Though 80% of bankers surveyed by the American Bankers Association expect the new rules will reduce mortgage credit, only 2% said the rules would force them to stop lending altogether. Thirty-six percent of bankers surveyed said they will make no changes to their underwriting practices, while 33% will restrict lending only to qualified mortgages, the survey found. Another 29% said they will originate QM loans with non-QM loans limited to targeted markets only.
Before the rule took effect in January, many bankers had said that they would not make loans that did not meet the QM requirements.
The ultra-safe “qualified mortgages” give lenders the most protection from legal liability and require that borrowers have a debt-to-income ratio no greater than 43% (though Fannie Mae, Freddie Mac and the Federal Housing Administration all have been given a reprieve from that requirement). Loans that fall outside the new rules are considered non-QM and while lenders still have to document a borrower’s ability to repay, those loans have fewer legal protections.
Despite the risks, many lenders have calculated that certain loans that fall outside of QM are worth making and holding on their balance sheets. Bank of America, JPMorgan Chase and Wells Fargo have all said they will continue to originate and hold non-QM, interest-only loans to high net-worth borrowers.
Sixty-six percent of the more than 200 respondents to the ABA’s 21st Annual Real Estate Lending Survey also said that the ability-to-repay rule would have a moderate impact on the availability of credit. Twenty-four percent said the impact would be negligible and 10% said it would be severe.