of course. don't you remember that old TV show "Government Knows Best"?

Is it just me, or does this guy sound like a cross between Ben Stein and Mr. Rogers?

Definitely getting the Ben Stein. He about put me to sleep. And Serge does not sound like a Serge.

Congress doesn't legislate in a vacuum (most of the time). The concept of QM is designed to encourage conservative mortgage lending. Unhappily, too many mortgage lenders left any underwriting common sense (and some would say their scruples) in the parking garage when they went to their offices. Low-doc and No-doc loans (aka Liar Loans) were just too common. So I guess Congress felt that legislating employment verifications was needed. Except for the honest, conservative bankers in the choir I'm preaching to.

Very true. But if the government wasn't buying those junk loans then those businesses wouldn't have lasted long enough to do any damage.

You mean it's not Ben?

I want to make sure I wrote this down right..

On slide 20 under the General Ability to Repay Standard: A balloon payment is permissable and don't have to use the balloon payment in the 8 criteria is it is longer than 5 years. If the loan is shorter than 5 years and HPML then would need to use the balloon payment in your calculation.

That's what I got, too.

Ok good...that makes it better. All of our loans are in-house and are balloons. We can consider all 8 factors just maybe need to extend our 5 year to 6 year.

I looked up our county and it is considered a micropolitan area so option 3 would apply.

did anyone catch the whole definition of "underserved area?" Somebody stuck their head in my door and started talking to me right in the middle of the explanation and I missed most of it.

So banks can originate HPMLs with a 6 year or greater term without concern of the balloon payment in the ability to repay calculation, but will not have a "qualified mortgage" - is that what we're thinking?

A bank that does this would fall under the "facts and circumstances" part of the ability to repay requirements?

My head hurts.

I don't recall the exact definition of underserved but was thinking it was like when only 2 banks are in a county that make mortgage loans.

Under option 1 of the ability to repay: a balloon payment is would be permissable. You would need to include the balloon payment if is less than 5 years or HPML. You would not need to inlcude the balloon if it is longer than 5 years.

Post of the day.

Becca, At the GBA compliance conference last week, the speaker did a much better job explaining that rule. There was only 1 bank in the room that met the qualification to initiate a Qualified Balloon Mortgage. Most of the banks were smaller than us.

I can email the handout - my hands would fall off typing all those requirements.......

ooh, would you share?

They also brought up the proposed Basel III capital rules at the GBA Conference. Balloon loans apparently fall into a Category 2 capital item which will lower your Tier 1 capital and cause the bank to have to raise capital. I was totally unaware of this proposal. Banks will have to take a hard look at whether or not to continue making balloon loans. Will it kill our capital? Is there a number that we can make without hurting us? Do we just outlaw them all together?

We can't look at these new CFBP rules in a vaccum.

http://www.ababj.com/briefing/basel-iii-debate-community-bankers-don-t-like-it-3209.html

I know this is not a post on Basel III, but since it was mentioned, here is an article. It looks fun.

Our COO mentioned the Basel III delima to me earlier today. Walden..even our smaller area branches are next to micro's that exceed the thresholds.

ETA: However, I think our predominate lending area resides in an underserved area, so that may trump some of this, but not on the Basel III side of things, apparently! You can't win for losing!!!

This truly is the stuff Nightmares are made of...I have a feeling our only option is to go to ARMs or get out of the business all together.

I handed a briefing on QMs to our Pres earlier. I said the Integrated disclosures and all the other rules cannot compare to the impact this is going to cause...

What I'm not sure about, other than you can't sell them, is what happens to the loans currently on the books that couldn't get financed anywhere else in today's market...this is the part that really has me befuddled.

Thanks for the Basel III info. I will talk to our COO and CFO about this. I am drafting a summary of the Ability to Repay and believe we would be able to do a balloon loan using option 1 however now with the proposed Basel III rules, not sure if we will want to.

I am also feeling we will have to switch to ARMs which is ironic because we stopped doing ARMs a 4 years ago because of issues we were having.

Here's the applicable Comment on the "rural and underserved" definitions, from the FRB proposal. References to the Board will change to "Bureau" and "226" will change to "1026." And it could change in the Bureau's final rule.

43(f)(2) ‘‘Rural’’ and ‘‘underserved’’
defined.
1. Requirements for ‘‘rural or
underserved’’ status. A county is
considered ‘‘rural or underserved’’ for
purposes of § 226.43(f)(1)(v)(A) if it
satisfies either of the two tests in
§ 226.43(f)(2). The Board applies both
tests to each county in the United States
and, if a county satisfies either test,
includes that county on the annual list
of ‘‘rural or underserved’’ counties. The
Board publishes on its public Web site
the applicable list for each calendar year
by the end of that year. A creditor’s
originations of covered transactions
with balloon-payment terms in such
counties during that year are considered
in determining whether the creditor
satisfies the condition in
§ 226.43(f)(1)(v)(A) and therefore will be
eligible for the exception during the
following calendar year. The Board
determines whether each county is
‘‘rural’’ by reference to the currently
applicable Urban Influence Codes
(UICs), established by the United States
Department of Agriculture’s Economic
Research Service (USDA–ERS).
Specifically, the Board classifies a
county as ‘‘rural’’ if the USDA–ERS
categorizes the county under UIC 7, 10,
11, or 12. The Board determines
whether each county is ‘‘underserved’’
by reference to data submitted by
mortgage lenders under the Home
Mortgage Disclosure Act (HMDA)

"What I'm not sure about, other than you can't sell them, is what happens to the loans currently on the books that couldn't get financed anywhere else in today's market...this is the part that really has me befuddled."

I just don't know. Perhaps they all get refinanced as ARMs - if the customer can even afford to refinance the loan and pay escrows.

That's the problem we're trying to figure out. Right now nearly all of them finance fees, escrow deposits, and everything when they do refis because they can't afford to pay it out of pocket.

A very true statement.