CFPB regulations

A True Safe Harbor Mortgage Loan Is Hard To Find

The mortgage industry is just beginning to see the effects of the Qualified Mortgage rule (QM) that the CFPB implemented in January of 2014.

Concerning Survey Results On Loan Compliance

ComplianceEase and RESPA Auditor performed a recent survey based on a cross-section analysis of 700,000 audits during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another six percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.

QM Loans Failed Tests

If that’s not bad enough, 4.5 percent of Qualified Mortgage (QM) loans failed Safe Harbor tests and 11 percent of loans were incorrectly categorized as to their QM status.

If the average loan amount is 220,000, then that means $16,940,000,000 worth of loans is miscategorized as QM.

Average loan amount:                          $220,000

Amount of loans:                                X 700,000

Percent of miscategorized QM:       X 11%


QM loan amount miscategorized:   $16,940,000,000

Continuing with the example, if 4.5 percent of QM loans failed Safe Harbor, then $6,930,000,000 of Safe Harbor loans are not actually safe.

Sobering news, to say the least.

Add in the potential impact of the upcoming TRID rule, which creates an opportunity for class-action lawsuits and investor skepticism toward buying mortgage loans at all, and the mortgage industry has a real problem on its hands.

Greater Potential For TRID Errors

RESPA has been around since 1974 and the industry still has problems with compliance. All of that changed on October 3. TILA didn’t used to have class action lawsuits, however, with these disclosures being combined there is a much greater possibility for violations. We know that prior to TRID the industry got RESPA and TILA wrong 23% of the time. It is safe to assume that now when violations occur, there is an even greater than 23% possibility for errors which can lead to class action lawsuits.

Someone saying they did something correctly isn’t the same as proving they did it correctly, and that’s the problem we have here. Having a signed document saying that a loan has been classified as QM doesn’t prove that it actually satisfies QM requirements.

Regulatory Ramifications for TRID Non-Compliance

The CFPB is learning what the mortgage industry has and does not have in terms of QM compliance. The ramifications of TRID will only increase the stakes of non-compliance, widening the gap even further between proper conforming and what the industry is actually able to produce.

Hesitant Private Mortgage Investors

Investors learned a hard lesson back in 2008, and many may be hesitant to invest in mortgages post-TRID, considering the risk. If investors were to pull out of the mortgage market completely, liquidity would be affected as well. Such a move would impact everyone, right down to the homebuyer, tightening the chokehold on already restrictive lending requirements.

For lenders and mortgage investors alike, the notion of a “Safe Harbor loan” might lose its salt.

The Mortgage Industry Needs To Be Able To Scrutinize Loans

But there must be a way to prove that necessary procedures and policies have been followed, so that regulatory agencies and mortgage investors can scrutinize loans on a granular level. An open, transparent process between all parties, from initiating a mortgage file through closing, could achieve this. Such intimate knowledge of a loan will show mortgage investors exactly how much risk it carries.

These changes would be beneficial to not only the mortgage investor, but the lender as well by minimizing buyback risk. It would help to prove that a QM loan is actually a QM loan — giving them a true Safe Harbor.

Want to make your mortgage process easier and more accurate? Contact ATS Secured today.

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