Mixed Signals as the Market Wades into Non-QM

Six months after the implementation of the QM/ATR rule, the market appears to be shifting modestly.  In the 3rd Survey of Mortgage Originators, which covers lending in the 2nd quarter of 2014, participants were asked about their willingness to delve into the non-QM market as well as other current issues including the FHA’s HAWK program, GSE loan level pricing adjustments, and FICO’s new scoring model.  Another change in this survey is an expansion of the respondent panel to include members of Community Mortgage Lenders of America.

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Highlights of the Survey

  • The non-QM share of originations more than tripled in the 2nd quarter to an originations-weighted 2.6% from 0.8% in the 1st quarter.  Rebuttable presumption expanded as well to 12.8% from 9.8% over this same time frame.
  • Respondents were less sanguine about their comfort with the QM/ATR rules in the 2nd quarter, with just 61.9% indicating that they had fully adapted compared to 73.7% in the 1st quarter.
  • The share of lenders offering rebuttable presumption and non-QM products in the 2nd quarter improved, but willingness to originate non-QM and rebuttable presumption mortgages fell from the 1st quarter to the 2nd quarter.  Lenders were more willing to originate prime mortgages, though.
  • Over the next 6 months, nearly half of respondents expected improved access to credit for prime borrowers with FICO scores between 620 and 720.  However, the vast majority expected no change for rebuttable presumption and non-QM borrowers.  Respondents expect improved investor demand for all mortgage types
  • Half of respondents indicated that the premium reductions under the FHA’s HAWK program were insufficient or the education fees were too high, while 55% indicated that the program would not expand credit.
  • Only 15% of respondents felt that FHA’s program of early reviews would help to alleviate overlays.
  • However, 85% of respondents indicated that a reduction of LLPAs directed at high LTV and low FICO borrowers would stimulate access to credit.
  • Finally, 60% of respondents indicated that the Fair Isaac Company’s new FICO 9 scoring model would help to stimulate access to credit.  Only 35% expected no change as they either defer to their investors’ or the GSEs’ scoring models.

In this new regulatory environment, it is important for REALTORS to have a broad lender-referral network that includes originators who specialize in non-QM, rebuttable presumption, and subprime borrowers.  A deep network of lenders will help to source funding for those clients with special requirements.

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