It's here.  Effective today, QM rules the land.

What does the public see regarding QM (apart from Cordray on the Daily Show)?  Here you go. And what consumer, including you and me, wouldn't want to be protected against bad loans or lenders? That is, until a decrease in the number of lenders leads to less competition, and potentially higher rates. I continue to hear stories of independent mortgage banker lenders worth $X million six months ago, now worth half of that, or ¾ of that. Remember, however, that a good portion of that is due to the general business climate, not rules and regulations. Banks and lenders continue to ask themselves, "Does it make good business sense to stick around, or is it just because I've weathered cycles before? Are the costs of compliance so high we need to think of an alternative?" We could see a lot of changes between now and Memorial Day, and not everyone will survive...

Banks are certainly growing, perhaps despite the wishes of the U.S. Government. The top five US banks have increased their market share in 2013 to 44% of all US industry assets (vs. only 9.7% in 1990). The top 5 largest banks in the U.S., but with their worldwide rankings, as of 9/30 were JPMorgan (#6, $2.5T), Bank of America (#12, $2.2T), Citigroup (#14, $2.1T), Wells Fargo (#21, $1.5T) and Goldman Sachs (#28, $923B). SNL Financial reports the top 5 largest banks in the world as of Sep 30, 2013 were Industrial & Commercial Bank of China ($3.1T, China); HSBC Holdings ($2.7T, UK); Credit Agricole ($2.6T, France); BNP Paribas ($2.5T, France) and Mitsubishi UFJ ($2.5T).

And movement in the banking arena continues. RBS Citizens Financial, a subsidiary of Royal Bank of Scotland (UK) has agreed to sell 94 Chicago-area branches (operating as Charter One Bank) to US Bank for $315mm (a 6% deposit premium). US Bank captures $5.3B in deposits and $1.1B in loans. Royal took the action as it seeks to raise capital and cut costs (it is 80% owned by British taxpayers). And this week AIMBank ($434mm, TX) announced it will acquire First State Bank of Miami ($39mm, TX) for an undisclosed sum.

In yesterday's commentary a reader raised the question, "Many lenders are excluding [from the QM calculation of "points and fees"] the affiliate title company fee for a broker as their position is that it is not an affiliate of the 'lender'. What is the rule?"  Attorney J. Steven Lovejoy with Shumaker Williams, P.C. ( contributes, "The answer is contained in the amendments to the TILA Section 32 definition of "points and fees," because that same definition applies to the new "Ability to Pay/QM Rule."  

(1) In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation:
(i) All items included in the finance charge under § 1026.4(a) and (b), except that the following items are excluded: (D) Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraphs (b)(1)(i)(C), (iii) or (iv) of this section;"  12 C.F.R. § 1026.32(b)(1)(i)(D). Emphasis added. The same is true for an open-end loan (which, effective tomorrow, is for the first time subject to Section 32): "(b) (2) In connection with an open-end credit plan, points and fees means the following fees or charges that are known at or before account opening: (i) All items included in the finance charge under §1026.4(a) and (b), except that the following items are excluded: (D) Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraphs (b)(2)(i)(C), (b)(2)(iii) or (b)(2)(iv) of this section;" 12 C.F.R. § 1026.32(b)(2)(i)(D).

The upshot is that one must include fees paid to an affiliate of either the lender (creditor) or the loan originator (which can mean a mortgage broker company or the individual loan officer of either the lender or the broker who is involved in the loan transaction).  The Government Printing Office's e-CFR neglects to cite to the amendment of subsection (b)(1), which was published on January 30, 2013, so you can't rely on that source. Lexis and Westlaw apparently have it right." It is easy to see why this kind of regulatory needle-threading certainly involves attorneys. Mr. Lovejoy, thank you very much!

Lenders, vendors, aggregators, QM & non-QM... so many changes - who can keep track? Let's see what is going on out there!

There are a lot of people who know much more about VA loans than I do, especially under QM. Here's a primer.

Are we entering a new era of residential lending, just like we had 15 years ago? Time will tell, but lenders are promoting their "Non-QM" line-up. The latest one to cross my desk was from ACC Mortgage. "OLD-SCHOOL LENDING IN THE DODD-FRANK WORLD!" "If you were in the business in the '90s, you will love ACC Mortgage today! 2nd Chance Purchase Programs, Fix and Flip, Community Development Lending, Foreign National, B&C Lending, Out-of-the-Box Lending...Focusing on Maryland, DC, Virginia and Florida!" Knock yourselves out.

Freedom Mortgage sent out its "new and improved" QM guide for clients.

Out in California, AMX, Land Home Financial's wholesale division, alerted brokers that it "now offers Gold 'No Fee' Pricing. Max 2.875% Lender Paid Comp, Broker Processing Fee not allowed, elimination of AMX Admin Fee, Gold pricing is only available through AMX eXPRESS Pricing Portal to ensure compliance with QM, no rate sheet, must execute new LPC agreement, AMX will be lenient with comp plan selection in January - comp can be changed once a month, AMX will run Ability to Repay analysis (ATR) utilizing Reg Z Appendix Q, temporary QM loans acceptable as long as they meet ATR, and all existing guidelines, loan programs, max DTI's, etc. are business as usual."

Arizona's Oaktree Funding rolled its QM broker comp policy - there's a new agreement.

California's Coastline Lending Group, a private money lender, advertised "Rates as low as 8%"! "We have an extensive bank of private investors actively seeking trust deed investment opportunities in California, enabling us to consistently fund and close real estate loans in 5-10 days with our simplified process and 'make sense' underwriting. "California commercial & multi-family properties considered as well as selected non owner occupied, residential income properties. Non-fico, equity driven, "make sense" underwriting; any credit OK. Stated income; minimal documentation required. No prepayment penalties. LTV based upon appraised value; not purchase price. Loan amounts from $50,000 to $5,000,000. Broker commissions paid directly out of escrow. Ask about our 'Fix & Flip' lending program." 

MGIC released the "How MGIC MI rate programs impact QM Points & Fees Calculations." "Effective January 10, 2014, here's how MGIC's premium plans will - or will not - affect your points and fees calculations. Do not include premiums from: Borrower-paid Monthly Premiums, the monthly portion of borrower-paid Split Premiums, Lender-paid Single or Monthly Premiums. In general, include premiums paid by the borrower at closing: Borrower-paid Single Premiums - refundable or nonrefundable, the upfront portion of borrower-paid Split Premiums." For details and additional QM highlights, go to

Because there is a lack of clarity in the new Dodd Frank rules, Wells Fargo has stated that they will not allow Borrower Paid Single Premium MI (refundable and non-refundable) to be excluded from the QM Points and Fees test under any circumstances.  Because many lenders sell so many loans to Wells, those lenders need to follow Wells' lead until the CFPB comes out with clarification. And those lenders are focusing on other forms of Mortgage Insurance on conventional loans until that occurs.

Wells Fargo: "Pending further clarification from the CFPB or notification from MI companies regarding revised MI policies, Wells Fargo Funding will not allow any amount of borrower-paid upfront conventional MI premiums to be excluded from the points and fees total. This includes, but is not limited to, the upfront portions of annual, monthly, single, or split premium payment options. This approach is necessary based on the determination that current MI policies do not meet the CFPB definition for "refundable on a pro rata basis" because they are only refundable during the first three to five years of the loan, rather than for the life of policy.

Here's something that we need to be reminded of once in a while, and yes, I realize that this is a simplified example. Let's say an average worker makes $50-100k a year during their career, and manage to save up $1 million for retirement. And they are very risk averse, so they plunk the money into 3-yr T-notes. Earlier this week the Treasury Department sold $30 billion in 3-year notes at a high yield of 0.80%. This retired person will earn $8,000 all year on their life's savings. Really not much we can do about it, other than realize why many toil away past their retirement ages, or remember that those who had all their retirement funds in companies like Lehman, WAMU, Countrywide, whoever, may not even have the option to earn the $8k.

Even with all of this, folks still wonder about mortgage rates - although rates could be steady for the next six months, the cost of originating a residential mortgage loan is only going to increase. That aside, Thursday's markets had MBS traders reporting that originator supply came in, once again, at less than $1 billion while the latest report from the NY Federal Reserve indicated net buying was running at $2.6 billion a day. (Don't forget that it reinvests money from paydowns/early payoffs.) So we can expect monthly net demand from the Fed exceeding net supply through April. Thursday the 10-yr improved in price by nearly .250 (closing at 2.96%) while agency MBS prices improved about .125.

Today, besides the sun rising in spite of QM, we can look forward to December's employment data being released (look for +195k, unemployment rate unchanged at 7.0%.