A while back I wrote a blog titled QM or Non-QM? That IS the Question. The blog ended with the ever-popular and overused adage “stay tuned”. Time to tune back in! One of my teammates had the opportunity to attend a compliance peer group meeting a few weeks ago and brought the following information to my attention.
It appears that a former Consumer Financial Protection Bureau (CFPB) executive is going to start up a brand new mortgage company. The focus of the new mortgage company will be consumers who can’t or won’t meet the qualified mortgage (QM) standards. In other words their niche will be non-qualified mortgage loans (non-QM). You may be wondering where am I going with this, right?
Let’s go back to the question I posed in the aforementioned blog: “What categories of loans (QM, non-QM) will/won’t you be making?” My take is that you’d be shooting yourself in the foot if you only choose to make QM loans. In my opinion, far too many banks have indicated they’ll likely only offer QM loans because they are scared to death of the civil liability threat posed by non-QM loans. Stop it! You’re quite likely leaving good money on the table and good customers out in the cold.
First, every consumer mortgage loan you’ve ever made poses the same risk. The only difference come January 2014 is that there will be an option to mitigate that risk to some degree for those loans that meet the QM standards. For those that don’t, you’re left with the same risk you’ve been taking for the last 30 years or more! And lastly, if non-QM loans were really that scary why would a former CFPB executive take the risk of starting a brand new mortgage company that specifically targets non-QM loans?
If you’ve already said no to non-QM loans, I urge you to reanalyze the underlying factors that led to your decision. Make certain the decision makers have all the facts and not just the speculative voice of ultraconservatism. Again, stay tuned!