It will not be enough for a credit union to stand up in courtand claim a safe harbor if one of their loans is being challenged.They are going to have to be able to show what they have done andwhy they did it that way.”

Shoring up qualified mortgage safe harbor provisions couldrequire credit unions to double down on their traditional strengthsand sharply improve documentation, according to legal experts.

The Consumer Financial Protection Bureau's mortgage regulationsoffer a measure of legal protection from consumer lawsuits forlenders that fund qualified mortgage loans. So-called QM loans areunderwritten to the regulation's standards, including aloan-to-value ratio that ensures the borrower's ability torepay.

But legal experts said credit unions preparing for theimplementation of those rules should also take steps to reinforcethe regulation's safe harbor provisions.

Credit unions need to take these steps because no one reallyknows how much deference a court will show these regulations, orhow strongly they might stand up in court, the experts said.

“We really don't know how courts are going to treat these partsof the regulations,” said Steve Van Beek, NAFCU vice president ofregulatory compliance. He was referring to both the safe harboroffered for qualified mortgages that are no more than 1.5% over anindex of annual percentage rates maintained by the Federal Reserve,and the rebuttable presumption offered for higher pricemortgages.

Van Beek said that in one scenario, the safe harbor shouldprovide credit unions and other mortgage lenders with the sort ofprotection that should forestall a plaintiff's attorney from evenraising questions about the way the loan was made.

“It should be a slam dunk for the institution,” he said. “Butit's a free country, and everyone has a right to sue.”

And, he said, there are no guarantees a court will honor therules.

Jared Ihrig, associate general counsel for CUNA, agreed that agreat deal is up in the air until courts actually begin to look atthe rules. And, he pointed out that the rule's effective date isn'tuntil January 10, 2014.

“We really won't know how these things are going to shake outuntil after credit unions have lived under them for a while,” Ihrigsaid, agreeing with Van Beek.

But even without knowing what attitude courts might take towardthe protections, both Van Beek and Ihrig pointed to several thingsthat credit unions can do to strengthen their positions.

First, credit unions should improve documenting what they do andwhy they do it when making mortgage loans, particularly when makingjudgments.

“It will not be enough for a credit union to stand up in courtand claim a safe harbor if one of their loans is being challenged,”Van Beek said. “They are going to have to be able to show what theyhave done and why they did it that way.”

Ihrig agreed, adding that compliance record keeping has alwaysbeen important, but the CFPB's mortgage regulations will increasethat emphasis.

Robert Shapiro, a principal with the Maryland-based law firmOffit Kurman, and former special adviser to the CFPB, agreed withVan Beek and Ihrig about the importance of documentation and on theuncertainty hanging over the question until courts begin to hearsafe harbor cases.

But Shapiro also said credit unions could strengthen safe harborprovisions by maintaining and improving their communications andworking with their members.

“This is not the time to cut back on member service,” hesaid.

Shapiro, who said he is a member of the 5,700-member, $52million HUD FCU, observed that both credit unions and communitybanks need to keep building on their strengths as relationshipbanking institutions, and keep lines of communication open withmembers to resolve any potential conflicts before they wind up incourt.

In many ways, if a matter goes to court at all, smallinstitutions have already lost, Shapiro said, due to the expenseand trouble litigation brings.

He also urged credit unions to maintain their lines ofcommunication with the institutions which may eventually purchasetheir mortgages. Shapiro pointed out that while the safeharbor provisions are generally thought to protect against legalchallenges from consumers, they can also extend to potentialchallenges from loan purchasers should the loandefault.