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» VISIT US ONLINE @ DSNEWS.COM COVER STORY Not everyone is enthusiastic about the new mortgage regulations, according to David Hurt, VP at CoreLogic, a data and analytics firm. "Whether all lenders or just some of them will adhere to the QM standards is unknown," he said. "One disadvantage of the new rules seems to be that there is still a very large segment of the market that is not served," he explained. "Many are being left out of the eligibility curve, forcing lenders to create new and different types of loans." Hurt feels that until the rules start to take a more defined shape and have been in the market for a while, there will still be uncertainty about what will and won't be allowed. "Lenders won't find out what is acceptable until the first audit," he added. Some lenders feel they can make safe and successful loans outside of the QM definition through careful and prudent underwriting. However, Hurt stressed that lenders need to use utmost caution and be aware of several problems, including duration mismatch. "No one can predict what interest rates will do," he said, "although most conventional wisdom is that interest rates will go up. If and when that happens, there may be more ARMs than fixedrate loans written. In that case, to be safe, lenders should make sure that borrowers are qualified at the fully indexed rate." Hurt says another category that may not benefit from QM standards is investor loans. Many investors still seek jumbo and super jumbo loans with no interest, which are forbidden by the new regulations, he explains. In consideration of all the doubts and dislikes concerning the new CFPB guidelines, Hurt believes the current changes being made are just the beginning. BENEFIT? Some question the effectiveness of the CFPB's; soon-to-launch mortgage rules. BY SANDRA LANE Influenced by the housing lobby, the government has not really corrected the problems associated with home mortgages— they have simply postponed the possibility of another housing bubble that will inevitably burst again, according to Edward Pinto, resident fellow at the American Enterprise Institute (AEI), where he specializes in housing finance. Pinto also served as EVP and chief credit officer for Fannie Mae until the late 1980s. Pinto doesn't think the new rules will change lending procedures very much. "FHA is exempt from rules and has its own qualified mortgage," he said. "Fannie and Freddie have their own rules and have been grandfathered. They don't have to adhere to the 43 percent debt-to-income ratio." The real issue, Pinto explains, is the bubble being created by the Fed's lowering interest rates and buying up all mortgage-backed securities. This makes the Fed the largest buyer of securities in the world. "The combination of loose lending standards and the Fed's low interest rate policies are once again promoting a distortion in housing prices relative to fundamentals such as rents," Pinto explained. "A good way to measure the strength of the housing market is to compare the relationships between house prices and rent," Pinto continued. "In tracking these two figures, it seems they go up or down in tandem. When they don't, that indicates something is wrong." In the crash of 2007, he says that house prices collapsed, but rent levels continued to go up. During 2013, housing prices jumped about 10 to 12 percent, while rents rose 2 to 3 percent. "When this deviation reverts to the mean, it will likely be accomplished by the decline of housing prices," Pinto said. "The sooner the Fed normalizes interest rates, the less need for a painful correction later." In particular, actions by the Fed in purchasing mortgage bonds and deflating interest rate have contributed to rising home prices. "Of course, Realtors and builders like this because when interest rates are low, people can buy more expensive homes without additional income," Pinto explained. "What is not recognized is that the benefit of lower interest rates is not really a benefit because it pushes housing prices up, and this is a serious problem as long as incomes remain stagnant." Pinto says the QM rule, intended to address the problem of low underwriting standards, will not really be effective. "Substantial down payments and good credit histories are unpopular with community 'activists,'" he said, in reference to Realtors, homebuilders, and other members of what he calls the "Government Mortgage Complex." Because this coalition has been effective in influencing Congress in the past, and now the Consumer Financial Protection Bureau, to encourage lending to borrowers whose credit positions are shaky, Pinto feels the rules don't have much strength. "I don't think the new QM rule will have a significant impact in tightening credit," he explained. "Political pressure to continue lending to borrowers with weak credit ratings has trumped commonsense underwriting standards for decades." BLACKBOOK NEW RULES NOT EXEMPT FROM CHANGE WHO STANDS TO MARKET PULSE new system, Adams says the bank has invested significantly in online learning tools to assist customers as they research mortgage options. "People can take courses online, use mortgage calculators, and track documents. In addition, customers can access all of this information on their mobile devices just as they might on their laptops, and we are excited about that," she said. "Everyone at Wells Fargo Bank is ready and waiting to operate under the new rules," Adams explained, "and the bank's employees are looking forward to offering customers some clear, commonsense homebuying options." STAT INSIGHT 10-20% Borrowers who would have qualified for a loan in 2013 that will be excluded by CFPB's new Qualified Mortgage and Ability-toRepay rules. Source: Rick Sharga, Auction.com 53

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