What a great start for the new year. Mortgage applications are up and Real Estate contracts are off to a quick start too.
I do not know many people who own their own business that wouldn’t be happy to have their children follow in the footsteps and for one day to turn over that business to them.
My two eldest sons have been working in and out of my offices since their early teen years. Now my oldest son has just graduated from FSU with his degree in Real Estate and my middle son has worked in my mortgage office over the last three years but both are now full time realtors.
On January 10th 2014, “QM” day (qualified mortgage) kicked in along with all the rules and regulations that are part of this great change in the lending industry.
Was it really a good change?
This past fall as we moved closer to “QM” day, it became obvious to me that I was better off pushing my kids in to real estate versus loan origination; at least they can make enough money to pay their bills. Competent realtors today can still earn enough to pay their bills and if they work hard enough, they can make a good living; maybe even 6 figures if they are very disciplined.
As for loan originators they have to work three times harder to get loans through underwriting and yet the government has forced a cap and lowered the compensation. This a forced haircut of over 30%. This is all part of the big plan to help the consumer and help prevent them from getting too deep in debt in the great hopes of preventing a foreclosure in the future.
The idea is to cut the cost for the consumer when getting a mortgage loan. The other part is to make loans only to borrowers with better credit, more money, and less debt. Sounds like only the rich can get a loan.
Let’s look at it this way; most lenders will not want to face an audit to ensure they are following the new rules and it’s easier to say “hey I am not writing a loan under $100,000”. This is the gossip on the street.
The facts are that lenders can do loans under $100,000 but what if loan originators are only putting through 35% of all the client’s mortgage applications?
Let me explain. The first thing a loan originator does is ask a series of questions from the loan application. After hearing things like, ‘I had a one late payment 7 months ago or we had an FHA loan and the bank said it was OK to do a short sale, but that was like two years ago’; most loan originators will not take the application because of all the costs and the amount of paperwork which surrounds this plus having to keep the file for five years and being subject to audit for something that doesn’t pass the smell test.
Sometimes these people don’t even tell you these things until after you have pulled their credit. Sometimes after seeing a short sale on their credit from over 3 years ago you move ahead with the loan process. However, after you have about 30 to 40 man hours into the loan process you find out from the underwriter the borrower cannot get a clear ‘CAIVRS’ report because their short sale still had not settled yet with the mortgage insurance company.
So the reality is a loan originator has to do three jobs to get paid for one and still cover the office overhead and the expenses incurred for three jobs. So don’t be surprised if you can’t find someone to take on your loan under $100,000 because the loan originator’s work load is the same whether your loan is $40,000 or $400,000. The difference is getting paid $400 or $4000 for the same 180 hours worth of work.
For QM loans, the government really blows it here
With the rules under QM, loans that do not have debt to income ratios under 43% must go FHA, or to a Banks / lenders portfolio; which are most always ARM’s or you need to take it to what’s called a hard money lender. Either way the consumer is more likely to default later on in these cases.
But the result is Fannie and Freddie should not have to be bailed out again. Hence the government’s new rules really protect them from having to bail out the big guys again not the consumer. The new rules are likely to push the average consumer into high cost rental properties or more expensive loan program that do not have to follow most of the rules as they will not be purchased by Freddie or Fannie.
QM new rules should be called Frank and Dodd’s Big Circus
It’s no surprise that once the ‘Powers that Be’ set the parameters through the Safe Act which set the stage for QM, they went into retirement. Cowards!