WE’RE HEARING
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That’s because the new QM rule (thanks to the Dodd-Frank Act) prohibits interest-only loans and IO jumbos are a popular option.
In high-cost states like California and New York, the 43% loan-to-value ratio that the Consumer Financial Protection Bureau is using as a bright-line test for ability to repay could also take a bite out of the jumbo market.
That's because jumbo borrowers who depend on commissions and bonuses for a large portion of their income might exceed 43% DTI and end up in a non-QM jumbo loan.
But some are not so pessimistic. Wells Fargo is the largest originator of jumbo loans and its president, chairman and CEO John Stumpf, fielded a question about the QM rule and jumbos during a conference call on WF’s fourth-quarter earnings.
It’s really too early to understand everything that’s in the CFPB’s QM rule, the CEO said. But he stressed that Wells has been in the
“In many cases, these are our best customers and we do a lot of things for them. So I doubt, at least I’d be surprised, if whatever happened there would have a big negative impact on the jumbo market,” Stumpf said.
Redwood Trust Inc. also has been in the jumbo business for a long time. In the past two and half years, it has completed 10 prime private-label securitizations totaling $3 billion. Just 12% of those prime jumbo loans are IOs.
“We feel very comfortable buying jumbo loans, including IOs, as long as those loans are made to well-qualified borrowers who can demonstrate their ability to repay,” said Mike McMahon, a managing director at Redwood.
Interest-only loans got a bad name during the housing boom because they were peddled to the masses as an affordable loan product and it turned out to be massive disaster.
IOs were designed to be a niche product that provides tax advantages for the well-to-do.
Properly underwritten, they perform very well. In two and half years, Redwood has yet to see a 60-day delinquency.
Someday Redwood will have 60-day or 90-day delinquencies, McMahon said.
But under the CFPB’s rules, it will be hard for borrowers to claim it’s the lenders fault, if they have demonstrated a pattern of making their payments.
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SHOUT OUT: You get a mention in this blog if you do more than ten net new hires to help us work our way out of a tepid housing (and national) recovery. This week’s shout out goes to Churchill Mortgage of Brentwood, Tenn, which added nearly 80 employees during 2012. Last year was a good one for Churchill, with more than $1 billion in mortgages originated through 6,000 loans. That’s the first time Churchill has hit the magic $1 billion figure. Way to go!
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.