The Rundown

• All QMs must include points and fees less than or equal to3% of the loan amount.
• Maximum loan term has to be less than or equal to 30years.
• Federal regulators do not anticipate that a creditor'sdecision to offer only Qualified Mortgages would, absent otherfactors, elevate a supervised institution's fair lendingrisk.

Despite efforts by credit union trade organizations and membersof Congress to delay the implementation of new mortgage rules fromthe Consumer Financial Protection Bureau, they remain on track totake effect in January.

The CFPB's ability-to-repay/qualified mortgage rule requires allQMs to include points and fees less than or equal to 3% of the loanamount but higher percentage thresholds are allowed for loanamounts less than $100,000. QMs must also have no risky featureslike negative amortization, interest-only or balloon loans and themaximum loan term has to be less than or equal to 30 years.

Under the general definition category of QMs, any loan thatmeets the product feature requirements and has a debt-to-incomeratio of 43% or less is considered a QM. A loan that meets thefeature requirements and is eligible for purchase, guarantee orinsurance by a GSE, the FHA, USDA or VA is a QM in the GSE-eligiblecategory, regardless of the debt-to-income ratio.

The small creditor category allows lenders with less than $2billion in assets that originate 500 or fewer first mortgages tocount each loan as a QM even if the borrower's debt-to-income ratiois greater than 43%. The financial institution must keep themortgages on its books.

The rule also includes a two-year transition period that givessmall lenders the ability to make certain balloon loans that willcount as QMs.

“Based on a survey of credit unions that CUNA conducted thisfall, approximately 50% of credit unions are still undecided as towhether they will write only qualified mortgages, onlynon-qualified mortgages, or a mix of the two,” said Jared Ihrig,associate general counsel at the trade group.

“Credit unions have said that some will cease mortgage lendingor limit their mortgage products and services until they can comeinto full compliance with the regulation,” Ihrig said.

“Many credit unions are highly dependent on third-party vendorsto deliver system solutions required for compliance with the finalrule, so the timing of compliance is obviously important here,” headded.

Michael Coleman, director of regulatory affairs at NAFCU, saidthe Ability-to-Repay Rule would result in increased recordkeepingfor credit unions.

“The CFPB's final rule will definitely have an impact on creditunions; however, the extent of the impact is difficult to predictand will be different for each credit union,” he said. “With regardto the ability-to-repay portion of the final rule, the substantiveprovisions of the rule will not be a great change for creditunions; however, the rule will require increasedrecordkeeping.”

Coleman also predicted that the qualified mortgage final rulewould have a significant effect on credit unions.

“On a policy level, credit unions will have to determine whetherto offer non-qualified mortgages and assume the possible legal andcompliance risk, as well as the potential for a non-activesecondary market for non-qualified mortgages,” he said. “In regardto the substantive provisions, the definition of qualified mortgageincludes a debt-to-income ratio that will prevent many creditunions from extending loans to many otherwise qualifiedmember-borrowers.”

Next page: Ability-to-RepayConcerns

In October, the NCUA, the CFPB and three otherfederal regulators responded to creditor concerns over liabilityunder the Equal Credit Opportunity Act for offering only qualifiedmortgages, as defined by the CFPB's Ability-to-Repay Rule.

The rule implements parts of the Dodd-Frank Act that requirecreditors to make a reasonable determination that a consumer isable to repay a mortgage loan before issuing credit.

“The agencies do not anticipate that a creditor's decision tooffer only Qualified Mortgages would, absent other factors, elevatea supervised institution's fair lending risk,” said the regulators'statement. “There are several ways to satisfy the ability-to-repayrule, including making responsibly underwritten loans that are notQualified Mortgages.”

Beginning on Jan. 10, the CFPB said, financial institutions haveto assess a borrower's ability to repay for “virtually allclosed-end residential mortgage loans” and every QM.

The CFPB, the Fed, the NCUA, FDIC and the Office of theComptroller of the Currency also said they recognize that the loanssome creditors originate will already satisfy the QualifiedMortgage requirements.

“The agencies recognize that some creditors might be inclined tooriginate all or predominantly Qualified Mortgages, particularlywhen the Ability-to-Repay Rule first takes effect. The ruleincludes transition mechanisms that encourage preservation ofaccess to credit during this transition period,” said theirstatement.

The agencies recommended that creditors continue to evaluatefair lending risk by “implementing effective compliance managementsystems” and closely monitoring their policies and practices.

The CFPB's new mortgage servicing rules outline requirements forcontacting delinquent buyers.

Servicers must attempt to contact borrowers each time they missa payment to provide important information that can help get themback on track, for instance. The CFPB said this requirement couldbe met through contact with borrowers when evaluating them for lossmitigation or during collection calls.

“Even if delinquent borrowers have instructed servicers to stopcommunicating with them pursuant to the FDCPA, certain notices andcommunications mandated by the CFPB servicing rules and theDodd-Frank Wall Street Reform and Consumer Protection Act are stillrequired,” said a CFPB bulletin.

Servicers must communicate with the borrower about requests forinformation, loss mitigation, error resolution, force-placedinsurance, initial interest rate adjustment of adjustable-ratemortgages and periodic statements.

A group of 26 U.S. senators wrote a letter to CFPB DirectorRichard Cordray in November urging him to delay the new mortgagerules.

Next Page: Compliance is Daunting

In the letter, Sen. Mark Begich (D-Alaska) and 25 Republicanssaid compliance with the rules before the deadline is a dauntingtask for credit unions and community banks.

“These proposed new rules and amendments present our nation'sfinancial institutions with thousands of pages of new regulationswith which they must comply by January 2014,” said the letter datedNov. 21, just before the Thanksgiving congressional recess.

“Our constituents advise that this compliance task will provedaunting for the nation's community banks and credit unions withcompliance officers,” the letter also said.

The senators said financial institutions have indicated to themthat their software systems would not be ready for operation by thedeadline.

“If financial institutions are unable to fully comply by theJanuary 2014 deadline, it could lead to market distortions,” theletter said.

A group of six House Democrats and 112 House Republicans wrote asimilar letter to Cordray at the beginning of November requesting a yearlong delay. The senators' letter did notrequest a specific date.

NCUA Board Chairman Debbie Matz told Credit Union Timesafter the November board meeting that the NCUA would start toenforce the rules at the beginning of next year.

“NCUA, like the credit unions must follow the law and the lawsays that those regs, most of them will be going into effect inJanuary of 2014 so of course, we will examine for them,” Matz saidthen.

NAFCU has asked the CFPB to not to enforce the rules for atleast another year.

“In January 2013, the CFPB issued seven significantmortgage-related rules, each with an effective date in January2014. The rules directly affect or indirectly impact every aspectof a credit union's mortgage operations, including origination,servicing, loan originator compensation, escrow, insurance-relatedmatters and appraisals,” NAFCU President/CEO Dan Berger said in aletter to the bureau.

In testimony before the Senate Committee on Banking, Housing andUrban Affairs, Bill Hampel, CUNA senior vice president and chiefeconomist, also urged a delay.“Largely due to concerns with vendorreadiness – a one-year extension of January's compliance deadlinesfor CFPB's new mortgage rules would be optimal,” he said on Nov.5.

NEXT STEPS
Read more about the new mortgage rules at CUTimes.com/MortgagesCFPB.