While QM Regulations Cast a Chill Over the Mortgage Industry, Active Non QM Lenders Can Be Found at http://www.MortgageElements.com

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The anxiously awaited January 10th implementation date of the Qualified Mortgage (QM) has passed and most mortgage lenders are still evaluating the risks of offering Non QM loans. With much of the industry in a wait and see mode, several lenders have decided to dive into Non QM lending and these lenders can by found on the Mortgage Elements website.

Non QM lending and can be found at www.MortgageElements.com

On January 10, 2014, the Consumer Finance Protection Bureau (CFPB) activated the new Qualified Mortgage (QM) rules. These new rules are designed to prevent or curtail lending practices that were blamed for precipitating the 2008 Financial Crisis. The deployment of these rules is a major change for the mortgage industry and has far reaching implications not only for lenders and borrowers, but the housing market and economy as a whole. Because of the gravity of these regulations, most lenders are hesitant to offer Non QM mortgages and the implementation has cast a chill over the mortgage industry.

What is a Qualified Mortgage - QM? And how does it differ from a Non QM loan? Under the QM rules, a loan is classified as either QM or Non QM. The two centerpieces of the regulation are the "Ability to Repay" and "Full Documentation" rules which apply to all loans - QM and Non QM. These two rules require the lender to verify the borrower's "ability to repay" (ATR) the mortgage AND fully document it in the loan file. These two requirements are directly aimed at eliminating "No Doc" or "Stated Doc" loans that many people consider the poster child of reckless lending. To make a loan a QM loan, the lender must adhere to seven additional guidelines. If all these guidelines are followed, the mortgage is classified as a QM loan and the lender is given a "Safe Harbor" from future litigation should the loan go into default.

The 9 requirements needed to make a mortgage a QM loan:

  •     Full Documentation
  •     Ability to Repay
  •     Max Debt to Income ratio of 43%
  •     Max points and fees of 3.0%
  •     No negative amortization
  •     No balloon payments
  •     No interest only payments
  •     Limited Pre-Payment Penalties
  •     No loan terms over 30 years

It needs to be emphasized that there is nothing wrong or nefarious about Non QM loans. The difference is that Non QM loans have riskier features than QM loans and lenders are required to take additional care in underwriting and documenting these loans - and be prepared to back up their decisions if called to do so.

Critics of the QM rule are concerned it will restrict lending, make qualifying harder, preventing many borrowers from obtaining a mortgage, and lock them out of homeownership. However, in a speech at the Mortgage Bankers Association's Annual Conference in October 2013, the CFPB's Director, Richard Cordray, pointed out that lenders should not fear making Non QM loans as long as they engage in sound underwriting practices. Sound underwriting includes verifying that the borrowers can repay the loan and fully document their ability to do so.

The banking and lending industry was already highly regulated by several federal and state regulators. Adding the CFPB with their new set of regulations adds more complexity to an already complex regulatory landscape. In today's regulatory and litigious environment, a simple clerical error is now a major regulatory infraction carrying thousands of dollars in fines and legal costs. Because of this, many banks have decided to exit mortgage lending entirely sighting the cost of regulatory compliance as the main reason.

As some lenders contract their lending activities, other lenders see this as an opportunity to meet the financing needs of unique borrowers while still providing responsible lending. To find Non QM lenders, visit http://www.MortgageElements.com. Mortgage Elements included this new program category in its database of lenders to facilitate connections between Non-QM Wholesale lenders and Mortgage Brokers. This is a new category and lenders are added weekly as they roll out Non QM mortgage programs. Mortgage Elements' mission is to connect Wholesale, Correspondent, and Mini-Corr lenders with retail mortgage lenders and Brokers. This latest development is an opportunity to further assist the industry as it adapts to changes.

About Mortgage Elements Inc.
Mortgage Elements Inc. is an internet marketing company that provides marketing, database, search, and consulting solutions for the mortgage industry through its website http://www.MortgageElements.com. The company uses a unique website design optimized for touch screen technology and use on mobile devices, desktop, and laptop computers. Mortgage Elements is a B2B company for the mortgage industry and not a lender.

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Mark Paoletti
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