ACUMA Comments on NCUA's Proposed Guidance on Nontraditional Mortgages

LAS VEGAS – The American Credit Union Mortgage Association has sent its comment letter to NCUA concerning the agency’s proposed guidance on nontraditional mortgage products and offered several suggestions the agency should consider. First concerning the wording “Nontraditional Mortgages,” ACUMA wrote, “While the proposed guidelines speak to interest-only mortgages, option-ARM, and negative amortization, it should be made clear as to exactly what type of mortgage loans need to be addressed.” In their letter to NCUA, ACUMA Chairman Robert Street, president/CEO, American First CU, and Treasurer/Regulatory Compliance Committee Chair Steve VanSickler, senior vice president/chief lending officer, Red Rocks RCU noted that other loans such short-term, single-payment mortgages, bridge-loans that “many credit unions are very adept at making” could be considered nontraditional, “yet do not have the potential for payment volatility or negative amortization.” Consequently, they wrote, “these types of mortgages should be exempt from the proposed guidance.” They added that, “Most of the guidelines 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 taking place.” ACUMA also addressed three additional questions in its comment letter concerning proposed guidance: * Concerning whether lenders should analyze each borrower’s capacity to repay the loan under comprehensive debt service qualification standards and whether current underwriting practices would change if prescriptive guidance is adopted, ACUMA stated “it is not prudent to underwrite a variable-payment mortgage loan based on minimum payments or the initial start rate.” * Concerning what circumstances would support the use of the reduced documentation feature – “stated income” – as being appropriate in underwriting nontraditional mortgage loans, ACUMA wrote that these circumstances should be limited to lower loan to values – such as 75% or below – without documented compensating factors in which case high loan to values should be considered. In addition, if reduced documentation is used in any loan-to-value situation, ACUMA recommends “the level of income should be commensurate with what is typical for the profession or industry and should be reasonable with the totality of the application to include a review of cash assets/reserves and level of consumer debt carried.” * Whether the guidance addresses the consideration of future income in the qualification standards for nontraditional mortgage loans with deferred principal and interest payments, ACUMA voted “No. The trend towards offering these riskier mortgage instruments to first-time homebuyers or unseasoned borrowers, who may not be prepared for the additional risk, is problematic. All factors, to include increases in future interest rates, should be considered when underwriting volatile payment mortgage loans and the underwriting approval should adequately document the findings for each particular loan application. Lastly, ACUMA offered to collaborate with NCUA in publishing a consumer information booklet on the potential pitfalls associated with interest-only, volatile payment and mortgages with the potential for negative amortization. -