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Mortgage lending's "new look"

Dodd-Frank Act radically changes the face of the business

What’s a “conforming loan” these days? Mortgage lenders heard answers on this and other pressing concerns during ABA’s Annual Convention in Boston, in mid-October.

Basically, said Joe Pigg, the new conforming loans will be those covered by the safe harbor provision of the new 5% risk retention requirements for mortgage lenders. That essentially means 30-year fixed and maybe some longer adjustables..

Pigg, ABA vice-president for housing and real estate policy, ticked off several other effects from the recently passed Dodd-Frank Act:

• Higher underwriting standards will result in fewer qualified borrowers, particularly among such groups as seasonal workers, part-time employees, and people who have had credit problems.

• Those people who do qualify will face higher costs because of the risk retention requirement (lenders must retain 5% of any mortgage sold into the secondary market), and other factors.

• For the same reason, fewer types of loan products will be available.

• Compliance with the Community Reinvestment Act will become harder.

• Loan officer compensation will become more of a challenge—yield-spread premiums are “done,” for the most part, and it will be very hard to originate loans through a broker network.

• Liability exposure will increase because penalties for Truth in Lending and other mortgage-related violations have been increased across the board.

• There will likely be fair-lending pushback because “we’re seriously restructuring credit under Dodd-Frank.”

Is there any good news?

Pigg said the only positive was that the Federal Housing Finance Agency is requiring Fannie Mae and Freddie Mac to mirror, not lead, the market with their policies and products.

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