BOSTON — The Consumer Financial Protection Bureau's qualified mortgage rule that limits closing costs to 3% of theloan balance will have such a big impact on Midwestern creditunions, one Minnesota-based executive said he'd lose money if hecomplied.

Jeff Schwalen, president/CEO of the $918 million Hiway FCU,presented the problem during an afternoon breakout session on newmortgage rules Tuesday at NAFCU's 46^thAnnual Conferencein Boston.

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Schwalen said the 3% closing costs restriction won't cover hiscosts for mortgage loans under $135,000. That's a problem inMinnesota, where the average mortgage loan is just $180,000 – HiwayFCU is headquartered in St. Paul – so he's going to make non-QMloans.

For example, for a $50,000 mortgage loan, Schwalen said actualcosts in Minnesota are $2,613. However, 3% of that balance is just$1,500, resulting in a $1,113 net loss on the loan. A $135,000mortgage would bring in a maximum of $4,050 in closing costs, butcosts the credit union $75 more to make the loan.

In comparison, a $400,000 mortgage could generate up to $12,000in closing costs and still comply with the qualified mortgage 3%closing costs limit. That would produce a $3,307 net profit forHiway; however, mortgages of that size are more common on thecoasts than in the Midwest, he said.

“So you can see how this percentage thing works to ourdisadvantage,” he said. “But, it's an opening for us to fill thatvoid in the marketplace.”

Hiway FCU books approximately $10 million in mortgage loans permonth, and Schwalen said he currently holds about half of thoseloans on the books and sells the other half to Fannie Mae. When the GSEs stop purchasing non-QM loans next year, Schwalen saidhe'll hold the smaller dollar loans that aren't qualified mortgageson his books, because they will pose less interest rate risk.

Schwalen also said the 3% closing cost limit has also impactedhis credit union's wholly owned title company, which the60,428-member Hiway FCU launched to help save members money onclosing costs.

“But it's ironic, because currently titles are included as apart of that 3%,” he said. “So, you're really not going to helpyourself doing qualified mortgages.”

He added that the CFPB has said it is reconsidering whether toinclude title costs in the 3% closing costs limit, and not only isNAFCU advocating for titles to be included in a closing costexemption, his credit union is also contacting its legislators topush the issue.