Central Oregonian

Loosening the lending rules

New regulations for ‘qualified mortgages’ could benefit small banks and credit unions

Jason Chaney

January 24, 2013

The Consumer Financial Protection Bureau recently proposed some regulations that will relax some of the lending rules for smaller mortgage providers.

The changes could benefit local mortgage companies and credit unions, but to what extent remains unknown.

“I don’t know how it is going to affect everybody or if it even will,” said Wendy Pangle, a loan officer with Evergreen Home Loans, in Prineville.

The Bureau proposed a 43-percent debt-to-income ratio ceiling for approving a “qualified mortgage.” Such loans require that a borrower provide financial information that proves they can repay the mortgage, which benefits lenders. At the same time, it benefits borrowers by prohibiting lenders to make loans that include negative amortization, interest-only, or balloon-payment features; terms that exceed 30 years; and points and fees that surpass 3 percent of the total loan amount.

Despite the debt-to-income restriction, the proposal includes an exemption for institutions with less than $2 billion in assets, provided they conform to the other three qualified mortgage requirements.

Pangle said that Evergreen, whose assets are less than $2 billion, only occasionally sees customers who are pursuing a loan with a 43 percent or higher debt-to-income ratio. Consequently, she doesn’t expect the new rules to affect their business all that much.

“We have been under such tight (lending) guidelines for so long that we are kind of used to not being able to do those,” she added. “Buyers know that things have tightened up so much that if they aren’t in a fairly solid position to buy, we don’t see those.”

Furthermore, the proposed rules would fail to address the declining inventory of available homes in Crook County, which Pangle says has slowed business at Evergreen. Since a new law requiring judicial foreclosures took effect in July 2012, bank-owned homes have taken longer to appear on the market, which has led to fewer homes on the local market.

“We still get lots of inquiries,” she said, “but people can’t find anything.”

These days, Pangle has seen a shift regarding the hurdles that borrowers have to overcome. Rather than excessive debt, customers more often face low credit scores because they have limited their use of credit.

“We are seeing more people with scores in the 500s that come in and want to buy a house,” she said. “They may not have any debt at all.”

Kyle Frick, vice-president of marketing and communications for Mid-Oregon Credit Union, does not anticipate a boost in business because of the debt-to-income exemption either.

“It really comes down to underwriting good loans,” he explained. “The debt-to-income ratio is one aspect along with the credit score and some other things.”

Nevertheless, he believes the exemption, by the mere fact that it relaxes the rules for them, will make a difference.

“To us, it’s a huge deal,” he said. “Certainly, with all of the new rules and regulations, the regulatory environment is becoming so oppressive that any kind of relief from those types of things is certainly a breath of fresh air . . . It gives us some room to operate a little bit more effectively.”

The new qualified mortgage rules are set to take effect on Jan. 10, 2014.