The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to purchase only qualified mortgages as of January 10, 2014.
For those of us that follow the secondary mortgage market and compliance regulations, this shouldn’t be much of a surprise. The new CFPB rule allows for loans to be underwritten as either a qualified mortgage, or using the ability-to-repay factors, however it is clear that the secondary mortgage market is leaning towards the qualified mortgage option. This is likely due to future rulemakings which I won’t go into at this time… just be aware that this isn’t the last we will hear of this rule. The rule will guide the mortgage markets going forward, as additional rules build upon this recent one.
Need an example of the implied preference for qualified mortgages? The new rule provides an exception to the qualified mortgage requirements for loans which are eligible for purchase through Fannie Mae or Freddie Mac. I’ll bet a soda (pop to us in Iowa) that Fannie Mae and Freddie Mac release revised guidelines in the near future that match up very closely with those of the qualified mortgage rule. This will essentially create a secondary mortgage market for qualified mortgages only. There are some future reserve requirements which are the true motivating factor behind this change.
I would recommend that credit unions which are involved in the secondary mortgage market begin to ensure that their mortgage products meet the qualified mortgage rules. Underwriting a loan using the ability-to-repay factors is still a great option for these lenders, however loans which are underwritten in this manner will likely be held in the credit union’s portfolio, going forward.
This rule may seem to be a big deal on its own, but, don’t assume that we are finished with it on January 10, 2014. This may be just the beginning of changes to the secondary mortgage market.