More news on the non-QM loan front, with the new rules set to go into effect on Friday…
The top mortgage lender in the country, Wells Fargo, has reportedly assigned some 400 underwriters to look over loans that don’t comply with the new Qualified Mortgage rule.
These so-called non-QM loans will likely be kept on the bank’s books, meaning more scrutiny is needed to ensure they don’t get stuck with any bad loans.
At the moment, the bank sells off most its loans via the originate-to-distribute model. And seeing that most fit the guidelines of Fannie Mae, Freddie Mac, or the FHA, underwriting is fairly straightforward.
Wells Fargo Home Mortgage Executive VP Brad Blackwell told Bloomberg in a telephone interview that the new specialized group of underwriters will “execute different policies and report to separate bosses.”
They’ll be located in six different locations around the country and training is scheduled to be complete by year-end.
For the record, they’ll be able to originate both QM and non-QM loans.
Non-QM Loans Could Represent 5% of Bank’s Volume
Blackwell added that non-QM loans could represent as much as 40% of the bank’s non-conforming loan volume, or five percent of all mortgages originated.
Currently, Wells has roughly $72.4 billion in non-conforming loans (those that don’t meet the standards of Fannie Mae and Freddie Mac) on their books.
The company added about $14.5 billion in such loans during the six months ending in September. Chances are most are jumbo mortgages of the utmost quality.
The expectation is that more and more banks will dip their toes into the non-QM waters as refinance volume continues to dry up.
During the final month of 2013, mortgage application volume fell to its lowest point in more than 12 years, according to the Mortgage Bankers Association.
So loan originators will certainly need to come up with new ways to drum up business.
Of course, these offerings will probably be directed at the strongest borrowers first, including high-net worth individuals and those with pristine credit.
Over time, we might see expanded guidelines as investors pledge to buy non-QM loans, enabling lenders to pitch them with less fear.
And it could be big business. Raj Date, former deputy director of the CFPB, the group behind the QM rule, told Bloomberg the non-QM market could be a $400 billion per year business.
While that might be good for banks, one major concern is that quality could go out of the window as lenders look for new ways to make up for the shortfall, similar to the recent subprime bust. And then we’ll be back to square one.