How CFPB Mortgage Rules Impact Your Members
Everyone in the mortgage world has been inundated with articles, training and webinars on the new CFPB Mortgage Rules and what the impact is on lenders. Don't get me wrong; there are significant changes and impacts on lenders, likely more so than ever before.
But how will the new mortgage rules impact your members?
While the impetus to create the CFPB may have truly been to protect the consumer, any time new rules and regulations are implemented there may be unintended consequences. The Dodd-Frank Act, and the subsequent modifications to those rules by the CFPB, may cause some of those unintended consequences.
Availability and Cost
Many think that the Qualified Mortgage and Ability to Repay rules will significantly limit the number of qualified borrowers. At the very least, if they don't fit into the QM space, but are able to obtain a loan under the ATR definition of a particular lender, they will more than likely have a higher rate and fee structure than those who can qualify for a QM.
This issue will especially be true when investors pop up to provide a market for lenders to sell non-QM loans. The cost to originate and service a loan has already increased significantly. The new employees required and the cost of updating systems to comply with the new regulations will continue that rising trend. Consumers will undoubtedly suffer the consequences with higher rates in the long run.
One of the CFPB's goals was to provide clarity and transparency, allowing all borrowers to make an informed decision as to who the best lender is for them. Often, however, new regulations tend to accomplish the exact opposite and muddy the waters for both the lender and the end consumer – in this case, your member. Imagine a question mark forming over your member’s head as he or she receives multiple valuations such as an appraisal, AVM, or maybe even an automated underwriting report from Freddie Mac to comply with the ECOA Evaluations rule.
In addition, imagine their confusion if the values are different? This could also be with closings that may need to be delayed to comply with the portion of the rule that requires the borrower to receive the appraisal or other valuations at least three days prior. Your member, their realtor, and the seller will be upset and not satisfied with an explanation of legal requirement.
What can you do?
Anyone who will be talking to the member during the loan process needs to be cognizant and aware of the new rules. But, in particular, it is the loan originator who is key. The LO must set the proper expectations of each transaction, and be proactive if there is an issue that arises adversely impacting your member. Application data and system data input must be accurate.
Credit unions are well positioned to leverage their ability to take the time and trouble to educate their members on any changes that will affect them – and perhaps offer "less" expensive non-QM portfolio loans than their competitors are offering.
You should also leverage relationships you have with your mortgage partner who may be able to absorb some of the regulatory risks and costs of origination and servicing of mortgages in the new mortgage world. Your partners may also have resources, systems, and training that will help you adapt thereby making your members experience as good as it can be.
Wallace Jones is vice president of training at CU Members Mortgage.