CFPB's QM Rule Turning Borrowers Away: NAFCU Witness
Daniel Weickenand, CEO of the $531 million Orion Federal Credit Union in Memphis, Tenn., told Congress Tuesday the CFPB’s new qualified mortgage standards will cause his credit union to turn away many creditworthy borrowers.
“In today’s lending environment, with interest rates at record lows, margins on non-QM loans will be very narrow," he said in his written testimony before a House Financial Services subcommittee. "When you take into account the additional legal liability associated with non-QM loans, this margin will be even narrower. While some institutions may start charging a premium on their loans to account for the additional risk associated with non-QMs, we do not feel this is in the best interest of our credit union, our members and our community."
Consequently, Weickenand said Orion FCU has decided to not offer non-QM loans.
"I cannot tell you how difficult this decision has been. Orion takes great care in placing our members with the right mortgage product, and the QM standard will inevitably force us to turn many creditworthy borrowers away,” he added.
The title of the hearing, which began at 10 a.m. Eastern Time in the Rayburn House office building, was “How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.” Weickenand appeared as a witness on behalf of NAFCU. Other witnesses include a community banker and the CEO of Quicken Loans.
Weickenand said credit unions have had to add compliance staff and increase the workload on compliance officers to keep up with the CFPB’s new mortgage rules.
“Unfortunately, this takes away from resources that they could be dedicating to their members in services and loans. This is what NAFCU warned of during the financial reform debate and one of the reasons why we were the only trade association that opposed the CFPB having authority over credit unions,” he said, referring to the Ability-to-Repay/QM rule that took effect on Jan. 10.
“The impact of this growing compliance burden is evident as the number of credit unions continues to decline, dropping by more than 900 institutions since 2009. While there are a number of reasons for this decline, a main one is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations,” he added.
Weickenand argued that credit unions were not the cause of the financial crisis and should not be “caught in the crosshairs of regulations aimed at those entities that did.”
CUNA President/CEO Bill Cheney thanked the chairman of the Subcommittee on Financial Institutions and Consumer Credit Shelly Moore Capito (R-W.V.) and Ranking Member Gregory Meeks (D-N.Y.) for conducting the hearing.
“As Congress considers the impact the regulation will have, we urge you to examine two key issues: (1) whether financial institutions need protection from lawsuits brought by private parties for a reasonable period of time after the effective date, and (2) whether credit unions ought to be subject to this regulation in the first place,” he wrote to the subcommittee Tuesday.
Cheney said credit unions should be exempt from complying with the QM rule.
“We do not believe that asset size and number of mortgages are what guides the underwriting of credit union mortgages; the structure of credit unions, their historic mission to serve the best interests of their members and their very low default and delinquency rates are the significant distinguishing factors that support an exemption for credit unions,” he wrote. “We urge the Subcommittee to encourage the CFPB to provide all credit unions an exemption from the QM rule. Moreover, we believe other community based financial institutions should be considered for similar treatment under the QM rule.”