Well here we go again, DU is about to be updated again in June this year from what I hear.  Again we see the implementation of QM rules into the approval engine.  Ever notice how every 6 months or less now, DU is being updated?  Let me explain why again.

QM is making all loans backed by the Government Sponsored Entities eventually be 43% DTI too.  They were/are just exempt from that rule for 7 years.  It will be hard to fathom for some that do FHA/VA loans at north of 50% DTI all the time, that they will be capped at 43% in a very short time.  QM is half way through that 7 year period.  And every time DU is updated it is lowering the risk thresholds on DTI.  Ever notice that?

Well there’s more to the story.  In the next two years mark my word.  Correspondent “Lenders” are going to be regulated heavily.  More and more “skin in the game” reserve requirements will come to the land of mortgage lending.  It will more than likely require a fraction of a fraction of the overall business generated and funded monthly to be kept as reserves by that mortgage company.  More regulation for compliance of those “mini-correspondents” of the world will force them back to the “broker world”.   I see this trend now, more correspondents are going back to “brokering” to avoid compliance tasks.  There was a trend in emerging correspondent lenders since 2010, and now that the disclosures are the same on the front end as banks, that trend I see reversing itself as new regulations come to play in the next few years.  Yeah, you can still make front end and back end, but you still have to be at 3% total QM fees.  This is what I see happening, and of course not factual yet I do not think.  If your not closing north of ten million on your own lines per month it may not be worth it.  The dollar amount in fees and interest just to use the line makes it that your break even point may be around that same 2.75% that could be “brokered”.   Heck that break even point may be a higher funded volume.  And if new laws come to play that make a mini-correspondent hold more skin in the game as reserves, that extra “monies” is going to have to be held.

Now the third point.  The 3% rule.  I see it all day just because I do the math in my head so fast.  But LO’s you need to do this too.  For example, know what goes INTO the QM and then do the “math backwards”.  Commission, Underwriting fees, Points (unless bona-fide), Affiliated arrangement profit.  So if you are not affiliated with any AMC etc, and you “waive” or “buy out” the underwriting fee, then the only two things to LOOK at would be your compensation plan plus any points if any.  Now you can bona-fide 1 discount point if you have a rate that isn’t the top rate on the rate sheet or the bottom rate on the rate sheet.  Important to remember.  So if you are lending at 2.75% comp plan, and you have a final price of 97.5 after all add-on’s, you ARE going to run into an issue.  2.75% plus one bona-fide point would put you at 99 net pricing, and you would only have about a .25 or so left.  Not even.  So at that rate you could be at about 98.85 based on my estimation buying out the underwriting fee, charging 2.75% and bona-fide one discount point.   NOT 97.5% on final net pricing.  Do the math when  you lock.  Just cause the the rate’s on the rate sheet in most cases you can’t even offer that rate with a 2.75% comp plan and still pass QM 3% rule.  Know this in advance.

Here’s an insert from an article that quotes the concepts I was mentioning, made in JAN 10th 2013….CFPB Releases Final Rule on Ability to Repay, Leaves Back Door Open on DTI

“CFPB concedes there are instances where a debt-to-income ratio above 43 percent may be appropriate based on individual circumstances but believes these loans should be evaluated on a case-by-case basis under the ability-to-repay criteria rather than with a blanket presumption. Given the fragile state of the mortgage market however CFPB is concerned that creditors may initially be reluctant to make loans that are not qualified mortgages, even though they are responsibly underwritten. The final rule therefore provides for a second, temporary category of qualified mortgages with more flexible underwriting requirements so long as they satisfy the general product prerequisites for a qualified mortgage and are also eligible to be purchased, guaranteed or insured by the GSEs (while under conservatorship), HUD, The VA, or The USDA. This temporary provision will phase out as these agencies issue their own qualified mortgage rules, if GSE conservatorship ends, and in any event after seven years.”

QM Simplified

Sell Well – JUICEMAN

A Broker in Cali, that I have in my network asks me today;

How does TRID really affect me and what do I really need to know?

My answer is 3 parts of importance for you to know on how it changes the way the Mortgage Broker does business now.

1. The way Broker’s can switch lenders in doing business now changes.  The thing to know is the GFE and the TIL are combined.  So the fact the GFE isn’t signed now and it’s easy for brokers to “switch” lenders will change.  You will now need to “create” a new GFE if you are switching lenders assuming comp plans are different or the fee’s are different.  Then the borrower would need to sign that new LE (Loan Estimate). **re-post notes.  This is why the “Broker is bouncing back”.  The new disclosures level the playing field and Bank and Broker disclosures in the initial LE all look the same.  More and more rules are coming that will make more “mini-correspondents” have more reserves and mandate licensing etc if they “lend”.  Even more compliance laws to roll out in the next two years is what I see.  Why being a “wholesale Broker” is the way to go.  More new business starting daily.

2. The Tolerance items on the GFE as it is now are changing.  This could be a big movement in the industry.  And we could see “more” upfront fees on LE than we do on the GFE now a days.  The shopper will have a handle on Brokers that go skinny in the fees.  You know how the transfer taxes and owners title are a “ZERO Tolerance” item…. well guess what that section of the “LE” or new GFE if you will, is changing to include more items.  Pretty much all the items in box 3 right now.  What that entails is the Credit Report fees, the Appraisal fees, Tax Service fees, Flood Cert fees.  So, better make a new BEST PRACTICE as a Loan Originator in my opinion.  At the beginning you should disclose the cost of an appraisal and 1004D upfront at least.  Better disclose the credit report fee and at least two credit sups upfront.  Hope to see Flood cert’s and Tax Service fees more common on the new LE as well.  These would be mandatory to disclose in my mortgage company if I owned one.  Because if your fee’s end up 1 dollar more we all know that the 1 dollar becomes a Broker cure on the difference and shorts your income. **re-post notes; This is why companies are hesitant to send out CD’s in advance of CTC.  Continue to read 3.

3. The act that I preach now to all my network about “creating a HUD1” out of calyx or encompass after verifying fee’s is going to be a big deal.  At the end of the process under TRID there is a new disclosure called the CD (Closing Disclosure) that goes out and you have to wait 3 days from acknowledgement to get docs.  SO, that means no last minute changes.  About the time the loan is CTC’d Broker’s should be verifying fees from Title/Escrow and then having processors verify all those fees and structure with a HUD1 you create out of Calyx/Encompass/Byte etc.  Again the point is changes will delay loans and burn locks.  So it is important for all loan originators to adopt a new process that verifies structure and fees on a loan prior to closing.  Like a week before.  As the last conditions are sent in.

There are a few other changes Broker’s should know about, read about the full changes don’t go uneducated on how these changes will affect you.  Happy Originations.

**Re-post notes; You still seeing the affect of TRID or are you closing loans fast again?  If not call me I can help.

– JUICEMAN