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» COVER STORY A study conducted by the CFPB found that implementation activities related to new bank regulations were most concentrated in operations and information technology business functions. Human resources, compliance, and retail functions were also impacted more than other operational functions. case-by-case provision for loans that exceed the 43 percent debt cap. Hopefully this leaves some room for common sense.) The potential impact is significant. Approximately, 18 percent to 22 percent of all mortgage approvals have debt ratios above 43 percent. That screeching sound you hear are the brakes being applied to the real estate recovery, hitting high-priced markets disproportionately. Will regulations that shift lenders from judgment underwriting to rules-based underwriting really diminish foreclosure risk? (The average credit score for a new mortgage now stands at 745, which makes the odds of default approximately 288 to 1.) If so, what is the cost? The ultimate impact will depend largely on TITLE AND SETTLEMENT whether the protections provided for the QM loans prove to be so attractive that lending gravitates to QM, or whether you see lenders getting comfortable with non-QM loans that qualify under more flexible ability-to-pay standards. Chief Operating Officer New regulations, combined with lower afNEXTITLE fordability and other macro-economic factors (growth in jobs and U.S. households, primarily) could provide an economic headwind that keeps mortgage rates low, however that's not the consensus. Gauging the potential impact of new CFPB Jay Brinkman, of the Mortgage Bankers regulations and rising interest rates is important Association, says he expects mortgage rates in today's fragile, uncertain marketplace. to rise above 5 percent in 2014 and increase The real estate market hasn't slammed on further to 5.3 percent by 2015. While loans the brakes, but that could change abruptly if made to purchase homes are expected to the government lets interest rates spike or the rise 9 percent, refinance originations could arrival of the Consumer Financial Protection tumble by 57 percent, the trade group Bureau's (CFPB) new consumer protection projects. safeguards, the Qualified Mortgage (QM), Before you panic, note that 14 of the 17 and the Qualified Residential Mortgage Federal Reserve officials don't see the Fed (QRM) suppress originations as much as starting to raise interest rates until 2015 or some industry professionals fear. 2016. They also nudged down their 2014 This isn't 2007; new loan delinquencies growth forecasts to between 2.9 percent and are down; lenders have a diminished appetite 3.1 percent, from 3.0 percent to 3.5 percent. Fed for risk; and underwriting standards largely exceed those proposed as necessary for a QM officials have consistently over-estimated the strength of the recovery, and that's one trend or QRM. The painful lessons of the last five that has not changed. years have largely accomplished what the It's possible that the modest slowdown of CFPB is now implementing. So what's the the last couple of months is the new normal; problem? uncertain and fragile, but we've seen worse. It's an over-emphasis on rules-based unIt's worth remembering during this period of derwriting. For example, the CFPB through conservative underwriting that the pendulum the new QM and QRM guidelines has determined the absolute maximum debt ratio swings both ways. Eric Bloomquist has held the position of COO for any borrower should not exceed 43 percent, which is a narrow solution to the broader issue at NexTitle, formerly Northwest Title, since September 2009. He was previously director of title of comprehensive credit risk analysis. (To be fair, the Ability-to-Repay rule does have a operations for Northpoint Escrow + Title. INDUSTRY INSIGHT INSIDE THE BELTWAY of our time and resources. Rates are up, refis are down, margins are challenged, servicers are under unbearable scrutiny, and you just can't win with distressed assets and nonperforming loans. And we are trying to plan for next year and beyond. Like my sons' bedtime book about the dragon that just wants to be acknowledged, the best strategy is to look this new way of life in the eyes, acknowledge it for the beast that it is, and determine your course of action to succeed in spite of it. This strategy does not represent approval of (or any particular fondness for) the monstrosity of Dodd-Frank or the ubiquitous role of the Consumer Financial Protection Bureau (CFPB); this strategy does not indicate that we were doing anything "wrong" "before"; and it does not ignore the fact that we have challenging days and months ahead. However, the new regulations, while inconvenient, expensive, and sometimes absurd, do not ask us for blood. They ask us to do a better job documenting and adhering to a standard set of industry best practices; they ask us to do a few things on behalf of the consumer that, if we're being honest, we probably should have been doing anyway; they ask us to be more transparent; and they ask us for complete and total accountability. These regulatory changes will force us to get better. Similarly, the dramatic and sudden increase in rates does not ask us to give up our way of life—it asks that we see a dramatic decrease in just one type of business: refinances. What about all of the other sources of revenue and business channels that most title companies have been ignoring for the past few years? They're still out there! And they create opportunities to serve clients, create revenue, and give our employees fulfilling jobs. So we will need to get better at business development, get better at finding creative solutions to solve our clients' needs, and get better at adding value to our customers and their clients so that we can embrace more diverse sources of business. Life "after" will be a true test of our mettle, creativity, and fortitude. To survive in this new marketplace, we will need to be better. And that isn't so bad, so we'll take it. We'll see you on the other side. Ten years ago, Ryan Peterson recognized a space in the industry for a national title agency to meet the demands of his target clientele. Avenue 365 is the third national title company he has started and in his words, it is the company of which he is the most proud. VISIT US ONLINE @ DSNEWS.COM Eric Bloomquist The Pendulum Swings Two Ways 53

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