The CFPB and the NCUA are emphasizing that credit unions can still originate non-QM loans to buyers that pose risk under the CFPB's new Ability-to-Repay/Qualified Mortgages rule.
The ATR/QM rule, which took effect on Jan. 10, 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 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 in a regulatory alert on Jan. 2.
CFPB Director Richard Cordray said credit unions could continue offering mortgages to buyers that pose a reasonable risk under the new rule.
“Qualified mortgages cover the vast majority of loans made in today's market, but they are by no means all of the mortgage market. This point is quite important, and it should not be misunderstood. These lenders, including many of our community banks and credit unions, have seen the strong performance of their loans over time,” Cordray said Jan. 7 in a speech to the National Association of Realtors in Washington.
“Many of them keep loans in portfolio and so they have every incentive to pay close attention to the borrower's ability to repay. Nothing about their traditional lending model has changed, and they should continue to offer such mortgages to borrowers whom they evaluate as posing reasonable credit risk – whether or not they meet the criteria to be classified as Qualified Mortgages,” he added.
Cordray told the Realtors audience that lenders do not necessarily have to follow the guidelines for QMs laid out in the rule.
“Lenders can choose not to follow these guidelines and simply make a loan based on their reasonable, good-faith determination that the consumer is able to repay it. But either way, they cannot trap consumers in loans that the lenders should recognize are unaffordable,” he said.
“They (QMs) also cannot have certain risky features, such as paying interest only or even negatively amortizing so that each month the consumer owes more than they did before. And they must have relatively reasonable points and fees,” Cordray added.
“Lenders can choose not to follow these guidelines and simply make a loan based on their reasonable, good-faith determination that the consumer is able to repay it. But either way, they cannot trap consumers in loans that the lenders should recognize are unaffordable,” he added.
Michael Coleman, director of regulatory affairs at NAFCU told Credit Unions Times the Qualified Mortgage portion of the final rule will significantly impact 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,” said Coleman.
“The CFPB has stressed the need for credit unions and other financial institutions to continue to make strong loans, even if those loans would be non-QMs,” he said. Credit unions are member-owned not-for-profit entities with a distinct focus on meeting the credit needs of their members, and a credit union's lending policy determination will hinge on the needs of their members.”
In a supervisory letter to credit unions, NCUA Chairman Debbie Matz said credit unions could originate both Qualified and non-Qualified Mortgages under the new rule.
“Non-QM lending can be an effective member service if conducted safely and soundly. NCUA will not subject a mortgage to safety-and-soundness criticism solely because of the loan's status as a QM or non-QM,” she wrote.
“Credit unions choosing to make non-QMs will need to take into account the potential new market and legal risks,” she added.
After evaluating the CFPB's mortgage rules, the $26.8 billion State Employees' Credit Union in Raleigh, N.C., said it will continue to originate both qualified and non-QM mortgages.
“SECU will not be changing our proven mortgage underwriting standards, which will accommodate both,” SECU President Jim Blaine told Credit Union Times.
“Hopefully the new CFPB rules and guidelines on mortgage lending will lead to a better informed consumer/borrower and eliminate the past predatory practices of many brokers/lenders.”
A spokesperson for the $55 billion Navy Federal Credit Union in Vienna, Va. told Credit Union Times it also plans to offer both QMs and non-QMs.
And Jared Ihrig, associate general counsel at CUNA, said because a loan does not fit the definition of a QM does not mean it is a bad loan to make.
“If you look at a credit union's mission, it is to serve the needs of their members and if they have to try to tailor a loan product to meet the needs of the members, just because it doesn’t meet the definition of qualified mortgages, doesn’t necessarily mean that it wouldn’t be a good loan to make,” Ihrig said.
“Depending on the credit union's relationship with the member, their history with the member and how comfortable they feel in the borrower's ability to repay and their analysis and documentation of that ability to repay for that borrower, they may decide, ‘hey, we’re OK making a non-QM, especially if they are going to portfolio the loan and not sell it to the secondary market,’” he added.
Matz said a credit union's good-faith efforts to comply with the rule will be taken into account by the NCUA's field staff during the examination process.
“As with any new requirement in its early stages after becoming effective, NCUA field staff will take into account a credit union's good-faith efforts to comply with the new rule,” Matz said in a letter to credit unions last week.
“NCUA field staff will be placing particular emphasis on the safety and soundness implications of mortgage lending under this new paradigm. Whether your credit union originates Qualified or non-Qualified Mortgages, examiners will be evaluating credit risk, liquidity risk, and concentration risk,” she added.