... So What s the Fuss all About?

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1 ... So What s the Fuss all About? TRIANGLE MORTGAGE LENDERS ASSOCIATION Uniting individuals and companies for the prosperity of the finance and real estate industries, and the community, since 1987.

2 What are ATR and QM? Effective Friday 1/10/2014, the Consumer Financial Protection Bureau (CFPB) established the Ability-To-Repay (ATR) Law and the Qualified Mortgages (QM) guidelines. These rules require that lenders make a reasonable, good faith determination of an applicant s ability to repay before originating a mortgage loan. Some lending institutions will now adhere to a strict 43% back-end ratio while others will exceed 43% as long as the loan receives approval through the Automated Underwriting systems of Fannie Mae, Freddie Mac, and Ginnie Mae. Note, this comes with a 7 year transitional period or reprieve to be reevaluated by CFPB in However, most lenders who originate mortgage loans will only generate Qualified Mortgages.

3 What s a Qualified Mortgage? A Closed-End fixed or adjustable rate loan made primarily for personal, family or household purposes, secured by a 1-4 unit dwelling. Prohibited terms and features include: Negative Amortization Interest-Only Payments Balloon Payments Terms Greater than 30 Years Points and Fees that exceed the established thresholds

4 Which Transactions are EXEMPT from ATR/QM? HELOCS (Home Equity Lines of Credit) Time-Shares Reverse Mortgages Bridge Loans Lot Loans No Pre-Payment Penalties Initial Construction Loans Emergency Economic Stabilization Act of 2008 Loans Loans made by Community Development Financial Institutions Loans made by Down Payment Assistance Creditors Community Housing Development Organization Loans Non-Profit Creditor Loans

5 QM Points and Fees Thresholds All Lender Related Fees (based on Regulation Z Total Loan Amount) 3% for Loans > $100,000 $3,000 for Loans $60,000 - $99,999 5% for Loans $20,000 - $59,999 $1,000 for Loans $12,500 19,000 8% for Loans < $12,000

6 Lender Fees ALWAYS Included in the 3% Threshold Loan Origination Fee (will likely see these go away) Tax Service Fee Fraud Review Fee Discount Points ABOVE 2% and verified as bona fide (example to follow) All compensation to a Mortgage Broker Costs/Revenue received from an Affiliated Business Arrangement (ABA) Definition of ABA: An arrangement to share or refer business between two different companies involved in providing services in the closing of a real estate transaction. (Example: appraisal, credit report, title companies) Commitment/Rate Lock Fees Credit Insurance Premiums and Impounds HELOC Participation and Transaction Fees

7 Lender Fees NOT Included in the 3% Threshold Appraisal (No ABA) Bona Fide 3 rd Party Fees not paid to a broker Credit Report (No ABA) Customary Seller paid costs * MERS Flood Certification Up to 2% bona fide discount points Refundable Single Premium Mortgage Insurance < 1.75% LPMI (if true LPMI)* Hazard Insurance Employment Certification Pre-Paid Interest FHA, VA and USDA Up-Front Mortgage Insurance, Funding or Guarantee Fees.

8 Seller Paid Closing Cost Agreement (Utilized by Some Lenders) Lender: ABC Mortgage Date: Today Borrower: Joe Smith Loan #: Subject Property Address: The purchase contract on referenced subject property provides for a dollar amount that the seller has agreed to pay towards borrower expenses associated with the purchase of said property. This agreement is to define the allocation of any specific seller paid closing costs. Specific Fee, Line Item & Cost for Allocation: ( Example $ in seller paid closing costs) Line 801 Commitment Fee: $ Line 801 Application Fee: $ Line 804 Appraisal Fee $ Line 805 Credit Report $20.00 Line 806 Tax Service Fee $80 Line 807 Flood Cert $10.00 Line 1104 Title Fee $ I/We have read the above information and acknowledge receiving a copy by signing below. Buyer Seller

9 Bona Fide vs. Non-Bona Fide Bona fide involves a choice on behalf of the borrower to buy the rate down by paying a bona fide discount charge. Non bona fide is where the borrower does not have a choice to pay a discount charge to receive the rate at time of lock. Interest rates have a buy cost each day as determined in the secondary mortgage market. This is then translated to the lender s daily rate sheet. Bona Fide Price Rate % % % % % % Non Bona Fide Price Rate % % % % % % In this scenario 4.50% is the PAR price and costs no additional points to lock % gives a credit back o the borrower of.500% toward closing costs. 4.25% would be a Bona Fide discount charge because the borrower may have chosen to buy the rate down to 4.25% by paying an additional ½% discount point. In this scenario if the borrower chooses the rate of 4.5% he/she is charged a.250% discount point for the rate. It is NON Bona fide because the customer did not have an option for a PAR rate of The client could have chosen 4.625% at the price of % and received.250% credit toward closing charges. Not having the option for a PAR price makes this scenario NON Bona Fide

10 ATR Ability to Repay It is important to note that these factors are NOT new. Lenders have been following these standards since the 2008 mortgage crisis and the demise of alternative mortgage products. Underwriting of mortgage pmt based on higher of note rate or fully indexed rate for an adjustable All mortgage related obligations must be considered in debt ratio calculations Income and assets must be verified Employment status must be considered for likelihood to continue for 3 years and be verified Monthly payment(s) on any related loan(s) All debt, alimony/child support paid must be considered and verified as part of ratios Monthly debt-to-income (DTI) ratio or residual income Credit history as determined by a credit repository Conventional Conforming loans must be underwritten and documented to automated underwriting and agency (FNMA, FHLMC) guidelines. NO MANUAL underwriting is allowed on conventional conforming loans.

11 ATR & QM The final straw for lenders and closing the loan A creditor CANNOT cure QM errors. A loan must close based on ATR/QM standards otherwise it becomes a NON- QM loan and is thus UNSALABLE in the secondary mortgage market. Penalties of originating a non-qm loan include legal damages equal to all finance charges and fees and a stay on any potential foreclosure action (cap at 3 years). ** Thus a borrower who closed on a non-qm loan could in essence choose not to make mortgage payments and no legal action could be brought forward on the customer for a 3 year period. **

12 HOME OWNERSHIP COUNSELING As part of CFPB s new protection laws, a lender is now required to provide each home buyer a list of 10 HUD approved counseling agencies within 3 days of application. The applicant may not necessarily be required to take a counseling class, but must be given the choice and resources to do so.

13 TMLA Members MORTGAGE LENDERS: Caliber Home Loans Julia Woods Floricia Shepherd Corporate Investors Mtg. Group Richard Warren Cunningham & Co. Mortgage Bankers D. Bryan Parker Teresa M Parker teresap@cunninghamortgage.com First Citizens Bank Donna Deck donna.deck@firstcitizens.com Harrington Bank Joe Carsanaro jcarsanaro@harringtonbank.com NC Housing Agency Rob Rusczak rob@nchfa.com OnQ Financial Steve McDowell steve@mcdowellteam.com Nate Haines nate.haines@onqfinancial.com SunTrust Mortgage Anne Watson anne.watson@suntrust.com David Schnepp david.schnepp@suntrust.com Ernie Sigala ernie.sigala@suntrust.com Heather Sirgany heather.sirgany@suntrust.com Scott Collie scott.collie@suntrust.com Union Home Mortgage Alyson Bosworth abosworth@unionhomemortgage.com Unisource Mortgage Services John Gunn unisource@nc.rr.com Victorian Finance Jon Dehart jon@victorianfinance.com AFFILIATE MEMBERS: Appraisers: Mosher Reeves Appraisal Bob Reeves bobr7215@gmail.com Triangle Area Appraisals Stanley Stubbs stanleystubbs@nc.rr.com Attorneys: Arges Law Firm Jim Arges jim@argeslawfirm.com Felice Hayes felice@argeslawfirm.com Bagwell, Holt, Smith, P.A. Lauren R Nance lrussell@bhspa.com Love Law Robert Love robert.love@lovelaw.biz Meier Law Group Daniel Meier daniel@meierlegal.com NC Property Law Chip Reinhardt car@ncproplaw.com Credit Counseling: Life 101 Basic Allison Fletcher life101basic@aol.com Insurance: Nationwide Insurance Michael Lawson michael@lawsonins.com State Farm Insurance Marty Lindsey marty@martylindsey.biz Mortgage Insurance: Mortgage Guaranty Ins. Corp. Lisa Dahlgren lisa.dahlgren@mgic.com REALTOR s : Durham Regional Assoc. of Realtors Shelia Willis shelia@durhamrealtors.org Greater Chapel Hill Assoc. of Realtors Cub Berrian cub@chapelhillrealtors.com Prime One Realty Brett Bushnell brettbushnell@gmail.com West & Woodall Kirk West kirk@westandwoodall.com Title Companies: Investors Title Lou Ann Craven lcraven@invtitle.com