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QM Rules Cause Lenders to Expect Tougher Environment

While regulatory guidelines introduced this year have had little effect on lenders' strategies so far, most still anticipate a tougher operating environment ahead, according to an analysis of responses in a recent Fannie Mae survey.

Earlier this year, the Consumer Financial Protection Bureau (CFPB) implemented the Qualified Mortgage (QM) and ability-to-repay rules, which restrict certain loan features and require lenders to take greater steps to ensure a borrower's ability to repay their mortgage.

In a follow-up piece on the company's inaugural Mortgage Lender Sentiment Survey, Li-Ning Huang, senior manager of Economic and Strategic Research at Fannie Mae, found that most of the lenders surveyed don't plan to change their current strategy in response to those rules, with 46 percent saying they plan to "wait and see" what happens in the market before acting.

More than one-third of lenders surveyed said they don't plan to pursue any business that doesn't fit under the QM umbrella, while less than one in five plan to actively go after that part of the market.

Larger institutions, more secure in their ability to take the risk of non-QM lending, were more likely to say they want to expand in that direction, while smaller and mid-sized firms were more likely to say they plan to stay away from that segment.

Those results follow Fannie Mae's initial survey report and the Federal Reserve's most recent Senior Loan Officer Survey, which both showed larger institutions are opening up their credit standards as the mortgage market continues to look weak compared to recent history.

Overall, Fannie Mae found the vast majority of firms—84 percent—expect to keep their non-QM share at 10 percent or less of their total single-family originations.

While regulatory changes may not have had a huge impact on business strategy, they have boosted quality control (QC) efforts.

Out of all lenders surveyed, 85 percent said their costs for QC-related activities have increased over the last year as they push to enhance the quality of their loans, mitigate repurchase risk, and prevent fraud. Looking ahead, 74 percent said they expect costs to rise in the next year as a result of the QM rules.

For all of that money spent, however, only about 74 percent of lenders agreed that QC investments will have an impact in reducing repurchase risk, with smaller firms less likely to join in on that optimism.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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