The CFPB Announces 2022 HOEPA/QM Thresholds
2021 Inflation means higher thresholds than 2020
The Consumer Financial Protection Bureau (CFPB) is required to calculate the dollar amounts annually for several provisions of Regulation Z.
The CFPB final rule revises, as applicable, the dollar amounts for provisions implementing TILA and amendments to TILA, which include the Home Ownership and Equity Protection Act of 1994 (HOEPA) and Qualified Mortgage (QM). The CFPB adjusts these amounts, where appropriate, based on the annual percentage change reflected in the appropriate Consumer Price Index (CPI) in effect on June 1, 2021.
- If the total loan amount for a transaction is $22,969 or more, and the points-and-fees amount exceeds 5 percent of the total loan amount, the transaction is a high-cost mortgage.
- If the total loan amount for a transaction is less than $22,969, and the points-and-fees amount exceeds the lesser of the adjusted points-and-fees dollar trigger of $1,148 or 8 percent of the total loan amount, the transaction is a high-cost mortgage.
General Qualified Mortgage
For qualified mortgages under the General QM loan definition, the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2022 will be:
- 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $114,847 (up from $110,260)
- 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $68,908 but less than $114,847
- 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $68,908
- 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $114,847
- 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $68,908
- 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $68,908.
Qualified Mortgage Fee Threshold
For all categories of QMs, the thresholds for total points and fees in 2022 will be 3 percent of the total loan amount for a loan greater than or equal to $114,847 (up from $110,260)
For Loan Amounts under $114,847
- $3,445 for a loan amount greater than or equal to $68,908 but less than $114,847
- 5 percent of the total loan amount for a loan greater than or equal to $22,969 but less than $68,908
- $1,148 for a loan amount greater than or equal to $14,356 but less than $22,969
- 8 percent of the total loan amount for a loan amount less than $14,356
The 2022 adjustment is based on the Consumer Price Index for All Urban Consumers (CPI-U) index in effect on June 1, which was reported by the Bureau of Labor Statistics (BLS) on May 12, 2021, and reflects the percentage change from April 2020 to April 2021.
The 2022 adjustment reflects a 4.2 percent increase in the CPI-U index from April 2020 to April 2021 and is rounded to the nearest whole dollar amount for ease of compliance.
The changes will impact deliveries to FNMA and FHLMC after January 1, 2022.
Behind the Scenes
The Taper Tantrum
Watch Those Refinances, No On and Off Switch for Rate Changes
To Explore Strange New Worlds, to Seek Out New Life and New Civilizations, to Boldly go Where no Person has Gone Before :).
Last week, the Journal broached the unpleasant specter of rising rates.
You can’t blame originators for allowing the refinances to absorb their focus. But, of course, it’s hard to ignore the siren call of the refinance market.
However, MLOs mustn’t ignore the predicted decline of refinance volume. FreddieMac’s latest forecast projects that 2022 refinance volume will fall to 38% of the 2021 market. FreddieMac based the latest forecast on a 50 bps increase to fixed rates by December 2022. That is to say, the forecasted 2022 refinance volume shall be 38% of the 2021 refinance volume based on modest rate increases in 2022.
That’s an astounding drop in volume. Should mortgage rates move up sooner or higher than the current forecast, the contraction may be more severe.
A 100 basis points rise by the end of 2022 (or a lesser but sooner rise of 50 basis points) will have an even more significant impact on the 2022 refinance volume than a current forecast. Has anyone noticed that as the months go by, the GSE’s continually revise their 2022 forecast downward, never upward?
One might wonder if the GSE’s repeated revisions are based on new information, or instead, they are letting off a little forecast steam at opportune moments. Beyond refinancing, the purchase market is far from immune to more substantive rate changes.
This variability with interest rates means now could be the time to rethink your business.
In last week’s issue, the Journal used the success story of Cirque du Soleil as an example of business reinvention. During the ’90s, the traditional circus act was clearly in decline. The age of PlayStations and Xbox was dawning and soon to be in full bloom. Yet, amid dwindling interest in the circus, Cirque du Soleil launched a fabulously successful circus reinvention.
What steps can you take to reinvent your business? Start with your current referral sources. At the same time you are reimagining your business, don’t leave current referral partners out of the mix. Simultaneously and in concert with your business reinvention, solidify your current value proposition to current customers by surging business value to them.
Begin with reflections on your current business. Comprehend and describe your current sources of business. Primary referral partners are a good place to start, e.g., real estate agents, builders, financial planners, attorneys, relocation companies, past customers, consumer direct. Build a list of where and how you get your business. This list is a fine place to begin reimagining your value propositions.
Firstly, you will hold on to what you’ve got because the competition will be gunning for your customers in the coming year. Second, not only will you hold onto your current customers, you’re going to increase their support for your business. To increase support from current customers, find out what you can provide to increase your value to them. Third, it would be best to limit implementations to whatever is immediately possible. You are building a Blue Ocean, not trying to boil the ocean.
Suggested Blue Ocean changes are incremental and add immediate value to your business. The smaller your implementations, the more likely you are going to execute the changes. Notably, the sooner and more conspicuous is the fruit of your efforts by making smaller, more manageable changes.
Boil The Ocean implementations are wholesale changes requiring significant assumptions about what will work. Based on significant assumptions, these lofty visions unnecessarily risk much effort relative to real gains. There is no need to Boil The Ocean. Yet, there is nothing wrong with lofty ambitions or far-reaching visions of success.
Dream big, take small steps to get there. The success of Boil The Ocean implementations may be challenging to measure. Frequently, Boil The Oceans requires significant upfront investments and resources. The bigger the implementation, the lower the efforts efficiency and measurable benefits.
What can you implement by this time next week? Keep the implementations smaller. Furthermore, when the bite-sized implementation fails (and you must expect a few failures), that becomes a quick lesson learned with slight damages. Be agile. Gain immediate values. The devil is in the details – how you get there.
Many businesses will attempt to improve the value proposition by price cuts. Price cuts alone are like taking a chainsaw to the wedding cake.
Here is what you must discover and understand. What can you do in the next week to help your customers achieve their goals? Put plainly, get your focus on customer needs and objectives. Next, focus on the implementations you can achieve in the next week.
Get beyond the obvious. Think outside the box. Discard your assumptions and find out how you can help them visualize, articulate and reach their goals.
Let’s get back to your sources of business. First, categorize or group these key stakeholders by a business group or domain. For example, start with the most apparent category — real estate agents. Let’s imagine Chris, Sam, and Jackie are real estate agents currently sending you referrals.
Whatever taxonomy you create is of lesser importance. Just get all your sources of business into some group. For example, your domains could include “real estate” for builders and real estate brokers, “finance” for financial planners, CPAs, and stockbrokers, “borrowers” for past customers.
Keep in mind. You are looking for more than loan leads from your key stakeholders. Key stakeholders can also open the door to better ways to do business.
People have very different success criteria. Many originators assume that our referral partners are consumed with selling more units or making more money. That might be a success criterion but not the success criteria, big difference. The more you understand your customer, the more services and values you can provide to them.
Tip of the Week
Project Management Skills for Loan Origination – Influence and Communication
In this series on communication, a subtopic of our project management skills for mortgage origination, the Journal posited that influence was essential for effective communication. Influence, or your influence on the message recipient, sometimes called social capital, provides the lens through which the message receiver processes your communications.
Effective communications revolve around your credibility, likability, and trustworthiness and vice versa. These traits influence the way your messages are received and decoded.
Enhance the effectiveness of the communication by first ensuring the recipient has ears to hear your message, then give them the message you want them to receive. The greater the social capital, the more likely the recipient will receive your message with ebullience, sympathy, and concern. The recipient’s favorable disposition towards the sender requires that the sender influence the recipient in this regard.
There are several ways to create influence. An oldie but still highly relevant book on influence is Robert Cialdini’s book “Influence, The Psychology of Persuasion.” However, Cialdini’s focus is more on influence related to marketing. This week, the Journal is sticking to the subject of influence related to communications, mainly as influence is related to interactive multi-modal (face-to-face, video, and teleconferencing) communications.
No surprise, a significant contributor to communication effectiveness is the message recipient’s regard for the one sending the message. If the intended recipients think the sender is a dirtbag, all the sender communications go through that prism.
The subject of influence brings the Journal reader back to the prospect buying process. Effective communication involves influence; using the baseball metaphor from the buying process series – first base with the message recipient goes a long way with communications. First base implies the recipient respects, likes, admires, or otherwise trusts you. What is the fastest way to engender these sentiments? Like them before they like you. People have a hard time disliking someone who likes and respects them. There are many ways to demonstrate our respect and care in communications. The Journal tackled a few of these methods in the buying process series.
People have different communication styles. The sender of the message must be aware of and sensitive to the communication styles of the key stakeholders. Next week, in the Journal, we shall use a simple tool to help identify the key stakeholder’s communication style. There are endless tools and variables one could consider—no need to get too fancy. Part of the benefit of attempting to identify the communication style of key stakeholders is the deliberate focus necessary when contemplating effective communications. That deliberation and analysis are better than nothing – which is the default for most.
Start simple with key stakeholders. Go with a more accessible assessment, your boss. Maybe a processor or one of your loan officers.
Next week the Journal unpacks the tells for different communication styles.
2021 CE – Sneak Preview
Is now a good time to go long or short on the stock market? Is the residential real estate market overbought? Time to sell? Are you confused about where to invest your hard-earned money? Stop messing around and make the best investment you will ever make – invest in yourself. Yes, that means professional development. Be the best version of yourself that you can be. Expand your horizons. Why not get on one or more of the developing market waves?
Are you interested in Low-Moderate-Household-Income lending? Do you wonder about getting started with loan manufacture requiring alternative credit (nontraditional credit)? Have you heard all the horror stories about collaborations with Housing Finance agencies? Grab the bull by the horns and take some chances. Join us for a primer on getting started with these types of loan programs.
CE should be an opportunity for professional development. That you might expect – but we promise that you will have fun at the same time. So how can you enjoy hours and hours of law, ethics, and regulation? Well, swing on by the LoanOfficerSchool.com 2021 continuing education classes and find out!