6 Pain Points of New Mortgage Rules
Despite credit unions’ best efforts to comply with the Consumer Financial Protection Bureau's new mortgage rules, the ride has not been smooth. Based on credit union feedback, I recommend credit unions focus on the following in the days ahead.
Qualified mortgages & ability to repay
While most of the buzz was around originating QMs and the risk of not doing so, most credit unions have struck an appropriate balance with these business decisions. Going forward, focus attention on documentation. Confirm policies and procedures reflect whether you’re originating QMs, a mix of QMs and non-QMs, or just following the ATR underwriting criteria, which should be spelled out, too. Be sure to also document third-party records used to verify debt and income, and document loan file decision-making, which shows the ability to repay or the loan has met QM status.
Qualifying and training loan originators
The Regulation Z definition of mortgage loan originator is now broader than what was defined under the SAFE Act. Technically, credit unions can now have MLOs who are not originating loans under the SAFE Act and thus, don't need to be licensed or registered, but do come under the Reg Z definition, which can be confusing. Review the graphic to understand this new paradigm. Focus on determining who your mortgage loan originators are and ensuring they meet new qualification and training requirements. Get human resources involved to address the qualification standards because there could be some sticky issues, and work with credit union leagues and trade associations to help facilitate these training requirements. Finally, document your compliance.
Reviewing the nine major servicing provisions, scope, and exemptions gives me heartburn – it's confusing. Focus on understanding the provisions to which your credit union must adhere, including if your credit union qualifies and continues to qualify for an exemption, update policies and procedures to reflect compliance with provisions, and keep a close eye on data processors to make sure they handle your credit union's unique needs.
All mortgage loan applicants with few exceptions must receive a list of homeownership counselors within three business days of application. There is no document to purchase, simply go to www.consumerfinance.gov/find-a-housing-counselor, and then type in the appropriate zip code to generate a PDF list for the applicant. Furthermore, there are only two types of borrowers required to attend counseling, and provide certification of such prior to closing: borrowers with a high-cost HOEPA loan and first-time borrowers taking out a negative AM loan. Focus on other rules because you’ve got this.
Higher-priced vs. high-cost HOEPA mortgages
First, there's a difference: if HPMLs are bad loans, HOEPA loans are really ugly loans. Start with determining which type of mortgage, if any, your credit union is originating by reviewing the definitions. For example, a HPML will only be triggered by a high annual percentage rate whereas a HOEPA loan can be triggered by a high APR, points and fees exceeding certain thresholds, as well as the imposition of pre-payment penalties. Then, determine the impacts. For instance, HPMLs have escrow, appraisal, and qualified mortgage presumption implications. HOEPA loans have their own regulatory scheme. Be sure to check out 12 C.F.R. § 1026.32.
Source: CUNA Mutual Group
While the CFPB and the NCUA have allowed for flexibility, there are some sophisticated plaintiff lawyers who will take advantage. Remember, these regulations are still the law of the land.
Lauren Capitini is a senior regulatory compliance manager with CUNA Mutual Group. She can be reached at 608-665-4337 or Lauren.Capitini@cunamutual.com.