In the 3rd quarter as in earlier surveys, respondents to NAR’s Survey of Mortgage Originators were asked about impacts of the Qualified Mortgage rule on the mortgage lending market. However, this quarter the survey expanded to measure lender expectations of market conditions and capacity as well as current policy issues including changes at the Rural Housing Service and lending headwinds.
Respondents indicated a production-weighted share of 5.0% for non-QM loans in the 3rd quarter, nearly double the 2.6% share from the 2nd quarter. However, the rebuttable presumption share fell sharply from 12.8% to just 3.5%. Interest rates fell to their lowest levels in nearly 12 months by the end of the 3rd quarter. Interest rate changes have a larger impact on the higher-priced portion of the market which also prefers interest-only (non-QM) products.
Additional Highlights of the Survey
- The non-QM share of originations nearly double in the 3rd quarter to 2.6%. However, the rebuttable presumption share tumbled from 12.8% to 3.5% over this same time frame.
- Respondents’ confidence in their preparations for the QM/ATR rules eroded again in the 3rd quarter, with just 58.3% indicating that they had fully adapted compared to 61.9% in the 2nd quarter.
- The net share of lenders offering rebuttable presumption and non-QM products increased from the 2nd to the 3rd quarter. Willingness to originate non-QM mortgages fell dramatically from the 2nd quarter, but the decline was less dramatic for rebuttable presumption mortgages. Lenders were more willing to originate prime mortgages with the exception of those with lower FICOs.
- 24% of lenders felt the investor takeout for non-QM loans had improved from the 2nd quarter.
- The QM rule continues to dog lenders with 64% indicating having had an issue closing a loan in the 3rd quarter due to some facet of the rule, and an increase in the share of lenders using buffers in advance of the QM requirements.
- Over the next 6 months, respondents expect improvements in demand for all products, but more so for non-QM and rebuttable presumption loans. The majority of respondents expect improved investor demand for all mortgage types, but some expect softening.
- Slightly more respondents indicated fewer pre-approvals in the 3rd quarter compared to a year earlier, but half indicated having more than normal level or preapproved borrowers who could not find a property.
- Respondents indicated a median forecast for mortgage rates to rise to 4.5% over the next six months.
- 66.6% indicated that the increase in fees at the RHS would have an impact on RHS lending in their area
- Overlays were the largest headwind to the market followed by documentation and DTI, suggesting that the QM rule is having an impact
- Finally, 87.5% of respondents indicated that repurchase requests were a concern.