Non-qualified mortgage (non-QM) loans represented about 9% of total originations in 2016, down from 14% in 2015, according to a survey recently conducted by the American Bankers Association (ABA).
The survey further reveals that more than 30% of banks are restricting lending to QM segments only, and 45% are making non-QM loans only to target markets or with other restrictions.
High debt-to-income levels in addition to insufficient documentation continue to be the most common factors prohibiting mortgage loans from meeting QM standards, the survey finds.
“Non-qualified mortgage loans have been subject to heightened regulatory requirements and risk, reducing the willingness of banks to extend these loans to even the most creditworthy borrowers,” says Robert Davis, executive vice president of the ABA, in a statement. “Despite ongoing regulatory hurdles, community banks remain resilient in their ability to manage risk levels, increase productivity and introduce more first-time homebuyers into the market.”
Despite the regulatory challenges, banks have managed to show positive trends in loan production. For example, 16% of single-family mortgages went to first time home buyers in 2016, up from 15% in 2015 to reach a survey high.
Foreclosure rates, meanwhile, dropped more than a quarter percent to 0.37%, down from 0.63% in 2015.
According to the survey, heightened regulation remains a major concern for bankers followed by rising interest rates, compliance requirements under the TILA-RESPA Integrated Disclosures rule, and insufficient inventory in the housing market.