Garnet Capital Advisors Blog

Certain mortgage lenders have been following more stringent requirements than those created by the Consumer Financial Protection Bureau in an effort to ensure compliance.

The CFPB has limited the points and fees that can be charged for a qualified mortgage. Usually, these points and fees cannot exceed 3 percent of the loan's value if the principal is at least $100,000.

Wholesale lenders, which work with independent mortgage brokers to fund their loans, are going one step further, lowering this cap to 2.7 percent, according to American Banker. By doing so, these financial institutions will ensure that nobody questions that their loans are QMs.

Concerns about fee caps
Some view the latest development in a positive light, seeing it as evidence that lenders take the regulations seriously. However, others are crying foul, saying that the new caps could undermine loan origination.

Many believe the move adds one more "overlay" on top of existing government regulations, American Banker reported. The new cap could simply provide one more requirement at a time when many would-be borrowers are unable to obtain a mortgage. Some lenders are asking for higher minimum FICO scores than those required by Fannie Mae and Freddie Mac.

One person who noted the impact of the regulations involving points and fees is Carl Markman, director of national sales at Iselin, New Jersey-based wholesale lender Real Estate Mortgage Network, according to the news source. He estimated that the points and fees test results in between 5 and 10 percent of incoming loan files being denied.

Fee cap impacts compliance
"It's very expensive to review everything with pre- and post-closing quality control audits," he told the media outlet. "We have several full time people just on compliance and now basically everyone touches compliance."

He is certainly not the only one voicing such concerns about these regulations, as many lenders are encountering challenges with the 3 percent rule, specifying that they are not sure exactly what is included, according to National Mortgage News. The media outlet noted that only certain lenders - primarily those that take part in third-party origination or ones that have affiliates - are affected by the CFPB provision.

Amid this situation, certain types of loan origination are suffering more than others, the media outlet reported. For example, loans with private mortgage insurance that surpasses the cost of government backed mortgages are among those most affected. Mortgages that involve up-front loan level price adjustments are also taking a hit.

Amid this situation, financial institutions involved in mid-prime and subprime lending are getting involved to pick up the slack. However, these organizations have not stepped up their activity yet to sate the demand of those who want mortgages.