Yes, if you based it on the projections made by scores of mortgage professionals last year. They said that the volume of non-QMs is expected to grow, backed by a strong appetite among lenders.
This growth may also come from people whose credit remains an issue that kept them out traditional financing, according to reports. And with leadership changes at CFPB, there might be a loosening of the Qualified Mortgage rule which resulted in QM mortgages and non-QMs.
Is 2018 the year for non-QMs? Let’s go over the relevant items below.
Credit Issues Make People Go for Non-QMs
Some mortgage rules are not exactly forgiving to people who have recovered from their past credit mistakes.
Derogatory marks like bankruptcy and short sale stay on one’s credit report for years although their effect goes away with time.
People with credit issues are required to re-establish their credit and follow a waiting period before they can apply for mortgages again.
Per Fannie Mae and Freddie Mac guidelines, a person with previous bankruptcy has to wait for two years.
This scenario compels these individuals to look for other options, such as interest-only loans and loans with limited income documentation, Cleveland.com reported.
These loans are usually with portfolio lenders who dabble in non-QM originations.
The National Association of Mortgage Bankers (NAMB) also foresees the trend of non-QM originations growing this year and with this, people with low credit scores will become more common.
NAMB noted that the average score to get approved for a purchase mortgage has dipped to 745 and has gone even lower for refinances.
QM Rules to Loosen?
“… there may be pressure to loosen lending requirements,” according to Consumer Federation of America Director of Housing Policy Barry Zigas in an interview with Seattle Times.
Mr. Zigas said this in light of the change of command at CFPB who laid down the guidelines for “What is a Qualified Mortgage?”.
At the heart of the QM rule is the ability-to-repay which dictates that the lender must perform a good-faith determination that a borrower has the ability to pay back his or her mortgage.
The QM rule prohibits interest-only, negative amortization, balloon payments, and terms longer than 30 years in mortgages. It also caps the debt-to-income ratio and the number of points and fees a lender can charge.
Critics however believe that the QM/ATR standards have the effect of precluding people including those with low income out of homeownership, Seattle Times reported.
Lenders who made the ATR determination are given safe harbor or legal protections in case of lawsuits. S. 2013, which is pending in the U.S. Senate, wants to expand this safe harbor provision to portfolio lenders and other mortgage originators that make residential mortgages.
In doing so, residential mortgage loans made by the above lending institutions will be deemed as qualified mortgages per the Senate bill.
With the QM rule possibly being put under review and some of its standards being legally circumvented if the Senate bill becomes law, what happens to non-QMs? Would these developments make mortgages more fluid and more difficult to classify as non-QM or QM?
Let’s wait and see. For now, 2018 is expected to be a big year for non-QMs; maybe’s now the time to get that loan for your new home!