The new Dodd/Frank Qualified Mortgage rules will be implemented January 10th 2014. What are the new underwriting guidelines?  Beats me.  It appears the lenders are on-line trying to find someone who reads hieroglyphics to interpret the nearly 900 pages of rules.

“Taking out a mortgage is one of the biggest financial decisions a consumer will ever make,” Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said.  “Our new Know Before You Owe mortgage forms improve consumer understanding, aid comparison shopping and help prevent closing table surprises for consumers.”   The forms are so awesome and easy to read that their execution has been delayed until July, 2015.

This much is true: It will be a rocky mortgage ride until the lenders can apply the new rules and disclosures.  The government officials truly believe if clients sign pages and pages and pages of paperwork, the less likely they will go into foreclosure.

Also, if a lender does not follow the QM guidelines, Fannie Mae and Freddie Mac will not purchase the loan.  The lender will be stuck with it on their credit line and they will lose legal protection in case of default.

David Stevens, the President of the Mortgage Bankers Association, was quoted on CNBC, stating “the rules can be a good thing but it can also set up bad behaviors.”  This followed the announcement of the creation of new non-QM mortgage institutions.

The new leader of the bad-boy mortgage movement is, drum roll please: Raj Dave, none other than the former director of CFPB.  His new firm will provide alternative mortgage products, not following the QM guidelines.  The risk will be greater for the lender but it will probably be off-set with higher interest rates.  (And what does that say about his opinion of the Qualified Mortgage Act? Just asking….)

Over at Penny-Mac, former Countrywide executives are gearing up to originate non-QM mortgages.  And they certainly have had plenty of practice.

Implementing a one-size-fits all national program is like trying to fit my mother-in-law into a pair of size 6 jeans.  Something is going bust open and it won’t be pretty.  Anytime the laws become too strict, there is always someone willing to be a bad boy and accommodate a need.

2014 will be an interesting year in mortgages.  Fasten your seat belts.  We will soon find who fits and who doesn’t.

Diane Gerdes