How many lenders will roam from the safety of the ‘QM range?’ And of those that dare to venture outside the safe harbor zone, how far will they wander?
According to a Wall Street Journal report, Wells Fargo and several other mega lenders plan to offer at least some ‘non-QM’ loans following implementation of the Consumer Financial Protection Bureau's (CFPB) new ability to repay/qualified mortgage (ATR/QM) rules going into effect Jan. 10.
According to the report, Wells Fargo anticipates that about 5% of the mortgages it issues next year will fall outside of the CFPB's QM definition. Other mega banks, including JPMorgan, Bank of America and Citigroup Inc., are also likely to make some loans that fall outside of the standard. Most of these loans, however, will be of the ‘jumbo’ variety ($417,000 or more), and thus will be largely driven by more affluent homebuyers.
This does not mean, however, that lenders will be relaxing lending standards or going back to the same types of loans – such as ‘interest only’ loans – that they offered pre-crisis. It simply means that they will continue to offer non-QM loans to wealthier borrowers who have established credit and demonstrated their ability to repay.
Certain other ‘higher risk’ products, such as balloons, negative amortization and certain adjustable rate mortgages will also fall outside of the QM criteria.
Brad Blackwell, executive vice president of Wells Fargo Home Mortgage, tells WSJ that the bank has seen such a dramatic improvement in mortgage performance in the past year that ‘we don't see a significant reason to contract our lending… because these are very high-quality borrowers.’
Wells Fargo plans to keep all of the non-QM loans it issues in its portfolio, according to the report.