LAS VEGAS - The American Credit Union Mortgage Association hassent its comment letter to NCUA concerning the agency's proposedguidance on nontraditional mortgage products and offered severalsuggestions the agency should consider. First concerning thewording "Nontraditional Mortgages," ACUMA wrote, "While theproposed guidelines speak to interest-only mortgages, option-ARM,and negative amortization, it should be made clear as to exactlywhat type of mortgage loans need to be addressed." In their letterto NCUA, ACUMA Chairman Robert Street, president/CEO, AmericanFirst CU, and Treasurer/Regulatory Compliance Committee Chair SteveVanSickler, senior vice president/chief lending officer, Red RocksRCU noted that other loans such short-term, single-paymentmortgages, bridge-loans that "many credit unions are very adept atmaking" could be considered nontraditional, "yet do not have thepotential for payment volatility or negative amortization."Consequently, they wrote, "these types of mortgages should beexempt from the proposed guidance." They added that, "Most of theguidelines proposed are being utilized in the marketplace today,and the capacity for repayment is being strictly scrutinized,especially when the potential for payment increase is takingplace." ACUMA also addressed three additional questions in itscomment letter concerning proposed guidance: * Concerning whetherlenders should analyze each borrower's capacity to repay the loanunder comprehensive debt service qualification standards andwhether current underwriting practices would change if prescriptiveguidance is adopted, ACUMA stated "it is not prudent to underwritea variable-payment mortgage loan based on minimum payments or theinitial start rate." * Concerning what circumstances would supportthe use of the reduced documentation feature - "stated income" - asbeing appropriate in underwriting nontraditional mortgage loans,ACUMA wrote that these circumstances should be limited to lowerloan to values - such as 75% or below - without documentedcompensating factors in which case high loan to values should beconsidered. In addition, if reduced documentation is used in anyloan-to-value situation, ACUMA recommends "the level of incomeshould be commensurate with what is typical for the profession orindustry and should be reasonable with the totality of theapplication to include a review of cash assets/reserves and levelof consumer debt carried." * Whether the guidance addresses theconsideration of future income in the qualification standards fornontraditional mortgage loans with deferred principal and interestpayments, ACUMA voted "No. The trend towards offering these riskiermortgage instruments to first-time homebuyers or unseasonedborrowers, who may not be prepared for the additional risk, isproblematic. All factors, to include increases in future interestrates, should be considered when underwriting volatile paymentmortgage loans and the underwriting approval should adequatelydocument the findings for each particular loan application. Lastly,ACUMA offered to collaborate with NCUA in publishing a consumerinformation booklet on the potential pitfalls associated withinterest-only, volatile payment and mortgages with the potentialfor negative amortization. -

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