Across the nation, credit unions have been preparing to complywith several new Consumer Financial Protection Bureau mortgagerules that will take effect on Jan. 10.

The ability-to-repay/qualified mortgage rule and mortgageservicing rules have posed the greatest challenges for creditunions, according to Jared Ihrig, associate general counsel atCUNA.

“We continue to worry about the compliance effective dates butwe have no reason to believe that they will be postponed by theagency,” Ihrig said.

He added, “It's our belief that credit unions are going tocontinue making decisions about what they are going to do regardingtheir mortgage products and services up until the effective dateswith respect to whether they are going to write only qualifiedmortgages or a mixture of non-qualified mortgages as well asqualified mortgage loans.”

Stacey Jorgensen, compliance specialist at the $863.9 million IHMississippi Valley Credit Union in Moline, Ill., said her creditunion began preparing for the January 2014 changes in the summer of2013.

“In order to comply with the CFPB's regulations, we have had to make numerous procedurechanges that affect our operation and frontline staff,” Jorgensensaid. “With the procedure changes, we have had to train our staffon these changes as well. Lastly, we have been working on updatingall of our lending policies and procedures.”

Jorgensen said to keep up, IH Mississippi Valley has decided todo quarterly monitoring on the new requirements to ensure that thecredit union can justify its business decisions and to show proofthat those choices are beneficial for the organization. Inaddition, Jorgensen said the credit union has paid significantthird-party expenses in order to comply with the rules.

“There have been numerous vendor fees that we have had to pay inorder to get the new upgrades and forms within our system,” shenoted. “With the mortgage servicing requirements, we have madechanges to our periodic statements, which have cost us aswell.”

Bi-weekly meetings have taken place with IH Mississippi Valley'sunderwriting, loan administrators and mortgage managers to discussthe new rules, Jorgensen said. The credit union also partnered withPolicyWorks, an Iowa-based firm specializing in regulatorycompliance, during the process.

“PolicyWorks has been on present via telephone at our bi-weeklymeetings and they have helped us answer all of our questions. Ithas been nice to have PolicyWorks present because instead of ushaving to look up our questions, they are able to answer them forus,” said Jorgensen. “We decided to partner with them because ofthe overload of changes and because we wanted to have legalopinions about all of the requirements.”

The $1.4 billion Anheuser-Busch Employees' Credit Union in St. Louis, has alsoworked with PolicyWorks, said Jennifer Hunsche, manager of R.E.quality control at the cooperative.

“We have been fortunate that we were about 95% compliant withthe new regulations. Our biggest challenge has been theinterpretation of the rules,” Hunsche said. “With the help ofPolicyWorks, we have a peace of mind that we are working throughthose gray areas,” she told Credit Union Times. “We have workedwith great third party vendors who have been diligently working onmaking the necessary software changes.” Hunsche said while she hasnot calculated the exact cost of implementing the new rules, theexpenses associated with the implementation will include many hoursof training and updating procedures, the creation of a few newdisclosures, periodic statements, and consulting fees incurred toensure the credit union is on track and compliant with theregulations. The ongoing monthly cost will include the printing,sorting and mailing of the first mortgage loans and closed-end homeequity products, she added.

The CFPB rule requires all QMs to include points and fees less than or equal to 3% of theloan amount but higher percentage thresholds are allowed for loanamounts less than $100,000. The mortgages cannot contain so-calledrisky features such as negative amortization, interest-only orballoon loans. The maximum loan term must be less than or equal to30 years. Any loan that meets these product feature requirementsand has a debt-to-income ratio of 43% or less is considered a QMunder the general definition category of QMs, according to theCFPB.

A loan that meets the feature requirements and is eligible forpurchase, guarantee or insurance by a government-sponsoredenterprise, the Federal Housing Administration, U.S. Department ofAgriculture or the Department of Veteran Affairs is a QM in theGSE-eligible category, regardless of the debt-to-income ratio.

The small creditor category allows lenders with less than $2billion in assets that originate 500 or fewer first mortgages tocount each loan as a QM even if the borrower's debt-to-income ratiois greater than 43%, the CFPB has said. The financial institutionmust keep the mortgages on its books. The rule also includes atwo-year transition period that gives small lenders the ability tomake certain balloon loans that will count as QMs.

The mortgage servicing rules require servicers to attemptcontact with borrowers each time they miss a payment to provideimportant information that could help get them on track. The CFPBclarified that this requirement may be met through contact thatservicers have with delinquent borrowers, for example, whenevaluating them for loss mitigation or during collection calls. Themethod used to contact the buyer may vary depending on the lengthof time that he or she has been delinquent or if the borrower hasresponded to past live contact attempts.

“Even if delinquent borrowers have instructed servicers to stopcommunicating with them pursuant to the FDCPA, certain notices andcommunications mandated by the CFPB servicing rules and theDodd-Frank Wall Street Reform and Consumer Protection Act are stillrequired,” according to a CFPB guidance letter issued inOctober.

Servicers must also communicate with the borrower about requestsfor information, loss mitigation, error resolution, force-placedinsurance, and initial interest rate adjustment of adjustable-ratemortgages, the CFPB said.

Servicers will not be required to provide certain earlyintervention contacts or ongoing notices of rate adjustments todelinquent borrowers who have instructed the servicer to stopcommunicating with them. They are also not required to provideperiodic statements to borrowers in bankruptcy.

Jorgensen said complying with both the ability-to-repay/QM ruleand mortgage servicing rules was a difficult task.

“Ability to repay was challenging because there were numerousbusiness decisions that we had to make, and we had to determinewhat underwriting criteria we wanted for our home equity andmortgage loans,” she said.

Mortgage servicing, and specifically, the periodic statementrule, was problematic because IH Mississippi Valley had todetermine which payment due dates were affected, as well as what todo with existing and future loans, Jorgensen said, adding, thecredit union now has complex processes in place for both of theserules.

Hunsche shared a different view.

“The QM/ATR rule implementation has not been a huge challengefor us. As a credit union, our daily practice has always been toensure the member has a proven ability to repay and can documentso,” Hunsche said. “We have been underwriting with those standardsin place already.”

Meanwhile, the $26.8 billion StateEmployees' Credit Union in Raleigh, N.C., has decided to onlyoriginate non-QM mortgages beginning in January, said itspresident, Jim Blaine.

The $55 billion Navy Federal Credit Union in Vienna, Va. said it plans to offerboth QMs and non-QMs.

“Navy Federal's mission is to serve our members, and the CFPB'smission is for the consumer; our goals have always been in line,”said Katie Miller, vice president of mortgage products at NavyFederal, in a statement provided to Credit UnionTimes.

“We pride ourselves in maintaining a formal due diligenceprocess, and have thoroughly reviewed all of our front and back-endpractices to ensure that all QM rules have been implemented,however, Navy Federal will continue to provide products that servethe niche needs of our unique membership,” Miller pointed out.

Ihrig urged all credit unions to read the new rules carefully toensure compliance.

Truth in Lending violations can carry significant costs andpenalties, he said.