CFPB Rules Tweak Could Loosen Market: CUSO Exec
David Motley, president of Colonial Savings and CU Members Mortgage, said a recent proposed rule from the CFPB, if allowed to take effect, could help ameliorate the impact of one of the agency's other mortgage rules.
CU Members Mortgage is a Dallas-based mortgage originator based in Dallas that serves more than 1,000 credit unions.
In an interview with CU Times, Motley said he looked forward to the prospect of the CFPB allowing mortgage issuers to fix small mistakes they made in the calculation of fees when underwriting qualified mortgage loans.
CFPB proposed that rule change on May 1.
The total points and fees allowed for a QM loan of more than $100,000 is 3% of the financed loan amount, after the closing points and fees have been subtracted out.
Motley explained that under the current rule, mortgage issuers were confining themselves to staying well under the fee cap, because to go over meant not having the loan qualify as a QM loan. That would raise its cost and make it more difficult to sell.
Allowing mortgage issuers to adjust or cure a small miscalculation to the fees and still keep the loan classified QM would encourage more lenders to underwrite loans up to the 3%, instead of leaving a safety margin of sometimes as much of 0.3%.
“Currently if, for example, a mortgage lender audits a loan that closed two months ago and finds that they charged 3.25% and not 3% of the financed value. That's it, that loan can never be a QM loan,” he said. “But under the proposed cure rule, a lender who discovered it had charged 3.25% instead of 3% would be able to issue the borrower a check for the roughly $250.00 they had been overcharged, and still keep the loan a QM loan.”
Motley said allowing lenders to make this correction would effectively mean more of them would lend closer to the cap. He also said a similar cure is needed for the 43% debt to income ratio, which he estimated was effectively 39% because so few lenders want to mistakenly underwrite loans with higher ratios.
“This in particular would mean a great deal to borrowers with high student loan debt or who are buying in a very expensive housing market,” he noted, adding that he believed other factors, such as a sluggish job market, had also been undercutting mortgage demand.
“But every little bit of relief would help,” he said.