New CFPB Mortgage Rules Take Effect in January: Year in Review
- All QMs must include points and fees less than or equal to 3% of the loan amount.
- Maximum loan term has to be less than or equal to 30 years.
- Federal regulators do not anticipate that a creditor’s decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution’s fair lending risk.
Despite efforts by credit union trade organizations and members of Congress to delay the implementation of new mortgage rules from the Consumer Financial Protection Bureau, they remain on track to take effect in January.
The CFPB’s ability-to-repay/qualified mortgage rule requires all QMs to include points and fees less than or equal to 3% of the loan amount but higher percentage thresholds are allowed for loan amounts less than $100,000. QMs must also have no risky features like negative amortization, interest-only or balloon loans and the maximum loan term has to be less than or equal to 30 years.
Under the general definition category of QMs, any loan that meets the product feature requirements and has a debt-to-income ratio of 43% or less is considered a QM. A loan that meets the feature requirements and is eligible for purchase, guarantee or insurance by a GSE, the FHA, USDA or VA is a QM in the GSE-eligible category, regardless of the debt-to-income ratio.
The small creditor category allows lenders with less than $2 billion in assets that originate 500 or fewer first mortgages to count each loan as a QM even if the borrower’s debt-to-income ratio is greater than 43%. The financial institution must keep the mortgages on its books.
The rule also includes a two-year transition period that gives small lenders the ability to make certain balloon loans that will count as QMs.
“Based on a survey of credit unions that CUNA conducted this fall, approximately 50% of credit unions are still undecided as to whether they will write only qualified mortgages, only non-qualified mortgages, or a mix of the two,” said Jared Ihrig, associate general counsel at the trade group.
“Credit unions have said that some will cease mortgage lending or limit their mortgage products and services until they can come into full compliance with the regulation,” Ihrig said.
“Many credit unions are highly dependent on third-party vendors to deliver system solutions required for compliance with the final rule, so the timing of compliance is obviously important here,” he added.
Michael Coleman, director of regulatory affairs at NAFCU, said the Ability-to-Repay Rule would result in increased recordkeeping for credit unions.
“The CFPB's final rule will definitely have an impact on credit unions; however, the extent of the impact is difficult to predict and will be different for each credit union,” he said. “With regard to the ability-to-repay portion of the final rule, the substantive provisions of the rule will not be a great change for credit unions; however, the rule will require increased recordkeeping.”
Coleman also predicted that the qualified mortgage final rule would have a significant effect on credit unions.
“On a policy level, credit unions will have to determine whether to offer non-qualified mortgages and assume the possible legal and compliance risk, as well as the potential for a non-active secondary market for non-qualified mortgages,” he said. “In regard to the substantive provisions, the definition of qualified mortgage includes a debt-to-income ratio that will prevent many credit unions from extending loans to many otherwise qualified member-borrowers.”
Next page: Ability-to-Repay Concerns
In October, the NCUA, the CFPB and three other federal regulators responded to creditor concerns over liability under the Equal Credit Opportunity Act for offering only qualified mortgages, as defined by the CFPB’s Ability-to-Repay Rule.
The rule implements parts of the Dodd-Frank Act that require creditors to make a reasonable determination that a consumer is able to repay a mortgage loan before issuing credit.
“The agencies do not anticipate that a creditor’s decision to offer only Qualified Mortgages would, absent other factors, elevate a supervised institution’s fair lending risk,” said the regulators’ statement. “There are several ways to satisfy the ability-to-repay rule, including making responsibly underwritten loans that are not Qualified Mortgages.”
Beginning on Jan. 10, the CFPB said, financial institutions have to assess a borrower’s ability to repay for “virtually all closed-end residential mortgage loans” and every QM.
The CFPB, the Fed, the NCUA, FDIC and the Office of the Comptroller of the Currency also said they recognize that the loans some creditors originate will already satisfy the Qualified Mortgage requirements.
“The agencies recognize that some creditors might be inclined to originate all or predominantly Qualified Mortgages, particularly when the Ability-to-Repay Rule first takes effect. The rule includes transition mechanisms that encourage preservation of access to credit during this transition period,” said their statement.
The agencies recommended that creditors continue to evaluate fair lending risk by “implementing effective compliance management systems” and closely monitoring their policies and practices.
The CFPB’s new mortgage servicing rules outline requirements for contacting delinquent buyers.
Servicers must attempt to contact borrowers each time they miss a payment to provide important information that can help get them back on track, for instance. The CFPB said this requirement could be met through contact with borrowers when evaluating them for loss mitigation or during collection calls.
“Even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act are still required,” said a CFPB bulletin.
Servicers must communicate with the borrower about requests for information, loss mitigation, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages and periodic statements.
A group of 26 U.S. senators wrote a letter to CFPB Director Richard Cordray in November urging him to delay the new mortgage rules.
Next Page: Compliance is Daunting
In the letter, Sen. Mark Begich (D-Alaska) and 25 Republicans said compliance with the rules before the deadline is a daunting task for credit unions and community banks.
“These proposed new rules and amendments present our nation’s financial institutions with thousands of pages of new regulations with which they must comply by January 2014,” said the letter dated Nov. 21, just before the Thanksgiving congressional recess.
“Our constituents advise that this compliance task will prove daunting for the nation’s community banks and credit unions with compliance officers,” the letter also said.
The senators said financial institutions have indicated to them that their software systems would not be ready for operation by the deadline.
“If financial institutions are unable to fully comply by the January 2014 deadline, it could lead to market distortions,” the letter said.
A group of six House Democrats and 112 House Republicans wrote a similar letter to Cordray at the beginning of November requesting a yearlong delay. The senators’ letter did not request a specific date.
NCUA Board Chairman Debbie Matz told Credit Union Times after the November board meeting that the NCUA would start to enforce the rules at the beginning of next year.
“NCUA, like the credit unions must follow the law and the law says that those regs, most of them will be going into effect in January of 2014 so of course, we will examine for them,” Matz said then.
NAFCU has asked the CFPB to not to enforce the rules for at least another year.
“In January 2013, the CFPB issued seven significant mortgage-related rules, each with an effective date in January 2014. The rules directly affect or indirectly impact every aspect of a credit union’s mortgage operations, including origination, servicing, loan originator compensation, escrow, insurance-related matters and appraisals,” NAFCU President/CEO Dan Berger said in a letter to the bureau.
In testimony before the Senate Committee on Banking, Housing and Urban Affairs, Bill Hampel, CUNA senior vice president and chief economist, also urged a delay.“Largely due to concerns with vendor readiness – a one-year extension of January’s compliance deadlines for CFPB’s new mortgage rules would be optimal,” he said on Nov. 5.
Read more about the new mortgage rules at CUTimes.com/MortgagesCFPB.