There was a time when many of the expenses involved in putting a mortgage loan together were of very little interest to the lender. After all, the lender didn’t set these fees, nor collect them, nor pay them. They were all passed on to the borrower and cleared up at the closing table, if not before. However, now that lenders must carefully document that they’re not exceeding the CFPB’s fee cap, they are taking renewed interest in the numbers. If the lender isn’t careful, this rule can seriously impede the firm’s ability to profit.
In some instances, the lender can make a fee part of the interest rate (without rendering the APR too high), and the fee can be excluded from the cap. One way to do this is through lender paid mortgage insurance. Now Mortech has LPMI products built directly into our product and pricing engine, Marksman®. Now, Marksman supports both LPMI and borrower-paid MI. If a borrower’s paid single premium is used, the points and fees calculation includes any portion of the premium that exceeds the FHA upfront mortgage insurance premium.
From a compliance standpoint, if the lender adds the MI premium to the interest rate on the loan, the charge is completely excluded from the QM points and fees test. This is bound to be an attractive option for some lenders. This will be a better option for some than having the borrower pay the MI. If a borrower’s paid single premium is used, the points and fees calculation must include any portion of the premium that exceeds the UFMIP charged on FHA loans---which is currently at 1.75%, if the premium is refundable on a pro rata basis, or must count the entire premium if it does not.
Lender paid mortgage insurance doesn’t just benefit the lender. Paying the MI for the borrower up front also offers an advantage to many new homeowners because it will eliminate a monthly expense payment.
The problem, of course, is that the numbers have to work out right. You can’t let the interest rate get too high or the deal won’t qualify as a QM. And, as with all calculations built around these new rules, you can’t afford to be wrong. The good news is that all of these calculations are already built into modern product and pricing software like Marksman. With the click of a mouse, the lender can see what a difference lender paid MI can mean, both for their borrower and their bottom line profitability.