want to qualify for a QM loan.

Findlay says that Discover Home Loans has an index that evaluates lending parameters and the likely adverse impacts of the QM rule and the lower loan limits recently announced by the Federal Housing Administration (FHA). He singled out one market in particular that is going to be suffering from the lower FHA loan limits. Those limits are affecting Salt Lake City "very negatively," he said. FHA loan limits in that city are 59 percent lower this year than they were in 2013, he notes.

He said that the QM rule is not necessarily bad policy over the long term, but lenders currently "have pretty valid concerns" about its immediate impact. …

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