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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2014

Getting a Handle on Qualified Mortgages

The QM era is an opportunity — not deterrent — for building buyer confidence

A new era for mortgage originators to serve as advocates for home-owners commenced this past January with the implementation of the ability-to-repay (ATR) rule’s qualified mortgage (QM) provision. The American consumer has been taught that responsible mortgage lending is now a requirement, and many prospective homebuyers are aware of the numerous rules and regulations that have been instituted to safeguard them against unscrupulous lending abuses. As a mortgage broker or originator, you have the ability and the opportunity to help guide homeowners through the complex and potentially confusing experience of obtaining financing.

Mortgage professionals’ efforts to help consumers navigate this journey will become even more challenging, however, as they operate under the microscope of regulatory controls. In launching an educational campaign about new mortgage rules this past December, Consumer Financial Protection Bureau Director Richard Cordray stressed the need for borrowers to become well-informed.

“We want to make sure that potential homebuyers have the information they need to make responsible lending decisions and that current borrowers know about their new protections,” Cordray said.

Building trust

Originators who are able to develop relationships built on trust, technical proficiency and superior service will have tremendous opportunities to grow their production even in a declining origination market.

To achieve this, mortgage professionals must always remember that consumers are now aware of the fact that certain legal protections are available to them if their loans have been improperly originated. Given the regulatory scrutiny that mortgage companies are under, originators must emphasize their skills in advocating for the borrower’s application while maintaining a fiduciary responsibility to the financial institution that employs them.

How does an originator accomplish this lofty task? By establishing credibility as an expert in the definitions of the ATR rule and QM.

In particular, the ATR rule’s 43 percent debt-to-income threshold allows the mortgage industry to return to an origination strategy centered around the prospective borrower’s comfort zone for a monthly housing payment instead of the “sky’s the limit” philosophy that developed over the past decade.

Establishing trust with borrowers by asking them to define a realistic monthly payment scenario and then running that calculation through the ATR process will lead to a sustainable homeownership experience. If anything, these new requirements will reduce borrowers’ and lenders’ tendency to qualify for the maximum housing payment possible according to loan program guidelines without taking into consideration the actual comfort level of that homeowner.

Shifting perceptions

Undoubtedly, the negative publicity surrounding the mortgage industry has helped decrease the homeownership rate in the United States throughout the past 10 years. Barron’s recently reported that homeownership peaked in first-quarter 2004 at 69.4 percent and has now fallen to an 18-year low of 65.1 percent. If that rate were to increase by just 1 percent, that would translate to an additional 1.15 million homes purchased, according to Barron’s. This is mortgage professionals’ opportunity to work within the regulatory environment and help those 1.15 million households to the best of their abilities.

Many local housing markets are improving as absorption rates — i.e., the number of months it would take to sell out a market’s inventory of listed for-sale properties — continue to drop. Given the attractiveness of interest rates, the continued availability of mortgage products and improving consumer confidence, demand is strong and will likely continue to remain strong. The challenge for originators is to make their borrowers confident again in the mortgage industry. If they’re successful, that 18-year low rate of home-ownership will soon be a distant memory.  


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