Qualified, Quality Conundrum

If there is one thing that mortgage bankers have learned to accept is the reality of the new world order, that quality and compliance will become the forefront of all origination for the foreseeable future. Anyone who has been involved in the closing of a real estate transaction in the last three years has already seen the early evidence of this. Lenders are asking for documentation to support 100% of every loan file, from each deposit or withdrawal to minimal changes to income levels. Every I is dotted, every T is crossed for fear of investors not purchasing, mortgage insurers not insuring or ultimately carrying ongoing concerns of investors forcing repurchases for documentation issues some years down the road.

With the ever looming adoption of the Dodd-Frank required definitions of the Qualified Mortgage and Qualified Residential Mortgage, lenders are preparing for a world in which loans will have to fit into a very specific credit box. Loans outside of this box will require risk retention capital reserves, or, more probably, loans simply not being made.

To that end, we have begun to see new technologies, new vendors, new departments, and new ideas on how to manage the risk associated with loan origination. This wasn’t more evident than a recent MBA sponsored Quality Assurance and Compliance Conference. What historically has been an event attended by a few hundred admitted “compliance geeks”, this year’s event was attended by more than 450 people of which included new vendors that had not attended in years past.

We have entered a new era in the origination and servicing of mortgage loans. We are beginning to see credit and compliance departments being developed in the smallest of shops. As a result of the consent order and, ultimately, the CFPB, compliance is at the forefront of everyone’s minds. This will include thorough oversight of all aspects of the loan origination machine, from initial application through purchase by the end investor, and will live with the loan cycle until the loan is paid off.

We at Stewart believe in meeting this head on. We continue to work closely with our customer base to determine how we can support them during the origination, settlement and servicing processes. This includes a task force to tackle the new Closing Disclosure requirements. We have beefed up our already seasoned loan review platforms to assist our origination and correspondent partners in loan origination and purchase reviews. Our experience in servicing and loss mitigation support has morphed into a full fledged servicing quality control offering, from loss mitigation to foreclosure review, ultimately assisting our servicing partners to ensure their processes are in line with ongoing changes to the servicing standards being implemented by the CFPB.

Change is inevitable, but change also allows for us to be leaders in assisting our partners with service offerings to assist them with the inevitable.


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    Brandon Cornett

    Based on our conversations with CFPB, it seems that the QM rules will be fairly broad — not nearly as restrictive or ‘damaging’ as some make them out to be. Inside Mortgage Finance suggests the final definition of a qualified mortgage could cover 90% or more of current production, meaning the rules would be closely aligned with current lending standards. It seems the biggest changes will be on the legal side, with added protections given to lenders who make QM loans. We will know more over the next few weeks. It will be an interesting year for residential lending.

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