Before implementation of the Consumer Financial Protection Bureau's Qualified Mortgage (QM) and ability-to-repay rules, many industry analysts expressed concerns over the ultimate impact of these rules on mortgage lending and access to credit. Now that the rules have been in effect several months, the debate over the impact of these rules has only intensified.
In fact, the Federal Reserve's recent Senior Loan Officer Survey, which explored the topic of lending in the post-QM/ability-to-repay environment, led to various interpretations of the rules' ultimate impact on mortgage lending so far. The survey found lending for prime residential mortgages at large banks has not changed much since the new rules went into effect.
A new analysis from the Urban Institute, a non-partisan research group, maintains there has been “surprisingly little impact on the origination numbers” as a result of the QM and ability-to-repay rules.
“While there remains a great deal of uncertainty over the ultimate impact of the QM rule, we do not yet see significant changes in the market,” the institute stated on its MetroTrans Blog.
The Urban Institute attributed the minimal impact of the rules to the already tight lending environment prior to the rule implementation and to the “patch” that allows the GSEs and Ginny Mae to continue to abide by their own standards for the next seven years. With agency loans accounting for about 80 percent of today's originations, the majority of loans remain unaffected by the new rules.
However, the Urban Institute did acknowledge the potential for further impact as some institutions may have been slow to implement the rules which are still relatively new.
Furthermore, the institute lacks data from small banks and credit unions, and these institutions may be reacting differently than larger banks and government agencies, analysts said.
According to the institute data, QM restrictions on interest only loans, pre-payment penalty loans, and loans with debt-to-income ratios higher than 43 percent have thus far had little impact on lending.
“Very few IO and essentially no PP loans were made before QM went into effect, and that is still the case,” according to the Urban Institute, while the percentage of loans with DTIs exceeding 43 percent “has remained relatively steady.” The institute did note a small decline in high-DTI loans at the GSEs, however.
Another source of potential impact is the QM stipulation that adjustable-rate mortgages (ARMs) carry the maximum possible interest rate for the first five years of the loan. The impact of this stipulation is difficult to measure thus far as ARM loans began to climb alongside interest rate hikes in the second half of last year. Since January, ARM share has “declined marginally” while remaining higher than early last year during a lower interest rate environment.
One segment of the market where the Urban Institute did see a decline in lending since QM implementation is among loans for less than $100,000. However, this decline appears to have started in November and is not overly broad.
“[T]here is only a 400-loan decline in the number of new small loans in the bank portfolios between November 2013 and March 2014,” according to the institute.