Housing Virginia Symposium 06/14/2013

 The content of this presentation represents contains information from independent 3 rd party firms. The statements made by the presenter are opinions and do not necessarily represent the views of the VBA, VMLA, or other related organizations. Nothing in the presentation represents legal advice. If you need specific advice (for example, medical, legal, financial or risk management) please seek a professional who is licensed or knowledgeable in that area.

1. Provide insight into the state of the banking /mortgage finance system 2. Discuss the impact of Dodd-Frank

 You can observe a lot, just by watching… -Yogi Bera

Source: FDIC

Source: Federal Reserve Recession* Revolving Credit (left axis) Unemployment Rate (right axis) Year-Over-Year Percent Change

Skyline Capital Strategies, LLC © All Rights Reserved 2012

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Source: Gallup

 65% of consumers do have a favorable opinion of their own bank  70% have never heard of Dodd-Frank  Only 3% believe most of TARP has been repaid Source: ABA

 “Climate is what we expect. Weather is what we get.” -Mark Twain

Richard Cordray

 Write rules, supervise companies, and enforce federal consumer financial protection laws  Restrict unfair, deceptive, or abusive acts or practices  Enforce laws that outlaw discrimination and other unfair treatment in consumer finance

 Ability to Repay  New Servicing Guidelines  MLO Comp Rules  New Appraisal Guidelines  HOEPA Rules  “High Priced” Mortgage Loan Escrow Rules

 QRM  RESPA/TILA Integration

 General Rule. A creditor must make a reasonable good faith determination that a consumer has the ability to repay the mortgage loan.

 A loan is a Qualified Mortgage if it does not have:  – Negative amortization  – Interest-only payments  – Balloon payment  – Term of more than 30 years  – Points and fees that exceed 3% of loan amount (higher thresholds for loans under  $100,000)

 Qualified Mortgage – Three alternative standards to meet requirements: 1. Total (“back-end”) DTI ratio cannot exceed 43%, 2. For now, a loan that is eligible to be purchased by Fannie Mae or Freddie Mac (or eligible to be insured/guaranteed by FHA or VA); 3. Certain loans with a balloon payment, made by small creditors

 A creditor that makes a Qualified Mortgage that is a “prime” loan (APR exceeds the APOR by 1.5% or less for first lien and 3.5% or less for second lien loan) has a “safe harbor” that it has complied, if challenged.

 A creditor that makes a Qualified Mortgage that is not a prime loan, has a “rebuttable presumption” that it has complied, if challenged.

 Lenders must retain at least 5% skin in the game UNLESS they make a “QRM” loan

 No balloon mortgages, interest only, negative amortization  Max DTI of 28 / 36%  80% Max Loan-to-Value for purchase loans  70% Max LTV for Refinance  No 60-day delinquency in past 2 years  Other specific provisions relating to mortgage servicing

Fair Lending Laws Disparate Treatment Disparate Impact Predatory Lending Unfair & Deceptive Practices

Alternative QRM Proposal QRM Proposal Pre-2008 Housing CrashInterest Only Sub-prime Market QM Prime (Less than 1.5% above APOR) QM-Non Prime (More than 1.5% above APOR) QM/QRM & Credit Availability GSE / Underwriting Changes/ Restrictions

 Two Key Forms ◦ The loan estimate ◦ The Closing Disclosure

 The lender must give the form to the consumer within 3 business days after consumer “applies” for a mortgage loan  Lender can’t charge fees until form is delivered  Lenders can still provide early estimates with disclaimer

 Replaces the HUD-1 and recently revised Truth-in-lending disclosure  Contains additional new disclosures per D/F  Must be delivered at least 3 Business days before closing  “Changes” require a new form to be delivered  Debate still over who can deliver (lender or settlement agent, or both)

 For Dodd/Frank, the direct implementation cost estimates range from $6- $22 billion for the whole banking industry.

 Annual labor hours to comply with current new rules under Dodd/ Frank: 2,260,631  Number of work weeks required to meet the burden of Dodd /Frank: 56,516  Number of Americans who will have to work all year, every year solely on Dodd/ Frank Compliance: Over 10,000 Source: Financial Services Committee Presentation – One Year Later: The Consequences of the Dodd-Frank Act

 Congressional Budget office estimates $27 billion cost to economy over next 10 years  Over all, the budgetary cost for Dodd-Frank will exceed $1.25 billion dollars in 2012 Source: Financial Services Committee Presentation – One Year Later: The Consequences of the Dodd-Frank Act

FY 2010FY 2011FY 2012 Total Budget9.2 Million142 Million329 Million Total FTE Source: Financial Services Committee Presentation – One Year Later: The Consequences of the Dodd-Frank Act

 2.9 Million job projected to be lost in the US (or 5.8 Million if reforms implemented rapidly)- Institute for International Finance  US GDP is projected to be 2.7% lower or 5.7% lower if implemented rapidly  Lending rates are projected to have increased by 4.7% or as much as 7% if reforms are implemented rapidly Source: Financial Services Roundtable June 2012

 OCC reported that Dodd/Frank margin rules on derivatives trades may require US banks to set aside $2 trillion in collateral Source: Financial Services Committee Presentation – One Year Later: The Consequences of the Dodd-Frank Act

 Higher Compliance Costs = higher rates and more fees  Otherwise credit-worthy borrowers denied access to credit solutions  Fewer providers & product options  More confusion over choices & options  Financial literacy has never been more important

 It is not necessary to change. Survival is not mandatory. ~W. Edwards Deming

Questions Virginia Mortgage Lenders Association Richard Owen SVP-VBA-MSI Executive Director, VMLA Ph: (804)