One In Five Mortgages Would Not Meet Safe Harbor, Test Shows

One in five mortgages issued today would not qualify for safe harbor under Dodd-Frank, according to a new report from ComplianceEase, which offers regulatory compliance solutions to the financial services industry.

The company says it came to the conclusion after running recent loan data through its new ComplianceAnalyzer solution, which automatically audits loans for compliance with the Dodd-Frank Act, including identification of the highest-impact barriers to meeting the qualified mortgage (QM) standard.

The report finds that more than half of such loans have fees that exceed the new 3% points and fees threshold, while the remainder have annual percentage rates (APRs) that are too high to qualify for the safe-harbor classification. Based on current guidelines, these loans would not be eligible for purchase, insurance or guarantee by government-sponsored enterprises (GSEs) or government agencies.

In addition, about 3% of the loans that were used as samples in the study that were originated as QM loans would, in fact, need to be re-classified as ‘high cost’ (i.e., non-QM) loans, which are subject to restrictions in the Home Ownership and Equity Protection Act (HOEPA). On average, those loans would exceed the new HOEPA points and fees threshold by more than $1,000, the firm reports.

‘We used ComplianceAnalyzer, together with proprietary loan data modeling, to simulate current lending patterns under the forthcoming rules,’ says Jason Roth, senior vice president of product development at ComplianceEase, in a release. ‘The results have given us a good idea of the impact that the new rules and, in particular, the new thresholds will have when January comes around.’

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