"We at the league were really pleased with the process," Mary Sroufe, Washington Credit Union League director of regulatory affairs, said.
Sroufe explained state-chartered credit unions must now:
oGive residential mortgage applicants, within three days of the application, a one-page summary of the terms including fees, discount point and interest rates.
oHave policies and procedures in place demonstrating compliance with the Interagency Guidance on Nontraditional Mortgage Risks and the Statement of Subprime Mortgage Lending. If a credit union does offer nontraditional mortgages, there must be a policy covering underwriting standards, internal control and consumer disclosures.
oEstablish a policy stating that the credit does not engage in lending covered by the guidelines if it does not.
oAdvise consumers of the seriousness of the situation and the resources available to them in the case of foreclosure.
Sroufe indicated that Washington's state-chartered credit unions won't need to change much, since credit unions have generally avoided the practices seen as sparking the nation's current mortgage problems. It's a matter of drafting appropriate policies and the disclosure form.
At first glance the new requirements seem like a response to today's headlines. But Sroufe said a task force on mortgage lending was actually formed a couple years ago. That group included representatives from the banking industry, credit unions and consumer groups. Concern focused on nontraditional mortgages, low-doc and no-doc loans, subprime lending and the foreclosure process.
The task force submitted a recommendation to the governor, who then sought legislation. That legislation had the support of banks and credit unions, and passed.
However, the bill went into effect before state regulators could draft recommendations. Finally, in late November this year, regulations were finalized and lenders-including credit unions-can now look at what actually has to happen and take steps to comply.
"The bill might say something like financial institutions must provide a one-page summary disclosure form within a short period of time after the application. But nobody had figured out what material terms had to be covered, what the format would be, what exactly a short time after the application would be, and those types of questions," Sroufe said.
"Credit unions did have a stake in the regulation drafting as well as the law itself. Our state regulators had a very open process, with hearings and comments from the financial industry and consumers."
For example, the proposed rules indicated the Department of Financial Institutions would create a model disclosure form. The league suggested DFI indicate use of the model form would constitute a safe harbor for financial institutions chosing to adopt it. The league also applauded the fact DFI had pulled together a list of specific subjects that must be included in a credit union's mortgage policies and procedures.
In the next legislative session the league will be keeping an eye on potential state requirements concerning licensing of mortgage brokers. It's too early to know exactly what form any actual legislation may take, but any proposed law could well mirror federal legislation.