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Scott Sambucci
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Current: Market Development, Blend Labs. Previous: CoreLogic Advisory Services | Chief Operating Officer @ Altos Research. LinkedIn: Lecturer of Economics, Price Theory, Finance, Sales, Management, and International Business at Hult International School of... More
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  • Can QRM & Non-Standard Mortgages Coexist? 0 comments
    Jan 10, 2014 1:13 PM

    Is it really terrible that Bank of the West, and most other lenders continue to offer Interest-only loans? ("Bank of the West Will Still Offer Interest-Only Loans Post QM" on American Banker)

    The Consumer Financial Protection Board's Qualified Residential Mortgage rule goes into effect tomorrow, January 10, 2014. The final rule states:

    The final rule implements sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages."

    Does offering non-standard loans to non-standard borrowers defy the spirit of the new QRM rule? I don't think so. From American Banker article:

    Most of the largest banks are continuing to offer interest-only loans to their best borrowers that have high down payments, great credit scores and plenty of cash flow.

    Read past the headlines and it seems that banks are reaching specific customer types with these interest-only loans. Being based in the Bay Area, I have relationships with non-standard borrowers - high-wealth individuals with rather odd financial situations such as successful start-up entrepreneurs and investors. And while these borrower types exist outside of Silicon Valley, seeing non-standard loans like the 80/10/10 and 80/15 nationally is unnerving.

    From December 31, 2013 on The Mortage Porter (Seattle, WA):

    From It's back… the 80/10/10 mortgage program which allows home buyers to put just 10% down and avoid having private mortgage insurance via a second mortgage/home equity line of credit.

    From May 31, 2013 on Dallas Mortgage Planners (Dallas, TX)

    Finance up to 95% of the purchase price or home value - With a first loan of 80% and a second up to 15%, you can own a home with a Conventional mortgage with as little as 5% down.

    As reported by National Mortgage News, a recent Mortgage Bankers Association survey indicates lenders expect to take more risk in 2014 in a challenging origination market:

    Moderate returns may encourage lenders to take on more risk. A strong majority of respondents (89%) said that mortgage loans made in 2014 will fall in the "medium" to "somewhat high" risk categories. Last year, the overwhelming majority (88%) predicted that loans made in 2013 would be "medium" to "somewhat low" risk.

    How far are lenders willing to extend the credit box for these loans? When does the marginal decision on the next borrower become one too many? Gulp. I worry.

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