Mortgage Rules Questioned by Trades
CUNA and NAFCU both told the Federal Reserve that they support the Federal Reserve’s proposed definition of a qualified mortgage but want some changes to make certain parts of the rule less ambiguous.
Under the proposal, creditors can meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the consumer's income or assets.
A creditor will be able to make a “qualified residential mortgage,” which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization. Also, fees must be within specified limits and the creditor must underwrite the mortgage payment using the maximum interest rate in the first five years.
Both CUNA and NAFCU support the proposal to treat qualified mortgages as a legal safe harbor because it would give credit unions better legal protection.
CUNA Senior Assistant General Counsel Michael Edwards and NAFCU Assistant Associate Director of Regulatory Affairs Dillon Shea both wrote that that they support the aspects of the proposal allowing consumers to orally verify their employment status and letting the Pentagon’s employee database verify the employment status of military personnel. Though Shea said defense credit unions should be allowed to use other data bases if they have reliable ones.
Edwards praised the part of the proposal to let balloon payment mortgages be considered qualified mortgages if made by lenders in rural or underserved areas that have assets of less than $2 billion.
But both Edwards and Shea argued that the definitions of underserved and rural counties are too narrow. For example, the rule said a county is underserved if it only has one creditor that makes five or more mortgages.
Shea wrote that the proposal’s provisions about the compensation of loan originators is “unnecessarily broad.” And he criticized the “micromanagement” of the disclosure process and said bonus compensation shouldn’t be limited because it is being paid by the lender, not by the borrower.