MH Industry Insider Perspective: Flash Report on QMs…Not good!

An industry insider has provided MHProNews with an exclusive of their flash report on the QM rules issued by CFPB yesterday. There was an 804 page Ability to Repay (“QM”) Rule issued on 1.10.2013 by the Consumer Financial Protection Bureau (CFPB), along with the 431 page High-Cost Mortgage (HOEPA – “predatory Consumer Financial Protection Bureau (CFPB), along with the 431 page High-Cost Mortgage (HOEPA – “predatory loan”) that was also released, so MHProNews must stress that this is preliminary and that expect a more in depth analysis by one or more professionals in a matter of days.

Our source(s) tell us that on the personal property (chattel) lending front: “On the predatory loan rule they gave us nothing. They essentially rebuked, did not believe us or didn’t like the way we lend.”

As examples, here are some select quotes from the CFPB’s rules:

“Moreover, the Bureau is not certain that manufactured home creditors would cease originating loans even if a portion of those loans exceed the high-cost mortgage APR threshold.”

“At the same time, however, industry commenters stated that manufactured home loans typically do not contain the types of loan terms that would be prohibited for high-cost mortgages. In addition, while the pre-loan counseling requirement will entail record
keeping and data retention costs, the Bureau notes that creditors are not required to cover the cost of counseling.”

“In sum, prior to adjusting the APR percentage point threshold for all manufactured home loans, the Bureau would need additional information showing why it is cost prohibitivein today’s market for a manufactured home lender to originate a first-lien, real
property-secured manufactured home (or a personal property-secured loan for greater than $50,000) with an APR of approximately 10.5 percent or less. For all of these reasons, the final rule adopts § 1026.32(a)(1)(i)(A) as proposed.”

MHProNews‘ insider source also commented: “They also used against us the, thank you Uniform Law Commission, recent recommendation for all homes to be magically deemed real property to chastise the majority of our lending practices (meaning)…personal property lending).”

As an example of that, this from the CFPB:

“The Bureau shares commenters’ concerns that a higher percentage-point threshold for personal property-secured loans could, if set too high, exacerbate incentives for creditors to steer consumers into titling their homes as personal property. The Bureau understands that such steering can and does currently occur in the market. Indeed, the National Conference of Commissioners on Uniform State Laws approved in July 2012 a Uniform Manufactured Housing Act that would simplify and streamline State laws to convert manufactured homes titled as personal property to real property and would prohibit manufactured home sellers from steering consumers to chattel loans rather than mortgages.”

These rules will go into effect January 10, 2014. So those manufactured housing lenders impacted, and not all will be, will have time to adjust. The industry as a whole can look to Capitol Hill champions such as Senators Sherrod Brown and Joe Donnelly to help provide a legislative fix.

The manufactured housing industry’s need for grass roots level activism coupled with the need for industry unity has arguably just been heightened.

For those industry professionals who retail homes and use FHA Title II or other mortgage lending products, Homebuilding tells MHProNews from their perspective (that of conventional housing, such as Pulte) that:

QM Preserves The Status Quo On Mortgage Underwriting Standards. Our key takeaway from the QM rule is underwriting standards may not change in the short run because QM provides up to a 7-year grace period for mortgages that meet current GSE and/or FHA underwriting standards. Since the underwriting status quo represents stringent standards for entry-level borrowers due to lender overlays, we do not view QM or the status quo situation as incrementally positive for entry-level buyers or entry-level builders including KBHome (KBH-$16.30:Hold) and D.R. Horton (DHI-$20.81:Hold).
The QM Rule Does Not Move The Federal Government Out Of The Mortgage Business. Another ramification we see from the QM rule is the government mortgage options, GSE & FHA, are likely to remain 90%-plus of new mortgage originations. Since most originators are already following the underwriting standards from the FHA and the GSEs, we do not see a clear business case for changing current standards.

The bottom line is that swift legislative action is needed to protect some personal property lending, while government backed loans like FHA Title II will be more important than ever.

Those coming to the who attend the MH Home lending finance forum on Wednesday January 23 will be able to hear and ask questions from the some 8 lenders expected to be present exactly what loan products you will have available in 2013. See the What People are Saying blog for the show brochure and more details. Expect more news, analysis and commentary on the CFPB’s action here at in the days ahead. ##

(Image Credit: Steve Rhode/Get out of Debt .org – Editor’s note: the image is a joke, and
not the actual logo of the CFPB)

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