The mortgage market was buffeted by a number of changes in 2013 and 2014, among them higher fees at the FHA and changes to underwriting as required by the Ability- to-Repay and Qualified Mortgage Rules. In April of this year, NAR Research conducted its 2nd Survey of Mortgage Originators. This second installment queried a sample of mortgage lenders about the impact of the ATR/QM rule three months after implementation in addition to questions about the impact of changes to the FHA program.
Highlights of the Survey include:
- Non-QM lending accounted for 1.6% of production by respondents in this sample and 8.3% were rebuttable presumption.
- An encouraging 73.7% of respondents indicated that they had fully adapted to the new rules, well ahead of expectations reported by respondents in the January survey.
- Investor preferences are important. 68.4% of respondents indicated that they did not produce non-QM loans based on investors’ preferences and a surprisingly highly 50% indicated a reluctance by investors to purchase rebuttable presumption QM loans.
- Non-QM lending was restricted to high balance and/or high quality lending.
- Since January 10th, nearly half of respondents indicated they had some issue closing a loan due to the ATR/QM rule.
- For loans that did not meet the 3% cap on points and fees, the most cited method for handling them was to reduce the fees, but second was not to originate the loan. Financing fees was the least frequent response.
- Roughly half of respondents did not use buffers ahead of the 3% cap, 43% DTI, or rebuttable presumption boundary, and 5.3% eliminated them in the three months since inception. Buy-back risk and inability to discover all information about the consumer’s ability to repay the loan were the most often cited reasons for the use of buffers.
- The vast majority, 73.7% of originators have adapted to the rules, but 22.2% of respondents indicated that they would not phase out buffers on QM safe harbor and rebuttable presumption parameters even once they are fully adapted.
- FHA’s premium increases for its mortgage insurance since 2010 and permanent MI policy have undermined an average of 5.7% potential purchases where the consumer could not afford FHA’s fees or conventional financing.
- In most cases, a consumer faced with the higher fees chose not to buy or to put off buying indefinitely or were able to qualify for a VA or RHS loan. Conventional financing was cited nearly half as often as an option and originators indicated that it is decidedly more difficult to get financing in the conventional space for a borrower with a higher LTV or lower FICO.
- Finally, roughly 10.5% of originators indicated that the FHA’s 100% mortgage insurance guarantee was not important for lending to high LTV or low FICO borrowers, while 26.3% indicated that they would not lend without it. An additional 57.9% indicated that it was important to different degrees and 5.3% were uncertain.
The survey results suggest that originators have made strides adapting to the ATR/QM rules in the current environment, but buffers and liquidity as well as buy-back concerns may limit expansion of credit to the full credit box. In addition, FHA’s insurance is important for lenders and moves to limit it have and will impact access for some borrowers.