Locking Carrington Loans Under the New QM Guidelines
When locking loans with submission dates of 1/10/2014 or later, the CMS underwriting fee is now included in your QM points and fees test (3% Cap rule).
If you wish to have the CMS underwriting fee excluded from your points and fees test, Carrington will apply a corresponding LLPA to the final price of the loan equal to the amount of the fee.
To have the Underwriting Fee applied as an LLPA, please email the CMS lock desk at email@example.com at time of lock. Subject line: Underwriting Fee. Indicate that you choose to have the underwriting fee applied as an LLPA to the final price.
Regarding Changes to Locked Loans:
If the loan has been locked and you wish to change your selection, contact your Account Manager or Account Executive immediately. CMS may need to re-disclose the loan to the borrower.
Automating the UW Fee Selection:
CMS is working to automate the process in Pipeline Manager’s pricing engine. When completed we will notify you immediately.
As the housing market changes, so does its underwriting requirements.
What a difference a year can make. Following what seemed like an eternity of foreclosure spikes and depressed home values, the U.S. economy and housing market finally went into recovery mode this past year. Home values in many markets saw double-digit appreciation, resulting in a shift back toward traditional purchase loans after years of distressed sales dominating the market.
Even with all of this positive momentum, many brokers and originators find themselves beginning 2014 feeling troubled by lagging consumer confidence. With the recent federal-government shutdown, continued debt-ceiling debate and predictions of rising interest rates weighing heavily on the minds of consumers, lenders now are trying to prove their ability to get borrowers into the homes that they want.
One thing seems clear, however: A new era has arrived, one that will be shaped by shifting underwriting demands. What should your organization know to make the most of this new day?
As 2014 begins, refinances — once the lending community’s bread and butter — continue to decline rapidly, forcing mortgage banks and brokerages to rethink their target markets and the way that they compete for purchase business. And the competition is fierce; even traditional lenders and big banks are working hard to get ahead.
Remaining competitive in this new landscape requires an ability to offer consumers — and the real estate professionals and loan
brokers who serve them — more of what they need in this market: a breadth of products, speedy processing times and more realistic
expectations regarding what constitutes an acceptable credit score today. Above all, however, the most important deliverable is simply
the ability to close, something that depends on underwriting that’s efficient and thorough.
To better understand why effective underwriting is more important than ever, let’s take a closer look at what matters most among today’s consumers and the professionals who work for them.
To account for the unique financial situations and expectations of a larger pool of borrowers, mortgage banks and lenders must expand
their offerings to include a wide variety of conventional and government-loan products. The growing number of government offerings available to borrowers is impressive and well worth the consideration of organizations looking to grow their portfolios — provided they keep in mind that processing these loans can present some challenges.
Effective government lending requires a deep knowledge of underwriting terms. Because of the various exceptions that must be considered, these loans rely heavily on manual underwriting, a process that may seem foreign to underwriters who entered the field in the wake of advanced processautomation tools designed to expedite turn times.
Today’s underwriting teams must be trained to account for the difficulties associated with processing loans that are driven by exceptions to the norm. That means mortgage banks and lenders should encourage their more-seasoned underwriters to mentor less-experienced staff members, educating them on how to process loans the “old school” way while still focusing on efficiency.
In today’s housing market, the ability to close quickly — regardless of loan type — is crucial. Consumers depend on this speed to avoid losing their homes to other buyers, and agents rely on it to ensure that they get paid.
According to Ellie Mae, the mortgage industry’s average time to close a purchase loan was 46 days in 2012. Although this average has improved slightly over the past year (dropping to an average of 43 days this past September), further enhancement across the industry is in order.
Ideally, an average of 25 days to close should be the new standard. This requires significant process refinements in terms of
underwriting, which has been a major area of focus for many mortgage banks and lenders. Investments made in this regard can pay off in terms of significantly expedited processing times, reducing the time to close to as few as 15 days in some cases.
By providing borrowers with a shorter, more predictable timeline during what can be a stressful waiting period, mortgage bankers and originators can have a competitive advantage in many of the nation’s tight housing markets. By promising qualified borrowers that their documents will be ready for closing within 25 days or fewer, your mortgage bank can make itself a go-to lender among a growing number of
In the wake of the recession and the related housing-market meltdown, mortgage banks and lenders should take a fresh look at their qualification requirements for borrowers and make sure that they match up with reality. Otherwise, they could be overlooking potential groups of borrowers, including those who temporarily may have been affected by a lagging job market and now are employed.
Although many banks still require FICO scores higher than 700, this expectation may be overlooking millions of otherwiseeligible borrowers. Additionally, there should be greater flexibility concerning the appropriateness of conforming, high balance and jumbo loan options.
To accommodate the needs of today’s market, some mortgage banks and lenders have expanded their credit requirements, reducing their minimum FICO scores to 580 for certain products and making the qualification process easier on borrowers. This decision can help a mortgage bank widen its pool of applicants and also attract the attention of other banks and credit unions that may wish to sign on as third-party originators to better serve their customers.
It should be noted that lowering credit expectations means taking on an additional risk. That said, this risk can be minimized
considerably in the underwriting process by requiring lower loan-to-value ratios and by reserving part or all of the fees and gain on
sale as part of the credit-risk management process. It’s clear from historical data that requiring more money down greatly lowers the probability of loan defaults.
For some time now, the mortgage community has been preoccupied with the uncertainties surrounding the qualified mortgage (QM) rule set to take effect this month. The mortgage industry continues to wait for additional guidance from the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture concerning the guidelines specific to their government products. Mortgage professionals, however, are beginning to understand generally what will be needed for conventional loans.
Mortgage professionals should pay close attention to whatever transpires in terms of approved regulations and begin to anticipate
possible outcomes. As various mandated changes become more apparent across the industry, mortgage banks and lenders that have been tracking the various compliance and underwriting implications will be in the best position to execute the necessary program changes fluidly and move to market QM loans faster, making the brokers and real estate professionals that they partner with more successful and the clients of these parties their biggest fans.
Although the looming QM mandate has resulted in some originators making plans to focus their businesses on non-QM products, these loans may prove to be just as much work as QM loans. Moving forward, all loans — QM and non-QM — likely will require full documentation, and their debt-to-income ratios will continue to figure prominently in mortgage professionals’ business.
In other words, whether you’re originating QM loans or non-QM loans, ultimately it’s the underwriting that will make or break your
company. In time, banks and other lenders with the ability to underwrite and approve all types of loans should have a natural advantage
in attracting repeat business.
• • •
Just as the housing market continues to evolve, the assumptions, strategies and processes of lenders are changing in a big way. Competing in this new era requires demonstrated excellence on the underwriting front, as well as a dedication to helping more consumers achieve their full borrowing potential while preserving the integrity and risk parameters of the business.
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Everyone knows about mortgage lenders from their ads and websites, but what about their classrooms and courses? Do educational differences impact borrowers, loan officers and even other lenders?
“You bet,” said Lori Grigg, executive vice president of human resources with Carrington Mortgage Holdings, LLC. “The lending system today is completely different from the system we had in place just a few years ago. There are now thousands of pages of new rules and regulations — and more keep coming. In the same way that you want a doctor or lawyer with the best possible background, borrowers also want lending professionals who are well-trained and knowledgeable with regards to current regulations.”
In fact, Carrington is investing in education. In a one-year period, Carrington professionals completed more than 12,000 compliance classes in their Learning Management System, which is named the Carrington Education Portal. According to Elearning! Magazine, the Carrington group of real estate and mortgage companies is a Learning!100 award winner, meaning it is among the top 100 organizations worldwide in terms of “learning culture, innovation or collaboration that drives performance.” This is the third national education award won by Carrington.
The company’s Education Portal is so advanced that in 2012 Carrington became the first mortgage company to win recognition during the prestigious SkillSoft Perspectives Awards. The Educational Portal delivers targeted courses and classes to individual associates. Carrington’s breadth of classes are kept up-to-date as standards change and are delivered to associates through the Education Portal.
Carrington Mortgage is one of 19 related residential real estate and mortgage companies that operate under the Carrington banner. This means that a full-time staff is available to maintain education systems under the direction of Alysia Vrolyk, the vice president of Learning and Development with Carrington Mortgage Holdings, LLC.
“We have an interactive educational system in place that responds to the needs of individual users,” said Vrolyk. “We use email, surveys and performance prizes to maximize system activity. We actually have ‘L&D Gurus’ on hand to answer questions and provide high-touch service and improve the user experience.”
Vrolyk continued, “Carrington Mortgage Services Mortgage Lending Division likes the Education Portal because it allows them to track the educational activities of their loan officers and use such data for compliance and annual performance reviews.”
Better Lenders, More Loan Options
At first, it might seem as though professional training is far removed from loan applications and mortgage closings, but that’s not the case.
“In any profession you can do the bare minimum to enter a field and maintain your license,” said Grigg. “However, we think borrowers do better when working with loan professionals who have access to advanced training. The benefit shows up when a borrower can be qualified for financing within a new rule or standard that another lender might not understand. In effect, better training means loan officers, underwriters and others in the lending process can be more productive.”
“For instance, many individuals with good credit have been unable to re-enter the housing market because they ran into hard times and faced a foreclosure or short sale. Many loan programs exclude such borrowers from new financing for as long as seven years. Now, however, there’s a new program introduced by HUD that can help qualified individuals, that experienced a foreclosure, short sale or bankruptcy, get a new mortgage in as little as 12 months. If you’re a borrower you want to be sure your lender knows about such programs, is educated on the qualifications required for the borrower and can introduce them to you.”
Gen Y and the Google Generation
So how does professional education work for lenders?
Carrington Mortgage Services is active in more than 40 states and each jurisdiction has its own way to license mortgage professionals; generally this means a set number of hours to first obtain a license and then additional training in the form of continuing education classes and seminars. The classes themselves can include traditional classroom instruction, webinars, online courses with an instructor and online self-study courses.
“A choice of classroom options and scheduling flexibility is very important in today’s workplace,” said Vrolyk. “It’s all part of the social transition we are seeing with Gen Y (those born after 1980 and into the 1990s) and Generation C (people born after 1993, digital natives who are exceptionally tech-savvy). Individuals in these age groups tend to regard computer learning as natural and normal, something as common as email and Twitter. Our Education Portal provides “just-in-time” learning 24 hours a day. When our associates need information, it is easily accessible from anywhere there is internet access. Flexibility is important because it allows associates to mix work, personal time and educational needs in the way that best meets their schedules and interests.”
Wall Street Reform
Under the Dodd-Frank Wall Street Reform Act, mortgage lenders must meet a large number of compliance standards, regulations designed to assure that borrowers have access to a wide range of financing options and that mortgage investors can buy loans from U.S. lenders that meet required benchmarks.
“Many of the new lending standards are overseen by the Consumer Financial Protection Bureau,” said Grigg. “As part of its compliance system, the CFPB requires lenders to maintain extensive and ongoing educational programs. We’re happy to do this because we think borrowers and investors will have more confidence in the mortgage origination as a result. With better training we can work to reduce investor risk while helping borrowers get the financing they want.”
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