There has been a lot written about the impact of the qualified mortgage and ability to repay rules from a legal and compliance perspective. Have you noticed whether the stress of this buzz, throughout your company and the industry, is causing originator sales paralysis? In a recent training class of highly experienced originators, a few with 40 years in the industry and many more with over 30 years, their perception of the QM and ATR regulation was like a circus.
Originators are watching management directing an act riding in circles on unicycles, another act is walking a tightrope, others are swinging from the trapeze and still another act is trying to get the animals under control. Oh and don't forget the clowns running around the perimeter. I'll leave it up to you to determine which act is the attorney, the compliance staff, the underwriters, the trainers or the department managers.
As the class discussed the chaos in the industry, there emerged three perceptions about QM and ATR that every company must identify quickly and work to eliminate. The most concerning perception came from a few people who felt the ATR regulation is not a big deal and they will continue to take applications just as they always have.
The second group had pulled back on sales efforts and wanted to let the dust settle. Some in this group actually see these regulations as their tipping point to leave the industry. The third group is fired up and full of negativity, as if they spend every day watching political commentary shows and You Tube clips about the need to repeal the Dodd-Frank Act. This group is feeding the rumor mills with bad information and causing damage within the shop before the final process has even been decided.
Most companies will have a mix of personalities to reign in. The perceptions of QM and ATR are a challenge lenders must manage to ensure safety and soundness for the long term. The right training plan and content is a pivotal component in managing the origination changes successfully. Here are some tips that will help ensure the originators get on the same page and feel positive about 2014:
Training should start with an introduction about what QM means to an originator. Explain the impact to product offerings available through the company as well as the new competitive landscape. It is important to explain what can happen if the loan does not perform, but this needs to be explained in a way that doesn't try to turn the sales team into compliance officers.
Originators need to be made fully aware that the interview process must change. This is where the regulation meets the street. The ATR rule requires lenders to disclosure if they have evidence the borrower's income will cease. Company policy and training must work together to guide originators down a consistent communication path when customers make statements about retirement , relocations, position changes or other issues indicating income may cease or drop substantially soon after closing (and define 'soon'). There are many examples like this, that will be included in a good training program.
Don't bog the team down with things that will never happen. Be sensitive to the time and quality of training. Section 32 of Regulation Z is a classic example. If company policy dictates these loans are prohibited and systems will be in place to protect against closing a loan that triggers this regulation, then keep the training short. Certainly the staff needs to understand the high level points but a three hour program will cost too much time away from getting business in the door.
Originators are very aware of the increased overhead required to prepare and manage the pending regulations. It is up to management to make sure this effort doesn't continue to look like a circus. There are still great opportunities in every market and people still need mortgages.
Repeat the Indecomm Mortgage U mantra, "Good compliance is great customer service."
Alice Alvey was co-founder of Mortgage U in 1996 and now heads Indecomm’s Mortgage Learning division. She has created customized mortgage training programs, including automated compliance Health Checklists and procedure manuals. She is the author of the FHA and VA Practical Guides now distributed by Indecomm. Alvey is a Master Certified Mortgage Banker and serves on the advisory board for Habitat for Humanity Michigan Fund. Previously she served on Fannie Mae’s Risk Management Advisory Counsel and in 2009 she received the James T. Barnes award for significant contributions to the mortgage banking industry.
