The NCUA on Thursday issued a regulatory alert to federally insured credit unions regarding the CFPB’s qualified mortgage rule, which goes into effect in one week.
“If your credit union makes closed-end consumer loans secured by a dwelling, you must comply with CFPB’s new Ability-to-Repay/Qualified Mortgage Rule for loan applications you receive on or after Jan. 10, 2014,” said the alert issued by NCUA Chairman Debbie Matz. “The rule requires you to assess a member’s ability to repay for virtually all closed-end residential mortgage loans secured by the member’s dwelling and provides your credit union with certain protections from legal liability for compliance with the rule.”
The rule requires federally insured credit unions to make a reasonable, good-faith determination that a member will be able to repay a covered mortgage loan before a transaction occurs. The ATR/QM rule “applies to loans made to members secured by residential structures that contain one to four units, including an individual condominium unit, cooperative unit, mobile home, and trailer if it is used as a residence,” the NCUA said.
“You must consider, at a minimum, eight specific underwriting standards when making an ATR determination. In addition, you must verify the information you rely on to make the ATR determination,” said the alert.
A credit unions must also retain evidence that it complied with the ATR/QM rule for a minimum of three years after the transaction takes place.
The underwriting standards include current or expected income/assets the member will use to repay the loan, current employment status, monthly payments for mortgage, property taxes and insurance the member is required to buy. Other costs such as homeowner association fees, support obligations, credit history and monthly debt-to-income ratio are also considered.
“The ATR/QM rule provides a legal presumption that creditors originating QMs have complied with ATR requirements. This presumption gives you more certainty about potential legal liability if a member claims in court you failed to meet the ATR requirements in making the loan,” said the alert.
The NCUA also noted that federal credit unions are barred from charging prepayment penalties on any loan. However, state-chartered credit unions are able to include a prepayment penalty option permitted by applicable law only for fixed-rate or step-rate QMs that are not higher-priced.