Mortgage Industry Trends

Non-QM Ain’t the New Subprime

not-your-fathers-sub-prime-loan-qm-quality-mortgage
0 0
Read Time:1 Minute, 39 Second

not-your-fathers-sub-prime-loan-qm-quality-mortgageNon-QM (Non-Qualified Mortgage) loans are getting a bad rap as the coming of the next subprime wave.

Although they may be considered a little riskier than your standard QM (Qualified Mortgage), the perceived risk is in not having the QM’s safe harbor from repayment ability requirements.

Some loans may have loan terms, i.e. interest only features, which disqualifies them as a QM. That alone does not have the loan fall into a subprime category.

Let’s remember some of the infamous, subprime loan features, which got us into quite a bit of trouble.

  • Low Doc
  • No Doc
  • No Income
  • No Asset
  • No Nothing loan!

 

Come on, the non-QM loans of today are nothing like the subprime loans of yesterday.

When doing a non-QM loan, a lender still must follow all TRID requirements and validate the borrower’s ability-to-repay the debt.

This means a full vetting of the applicants, with employment, income and asset verifications, just as done for a QM.  These are complete full doc loans made to qualified borrowers, just under slightly different terms.

To offset some of the risk, a lender may charge higher rates and fees, as long as they can still demonstrate the consumer’s ability-to-repay. That’s the key and what differentiates the new non-QM from the old sub-prime loans.

Presently, CFPB is the process of doing their assessment of the success/failure of the QM/ATR rules.

One area they are reviewing is the difference between the QM and non-QM loans. Should more non-QM loans of today qualify as QM loans in the future? Labeling Non-QM as subprime surely won’t help.

Lenders need not fear non-QM loans when originated and underwritten properly. After all, what lender in its right mind would make a loan to a borrower who didn’t have the ability to repay?

You don’t have to answer that, just don’t be one.

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
Tagged ,
Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
View all posts by Michael Vitali →