Onsite Coverage: CU Exec Says Products, Not Underwriting, Caused Mortgage Meltdown
WASHINGTON — The Consumer Financial Protection Bureau’s qualified mortgage rule will make it harder for Americans to own a home and will undermine the economic recovery, witnesses told members of the Financial Institutions and Consumer Credit Subcommittee at a hearing Tuesday.
The hearing included a credit union witness: Jerry Reed, chief lending officer from the $5.3 billion Alaska USA FCU in Anchorage. Subcommittee members were particularly interested in Reed’s view that products and product features were responsible for the mortgage market meltdown, not underwriting standards.
In addressing a question from Rep. Patrick McHenry (R-N.C.), who asked how credit unions can lend with high loan-to-value ratios yet suffer few loan losses, Reed said borrowers defaulted during the financial crisis because they were steered into inappropriate loan products.
“I think the CFPB has done an excellent job in eliminating products, but they’re not doing us any good by restructuring underwriting criteria for people who are creditworthy,” he said.
Lawmakers were also intrigued by Reed’s opening remarks in which he expressed concern that regulators – specifically, NCUA examiners – would downgrade CAMEL ratings for credit unions that keep non-QM mortgages on their books.
A few subcommittee members asked another witness, Kentucky Department of Financial Institutions Commissioner Charles Vice, if that would indeed be the case.
“That is a concern,” Vice told Rep. Blaine Luetkemeyer (R-Mo.) in response to his question about the effect the QM rule would have on examinations. “We don’t know how it will be treated on exams going forward, and the industry is waiting with bated breath to see what will happen. My hope is that we don’t treat it adversely and instead look at loans on an individual credit basis.”
Reed also said lawmakers should create a permanent ability to sell non-QM loans to Fannie Mae and Freddie Mac. The Federal Housing Finance Agency announced last month that the two GSEs would not purchase non-QM loans beginning in January 2014, when the new rules take effect.
“I agree that spirit of (the Dodd-Frank Act) is where it needs to be, but needs to tweak some guidelines so we can retain flexibility, and that’s what we’re asking for here,” he said.
Vice added that if the CFPB is looking for a bright line to define in its QM rule, it needs to include different rules for different business models.
“There’s a difference between originating a mortgage to sell, compared to originating and keeping it,” the Kentucky state regulator said. “It’s a much different lending atmosphere. And as Mr. Reed said in his written testimony, there’s a lot less credit risk when loans are held in portfolio.”
Subcommittee Chairman Shelley Moore Capito (R-W.Va.) noted that the CFPB has amended the rule in an attempt to address concerns that it would constrict credit, but added that serious problems remain.