A key regulation lenders have been watching is the upcoming QM/Ability-to-Repay rule. The goal of the QM/Ability-to-Repay rule amendment is to implement certain underwriting standards to ensure loans are being produced that consumers have the ability to repay. However, the QM rule will not limit lenders from only issuing QM loans, but lenders who choose to lend outside of the QM/Ability-to-Repay mandates face fewer legal protections and may have to retain a portion of the loan to protect against default.
Loans that fall outside the boundaries of a qualified mortgage will be subject to fewer protections from lawsuits due to default. The risk management and possibility of default with originating a loan outside of QM standards will continue to cause concern among lenders, creditors and investors until the underwriting standards and stipulations “outside of the QM box” are defined. However, for the most part, the standards outlined by QM/Ability-to-Repay are sound lending requirements and should provide a level of certainty for lenders to make loans knowing they are compliant.
The underwriting standards leading up to the financial meltdown were far too lax; complicating risk mitigation strategies and eventually leading to the mortgage market’s demise. However, we now currently find ourselves with too strict of underwriting standards; barring would-be potential borrowers from obtaining a loan due to overly restrictive underwriting standards and lenders not wanting to repeat the past.
Read Scott K. Stucky’s Full “The Need for Primary Market Modified Underwriting Standards” article in National Mortgage News.