The Small Creditor Qualified Mortgage Revisited in 2016
Revisiting the advantages of Small Creditor status now that the definition applies to so many more lenders.
In the compliance business, I'm not always able to deliver good news, so I'm all over this one!
With the CFPB relaxing certain parts of the Qualified Mortgage rule effective March 31 (because one day later and no one would have believed it), I thought this was as good a time as ever to revisit the other recent change to this rule.
I don't believe the March 31 revisions will affect anyone reading this newsletter, so I'm going to pass over it completely. But that's not the "good news" I was referring to. Remember that the CFPB expanded the definition of "Small Creditor", effective January 2016.
So if you're a lender that both (a) has assets under $2 billion (adjusts annually, is already higher than this), and (b) originates fewer than 2,000 mortgages (not counting loans kept in portfolio!!), then you are a "Small Creditor".
Originating Small Creditor Portfolio QMs
Being a Small Creditor makes it easier to originate Qualified Mortgages that protect the lender from Ability-to-Repay liability.
Why is it easier to originate Qualified Mortgages as a Small Creditor?
No need to meet Agency guidelines (does not need to pass Fannie/Freddie muster)
No need to meet any numerical Debt-to-Income ratio (forget 43%)
No need to meet Appendix Q's underwriting standards (which many would consider rigorous, but even if you don't, it still turns flexible underwriting standards into strict regulatory guidelines).
Finally, it is easier to make non-rebuttable Qualified Mortgages (the very protective kind of QM) (as opposed to QMs where the borrower can rebut the presumption of compliance). For Small Creditors, QMs with APRs within 3.5 points of the APOR will be safe (as opposed to
1.5 points for non-small creditors).
Revival of Private Secondary Market?
While you generally cannot sell Small Creditor Portfolio QMs within 3 years without losing QM status, you can sell them to other Small Creditors. This is the same rule as 2014. The big difference - there are A LOT more "Small Creditors" to buy and sell these now!
Will this spark a resurgence of private secondary deals? (I know a couple of guys at my office who hope so!)
Buying Small Creditor QMs - A Crazy Idea
For many community lenders, establishing a relationship with a small local mortgage broker or lender might be blasphemous. But for "Buy Local" aficionados, it must be tough to see local sales officers originating loans for large national lenders. I wonder why a correspondent/wholesale relationship would be out of the question?
While local lenders might not want to compete with those "big box" shops with pricing, Small Creditor flexibility might help. Why not offer those local companies an outlet for loans that won't quite meet QM standards (but will meet Small Creditor QM)? A 44% DTI, 850,000 loan amount, 800 FICO loan might look like a risky non-QM to large lenders, but probably won't look too bad to a local lender that can originate this same loan as a fully protected QM.
In Other News:
If your loan officers are on social media, your compliance officers know they should be monitoring their activity and that there should be a Policy in place to tell them what to do/not to do. Here are 10 things not to say from Smarsh, a company that helps lenders monitor social media activity.
The Massachusetts Bankers Association School of Mortgage Banking starts May 2
So the "New England Patriots Fans" filed a lawsuit against the NFL in Boston Federal court over the NFL's handling of the deflated football debacle. Maybe the Judge who dismisses it might have given it a closer look if the lawyer who filed it had not been suspended from practicing law for what Maine called "a lack of fundamental skills, competencies, and preparation."
Looking to sharpen up on your vendor management trivia? Here's a law firm website that has compiled a good collection of its own and 3rd party periodicals on the topic.
The world's most famous marathon is only 12 days away. Terri Halperin and her husband Michael Davidson had long planned to run the 2016 Boston Marathon together to celebrate her 40th birthday. In January 2015, Dr. Michael Davidson was murdered by a gunman at Brigham and Women's Hospital, leaving behind Terri, their three children, and a baby due only two months later. Running has given Terri an outlet for her grief. She will run this year's marathon as planned raising money to create a fellowship in her husband's name.
To donate to his fellowship, here is the link.
"Trust is the natural result of thousands of tiny actions, words, thoughts, and intentions. It doesn't happen by accident, nor does it happen all at once. Gaining trust is work. Knowing that you need it isn't enough; you and I have to do the little things on a daily basis to earn it."
- David Horsager
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**These are our opinions. We're not authorized, or willing, to express those of others.**