I started to do some sampling of loans within our secondary market portfolio to see if any of the loans would be out of "tolerance" for the points and fees test as a condition for a qualified mortgage status. While the majority of the loans (95% or better) would be fine, I am finding that those loans that have large pricing adjustments (either due to low credit score, higher LTVs, etc.), but are still eligible for sale for secondary market, will be out of tolerance for the QM status.

So, those of you that sell to the secondary market, have you thought about how you will handle these loans? I know that Fannie came out with a release a couple of weeks ago that specifically stated that as of January 10, 2014 they will not accept any non-QM loans.

It's about item #17 on my list of 100 things to do immediately, but at least it's there. Approx. 900 to 1,000 loans to 2ndary market each year, so 1% would mean having to catch them. Are you querying the software app to find them, or did you Build-Your-Own tolerance machine?

Neither. I've just basically been taking a random sampling of existing loans to see if they are over the thresholds. But I like the idea of creating my own tolerance worksheet.

We also sell a majority of our loans on the secondary market. Since it appears investors will only purchase QMs, I anticipate we will have to make a business decision (based on risk) as to whether or not we will take non-QMs into portfolio or stop originating them.

We get all the secondary market fees in the pricing so we are going to make sure we continue to do that.

We're coming out OK on our test worksheets even with the title fees (we have an affiliate). The issues we are having is the loan officers compensation portion that is supposed to go into the points and fees calculation. Our LOs are paid by their monthly volume so there is no was of knowing at the time of closing (say on the 10th) what the loan officers compensation will be until accounting closes out the books at month end.

Well you guys are way ahead of me on this one. Are you using some type of worksheet that could be shared?

jlroberts---our LO's are compensated the same way, but it is based on the total volume for the month. How would you calculate it?

jlroberts and Still Smiling: - From the commentary 1026.32(b)(1)(ii)-3:
"The amount of loan originator compensation that can be attributed to a transaction is determined as of the date the interest rate is set."

There are several 'good' examples in the commentary 1026.32(b)(1)(ii)-4 that explain how/what to include as LO comp. If you truly cannot determine at all the amount of bonus that will be paid for a particular loan on the date the rate is set for that loan, I take it to mean that you do not include LO comp in the points and fees test. But if you do know say a minimum amount per loan that will be paid but the amount may increase later as more loans are originated but can't be determined until the month closes out, you would need to include that minimum amount that you do know for sure will be paid in the points and fees test. It's all clear as mud.

And isn't that the $64 question? If we decide to stop originating non-QM loans, what impact could that decision have on fair lending, CRA, UDAP, etc?

Yes...this whole points and fees thing for QM's and HOEPA test are driving me nuts. I don't know where to start trying to determine if a loan exceeds the fee test for HOEPA. I just don't get it.

Extremely excited about CFPB bulletin on 05/29/13. We do not have to include LO comp in our calculation.

• Establish how to calculate loan origination compensation: The Dodd-Frank Act mandates that Qualified Mortgages have limited points and fees, and that compensation paid to loan originators, such as loan officers and brokers, is included in points and fees. This cap ensures that lenders offering Qualified Mortgages do not charge excessive points and fees. Today’s amendment provides certain exceptions to this Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both Qualified Mortgages and high-cost loans. Under the revised rule, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. This amendment does not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

Certainly does eliminate one huge problem that lenders were all concerned about.