If QM had gone into effect on January 1, 2012, Casa reports that nearly 15 percent of his conventional originations over that period would have been impacted by the Qualified Mortgage rule. About 10 percent of them would have been ineligible due to the new 43 percent maximum debt-to-income ratio. Casa believes the findings are very worrisome because they could have a huge national reach.
“Imagine this on a larger scale, every mortgage lender, broker, bank having anywhere from 10-15 percent of the loans they originated over the last two years, now being ineligible,” he explains, adding that during the two-year period, rates were at historic lows and they are only now likely to climb and put further pressure on the 43 percent ratio.
“The percentage of mortgage applications denied will only increase as the cost to borrow will be higher,” Casa says. “This is going to have a dramatic impact on the housing market, and a dramatic impact on the ability of homeowners looking to refinance and borrow against their home for home renovations, college tuition, and all of the other things that homeowners borrow against their home for. The trickledown effect of this will be felt throughout the economy.”
Casa notes that mortgage applicants on government loans (FHA, VA, and USDA loans) can still secure mortgage financing with up to a 50 percent debt-to-income ratio, and he calls the double-standard a bad policy because conventional mortgages have typically performed better since 2008.
For the larger banks, though, it seems that a lot of the risk has already been processed and industry policies have already been adjusted.
“We’ve already instituted and have been playing by those rules,” says Malcolm Hollensteiner, director of Retail Lending Sales at TD Bank. “At TD, we’ve been conservative. For us, the 43 percent threshold isn’t going to change our business.”
Hollensteiner explains that the QM rules will mainly be a problem for brokers and those who sell mortgages into the secondary market, unlike TD Bank, which keeps its mortgages – and what’s left of their refinancing business – in an internal portfolio.
While he expects the refinancing market to remain week in 2014, Hollensteiner expects the purchasing market to continue to improve in 2014 even if interest rates go up. The main thing for the economy, he says, is that loans will be given to those able to pay them back – and QM supports that trend.
Andrew King is an award-winning journalist with 15 years of experience with the Gannett newspaper company, appearing in The Journal News (Westchester, NY), Asbury Park Press and USA Today. He also contributes to The Real Deal, TheLadders.com and TechPageOne.com.
