Will the tumult of 2013 carry into 2014?

What a strange, tumultuous year 2013 was for the mortgage banking industry. Things started out great – the purchase market continued to make a comeback, and low rates kept the refinancing pipeline flowing through the first half.

But the market changed in June when the Federal Reserve announced that it might (but never did) start curtailing its bond-buying program come September, causing the markets to react and interest rates to rise from their historic lows. As a result, refinancing volume took a major dive. Although the purchase market continued to grow during the second half, it, too, lost some momentum due to rising rates and a dip in consumer confidence stemming from poor job growth. The end of the year saw the housing recovery significantly weakened but still in effect.

“The Year of Regulatory Anxiety and Confusion” might be an apt slogan for 2013, as mortgage lenders have been working nervously – and, by their own admission, somewhat blindly – throughout the year to get their systems, processes and people compliant with the Consumer Financial Protection Bureau’s (CFPB) new ability-to-repay/qualified mortgage (ATR/QM) rules going into effect in January.

The degree of impact from these new rules is still largely unknown, but most lenders agree it will shrink the pool of eligible borrowers and result in rising rates and fees. At the same time, lenders are nervous that the CFPB is going to start coming down hard on lenders that violate its rules – even though, in some cases, what constitutes an “error” is still not completely clear. As a result of the threat of fines, lawsuits and the dreaded buyback, lenders will not be inclined to venture outside of the QM framework, where they have the advantage of safe harbor, thus resulting in fewer options for borrowers.