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#1837849 - 07/30/13 08:40 PM
Offering QMs & Non-QMs Same Product
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100 Club
Joined: Apr 2006
Posts: 156
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It looks like come January we may be offering home equity loans that are both QMs and ATR/non-QMs. QMs have to follow Appendix Q for the DTI calculation. Non-QMs have to follow ATR requirements.
We will first assume all applicants qualify for the QM and have 43% DTI or less. If they don't - or we can't verify their income per Appendix Q and this kicks their DTI above 43%, then we have to follow ATR U/W standards. Points & fees & features are the same for the home equity product regardless of whether it is a QM/non-QM loan.
My current concern has to do with disparate impact in that we would have essentially two U/W processes. What if a protected class applicant received a QM loan but had to meet stricter U/W, documentation requirements than a white, male applicant that did had 45% DTI and received a non-QM loan with less strict requirements? Is that a fair lending issue? We have to require some third party documentation under Appendix Q that we do not under ATR. Or is this not an issue, because we will treat each applicant the same, by first applying QM U/W then applying ATR U/W if necessary? If it is an issue, does this force us to apply Appendix Q verification requirements to non-QMs to be fair across the board? Our product terms and pricing will be the same regards of whether it is a QM or non-QM.
I am not sure whether a light bulb has turned on for me, or if I am too deep in this stuff that I can no longer see the light but am imagining things. Please help!
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#1838019 - 07/31/13 03:05 PM
Re: Offering QMs & Non-QMs Same Product
Kathleen O. Blanchard
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Joined: Apr 2006
Posts: 156
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Thanks for sharing those thoughts. The risk factors, including compliance risk in addition to the legal risk, have been taken into consideration, and the chosen route is to offer both. Down the road, as the legal environment takes shape, we may reconsider. We want to be able to continue to meet the needs of our community and not be restricted in our lending by only offering QMs. We have many profitable, long-term customers that will not qualify.
I worry that we would have even more risk of fair lending violations if our non-QM HE loans cost more than QM HE loans. And, honestly, we see the underwriting/verification work just as cumbersome or even more so with QMs/appendix Q. While our documentation process for non-QMs will be enhanced, the U/W process is very similar to what we're doing now.
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#1843582 - 08/19/13 03:29 PM
Re: Offering QMs & Non-QMs Same Product
LJones
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Joined: Feb 2005
Posts: 5,349
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Here is my run with many responses in the industry. Right now you have a portfolio with the same risk as non-QM loans. Just because something is non-QM does not mean that it is this ultra risky product. The most recent QM guide put out by the CFPB does not even mention how to comply with non-QM loans, as they now have some limitations.
It seems to me like the industry is overreacting in its attempt to try to comply with making all of their loans QM. There is no requirement that a loan be a QM loan. A non QM loan has the same risk as any loan has now. QM loans just have slightly less risk.
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#1843667 - 08/19/13 05:15 PM
Re: Offering QMs & Non-QMs Same Product
Sound Tactic
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Joined: Jul 2008
Posts: 148
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It seems to me like the industry is overreacting in its attempt to try to comply with making all of their loans QM. There is no requirement that a loan be a QM loan. A non QM loan has the same risk as any loan has now. QM loans just have slightly less risk. Not to mention the fact that if you make all QM loans, you can still be taken to court by a litigious customer with an axe to grind. The difference being that they'll sue you to try and prove their loan isn't a QM rather than trying to prove you didn't follow the ATR requirements.
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#1843974 - 08/20/13 02:15 PM
Re: Offering QMs & Non-QMs Same Product
CrookedVulture
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Joined: Feb 2005
Posts: 5,349
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It seems to me like the industry is overreacting in its attempt to try to comply with making all of their loans QM. There is no requirement that a loan be a QM loan. A non QM loan has the same risk as any loan has now. QM loans just have slightly less risk. Not to mention the fact that if you make all QM loans, you can still be taken to court by a litigious customer with an axe to grind. The difference being that they'll sue you to try and prove their loan isn't a QM rather than trying to prove you didn't follow the ATR requirements. That is a very valid point.
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#1846514 - 08/27/13 11:11 PM
Re: Offering QMs & Non-QMs Same Product
LJones
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Joined: Feb 2001
Posts: 2,245
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Yep, I'm starting to wonder what the difference between following general ATR rules or taking it to a QM status will get us in the long run.
I think the main deciding factor will be what the QRM rules require.
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#1846534 - 08/28/13 01:15 AM
Re: Offering QMs & Non-QMs Same Product
LJones
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Joined: Feb 2001
Posts: 2,245
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Right, the secondary market will only buy QMs (at first anyway).
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#1846694 - 08/28/13 04:13 PM
Re: Offering QMs & Non-QMs Same Product
homestar
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Joined: Nov 2004
Posts: 2,310
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The following quote comes from a speech CFPB Director Cordray gave on July 11, 2013 before the National Association of Federal Credit Union’s (NAFCU) annual conference. http://www.consumerfinance.gov/speeches/...ual-conference/ "In fact, we have tried to ensure that the risk differential between those categories is not substantial ( we have conservatively estimated that the potential liability cost associated with making non-QM loans would add less than one-eighth of a point to the interest rate) so that credit unions and other responsible lenders can continue to make traditional relationship loans regardless of how they are classified for purposes of the Ability-to-Repay rule. I understand that many are anxious on this point, but what I have just told you is the truth, and we are happy to discuss and analyze these issues with you in more detail if you are interested in working through them with us." Do you think the language I highlighted in red means that the CFPB would look closely at a creditor that priced a non-QM loan 1/8 of 1% or more higher than a QM loan?
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Opinions expressed are my own and not necessarily those of my employer. They are not legal advice.
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