#WhackedOutWednesday – QM Fails – Really?! You have a 400,000 dollar loan the borrower can’t even obtain any rate on the ratesheet? Really?! Yep, this stuff happens if you have a comp plan accustomed to Government loans. If your comp plan is 2.75 and you’re doing a cashout conventional loan that is getting killed by LLPA’s (loan level pricing adjustments) then odds are you could be in this situation too. Even with a 680+ FICO, depending on how the break down goes.
I want to share something today, a best practice tip and a way to look at this stuff to help you Broker’s and LO’s in TPO to avoid this mess. If you’ve been in mortgages long enough more than likely you’ve had some QM fail happen.
**Compliance disclosure – JUST FYI – You’re NOT supposed to just be able to switch from Lender paid comp, to borrower paid comp just for the purpose of passing QM. It specifically states that in the rules/laws. (I can show you if needed) Your Change of Circumstance must be recorded as something else. FYI
Ok now that’s out of the way, let’s look at a RATE SHEET! If you see the top of the rate sheet at the top rate pays back “less” than the rate below it, then the rate that pays back the most is the rate considered the “top”. Second, the SPREAD between the top rate and the next eighth below it will change pricing, but most likely “less” than a whole point. You have to go down probably two or three eighths’ in rate in order to have a whole point difference between the TOP rates premium. The KEY TO UNDERSTAND is that rate where the spread is more than 1 point (from the top rate) is where you can start to bonafide a discount point.
The simple way to look at this is to take the indifference after the bonafide discount point and add that to your comp plan. So if the rate picked was a COST of 1.125 for example… Your comp is 2.75, and as long as the (base premium before adjustments) spread between the top rate and the rate your picking is more than a point, you can bonafide a discount. So for example, 2.75 + .125 = LESS THAN 3. Assuming you have bought out the underwriting fee and there are no affiliate fees in the equation, this would pass QM.
Remember in order to bonafide a discount point you can NOT be at the top or the bottom of the rate sheet. (meaning highest or lowest rate) Sometimes I don’t even see how this is good for a borrower, but the reality is it is tied to the comp plan. If you are in the situation where the comp you have with that lender is higher, then watch or do a QM test PRIOR to submitting so you know what your up against. BEST ADVICE I CAN GIVE. Do not wait until the loan is submitted or even attempt to lock in process without having an idea of how this plays out. IN FACT, MOST LENDERS have a FREE QM test available on their “portals” that you can run this test as you register the loan. I suggest you know how to do this. Problem avoided. If you have questions about this hit me up, I’d love to help you understand how this works. In some cases it is #WhackedOUT – But hey these are the rules we have to play by. Lower your comp if you’re doing conventional loans, they don’t have a spread like the Govie loans do.
Another “argument” is this is why you have the ability to set up multiple different comp plans with different lenders. NO, in my opinion you do NOT need to have the same comp across the board with all lenders. The law doesn’t say that. (for Broker’s of course). What it does say is that each LO (MLO) should be paid the same based on type of loan. And be incentivized based on volume. But that is another post for another day. – #SellWell