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Lending

It’s a brave new QM world – you just work there

If you’re not ready, today is doomsday

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The Consumer Financial Protection Bureau's extensive new Qualified Mortgage (QM) rule went into effect Jan. 10, and like it or not it’s here to stay.

QM establishes the official template for lending and servicing standards the majority of lenders must use when qualifying home buyers. It’s one of the five biggest changes the industry is facing.

Some of the costs of QM are known. But cost is just one measure. There will be other effects over the long-haul, and it’s impossible to say what the changes will bring.

Most in the industry are welcoming QM, but there is understandable concern about the long-term effects.

"QM is impactful and this type of consumer protection is long overdue. However we need to be watchful that this rule doesn’t create barriers for lending institutions’ readiness or access to credit for qualified borrowers looking to obtain the dream of homeownership," said David Stevens, CEO of the Mortgage Bankers Association (MBA).

Jeff Knott, a member of the product management team at Equifax Verification Services and vice chairman for the Electronic Signature and Records Association, said he believes the new standard will benefit both home buyers and lenders, and won’t create an undue burden on the industry.

"For the majority of the individuals out there tomorrow will be a day like any other. It will offer the additional assurance that the information and reporting used are informed versus self-reported. While at the same time giving consumers greater transparencies into the intricacies and the nuances of the lending experience that many lenders take for granted," Knott said.

"The industry is catching up to the demands of the consumer and the government’s efforts to continue to ensure consumer protection," Knott said. "With this rule there is going to be an even greater need for lenders to continue their best practices in qualifying applicants using valid data from a trusted source. These rules are not intended to be burdensome to the industry by requiring additional documentation, but they are designed to help improve the economy and protect all of our clients both the lenders and the buyers themselves."

Kirk Stephens, a 20-year FDIC veteran and chief compliance officer at OSC, a financial risk management and insurance services company, said he thinks the industry is ready for QM, but there’s still a lot of work to be done to ensure compliance.

"The majority of lenders have been working on this for most of 2013. Many were in hopes of having the deadline extended but, once the 4th quarter of 2013 was here with no extension, lenders kicked in high gear. I believe most of the lenders are prepared," Stephens said. "Keep in mind that the CFPB has promised to give enough time for banks to gather sufficient data before including the new mortgage servicing in the scope of their exams. What is considered ‘enough time’ is still undefined."

"Many of the lenders were finalizing their testing this week and making revisions as necessary. We have been working with our lenders in testing cycles and providing samples of feedback with revisions as necessary," Stephens said.    

The data review element of QM will be where a lot of the rubber meets the road, he said.

"Lenders will have a robust review period once they go live. Most of the analyses will be in the form of reviews of required notices making sure their systems are generating information to the borrower in a timely manner, as required by the rules. Reports showing timelines of mortgage error resolution, force-placement notices and early intervention and loss mitigation requirements for delinquent borrowers will be paramount for their review," Stephens said.   

"Most lenders don’t have in place the compliance plans they need, because they have been focusing on the deadlines," Stephens said.

"I believe many lenders are still in need of developing compliance plans and schedules for future reviews and audits. Right now, lenders are really trying to meet the deadlines and reviewing test results in comparison to rule requirements," he said. 

Outside the industry, homeowner advocacy groups like the California Reinvestment Coalition (CRC), meanwhile, thinks the new rules will only strengthen homeownership, but they don’t think QM goes far enough.

"These rules signify the end of the Wild West style of lending that created financial nightmares for America’s families, destroyed communities, and imploded our economy," said CRC associate director Kevin Stein said. "These new rules will force banks and servicers to stop their reckless behavior and we are confident the CFPB will hold lenders and loan servicers accountable by monitoring their compliance and enforcing the rules on behalf of consumers."

Stein said his organization would like to see the CFPB ban dual-tracking and address issues like foreclosures on surviving spouses, illegal evictions after foreclosures, language access problems, and the slew of issues created when the servicing of a loan is transferred.

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