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1 Change is Coming: Navigating the Mortgage Arena presented by: Date December 4, 2013

2 Agenda Introduction Alphabet Soup CFPB s Ability to Repay and Qualified Mortgage General Rule / Special Rule Rebuttable Presumption Impact on Relocation Buyers and Sellers Clients New HUD-1

3 Introduction Steve Crispin Relocation 23 years of constant change Mortgage is the new frontier GenEquity Mortgage Banker, specializing on Relocation Service, Efficiency, Competitive Rates Funded well in excess of $500M

4 Alphabet Soup Reg. Z - Federal Reserve Board regulation that requires debt lenders to disclose all the specifics of a given loan CFPB - Consumer Financial Protection Bureau ECOA - Equal Credit Opportunity Act TILA - Truth-In-Lending Act QM - Qualified Mortgage QRM - Qualified Residential Mortgage ATR - Ability to repay Ultimate goal is protecting the consumer.

5 The Biggies CFPB Established by Dodd-Frank, thousands of pages of rules Ability to Repay (ATR) Lenders must make a reasonable, good-faith determination of the borrower s ability to repay Borrower can sue the lender (three years of finance charges, fees paid, and borrower s legal fees) Presumption that the big-bad lender is to blame Qualified Mortgage (QM) Presumption lender has complied with ATR Safe Harbor / Rebuttable Presumption

6 Ability to Repay Qualified Mortgage Effective Date January 10, 2014 Creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation based upon verified and documented information that the consumer will have a reasonable ability to repay the loan according to its terms. Includes: Loans secured by 1-4 unit home, condo, co-op, etc. Excludes: HELOC, timeshares, reverse, mods, bridge or construction loans with duration of 12 months or less Requirement: Evidence of compliance for 3 years

7 Qualified Mortgage 1. Substantially equal periodic payments 2. Loan term does not exceed 30 years 3. Points and fees do not exceed 3% of total loan amount for loans equal to or in excess of $100, Maximum of 2 bona-fide discount points 5. Fully-amortized; no negative-amortized or interest only 6. Considers all periodic monthly mortgage-related payments at maximum interest rate that may apply during first 5 years 7. Current and reasonably expected income, debt obligations and assets (excluding subject)

8 Qualified Mortgage General Rule/Special Rule GENERAL RULE Total debt to income does not exceed 43% - (Appx. Q) SPECIAL RULE (through June 20, 2021) Meets one or more of the following: FNMA / FHLMC eligible Eligible for FHA insurance, VA Guarantee or Department of Agriculture Guarantee These loans are expected to provide most substantial protection (Safe Harbor) for lenders.

9 Qualified Mortgage Rebuttable Presumption Loans which meet either QM General Rule or QM Special Rule requirements but are deemed higher priced. Generally occurs on loans where the loan amount is low or where the borrower has lower credit scores These loans provide less protection for lender from borrower lawsuit compared to Safe Harbor. As such, fewer lenders will offer such loans to their customers.

10 Projecting QM on Today s Market So, how are we looking now? According to ComplianceEase, 20% of loans originated in 2013 would not meet QM guidelines Violation of 3% fee limits disqualified roughly half YTD, more than 99% of GenEquity s 2013 volume was QM compliant (cause of non-compliance was interest-only loans). Just over 4% were Rebuttable. There is an increased possibility that these would not have been originated. Causes were low home values or low credit scores. The overall impact of QM/ATR is not able to be concretely measured until well after the January 10, 2014.

11 Impact on Relocation Buyers / Sellers Sellers: Buyers: All: Some buyers will be excluded from the market Other buyers will be charged higher interest rates which will force them to purchase lower priced homes GenEquity s 2013 data, which represents a sample of the overall relo market, suggests that the vast majority of relocating borrowers will be still qualify for loans under QM; however, More rules, more documentation, more frustration for all parties The slack of non-qm and Rebuttable Presumption loans will be filled by capital influx, the level of this is indeterminable at this point

12 Impact on Relocation 3% Points and Fees The 3% Rule - The following fees aggregated must be equal to or less than 3% of the Total Loan Amount. INCLUDED fees: Non Interest Finance Charges (fees paid to lenders, often referred to as Origination, Processing or Underwriting, among others) Charges where lender or lender s affiliate retains a portion of the fee (such as Title Companies affiliated with the lender, etc.) Lender charged third-party charges not retained by creditor (Appraisal, Credit, Flood Certificate, etc) - And -

13 Impact on Relocation 3% Points and Fees The 3% Rule - The following fees aggregated must be equal to or less than 3% of the Total Loan Amount. INCLUDED fees: Compensation paid to a loan originator other than the employee of a creditor (Prime example is mortgage broker) that can be attributed to the transaction Upfront Mortgage Insurance in excess of FHA Premium Prepayment penalty Any excess discount points (non bona-fide discount points)

14 Impact on Relocation 3% Points and Fees Any excess discount points (non bona-fide discount points) Average Prime Offer Rate Maintained by FFIEC CFPB Mandate: Compare the rate that the borrower would have received sans discount points (i.e., fully adjusted par rate) to the Average Prime Offer Rate (APOR) rate. If Par Rate is no more than 1% above APOR, then 2 Discount Points can be excluded from Points and Fees calculation If Par Rate is no more than 2% above APOR, then 1 Discount Point can be excluded from Points and Fees calculation

15 Impact on Relocation Client Policies APOR = 4.23% Transferee A Transferee B Purchase Price $500,000 $150,000 Loan Amount $400,000 $135,000 Lender Fees $1,500 $1,500 FICO Par Rate 4.25% 4.875% APR 4.285% 5.625% Transferee A 4 Discount Points (2 excludable, 2 non) or $8,000 + $1,500 fees = $9,500 or 2.375% of LA QM Compliant Transferee B 3 Discount Points (1 excludable, 2 non) or $2,700 + $1,500 fees = $4,200 or 3.11% of LA NOT QM Compliant

16 HUD-1 Changes

17 HUD-1 Changes

18 HUD-1 Changes

19 HUD-1 Changes

20 HUD-1 Changes

21 Hot off the Presses On November 20 th, the CFPB released the Final Rule regarding RESPA/Truth in Lending Act. Highlights include: GFE replaced by Loan Estimate, provided to borrower at application. This resembles the HUD. Three Day waiting period, not to include Saturdays, limited to: Addition of pre-payment penalty Change in Loan Product Substantial (i.e. greater than.125%) changes to the APR Means of calculating APR will change, just not sure how CFPB will continue to study the issue

22 Contact Us: Laura Henneberry Morreale RES Stephen Crispin GenEquity Mortgage, Inc

23 Closing slide thank you

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