A proposed CFPB rule could help credit unions and other mortgagelenders make more loans, but mortgage lending executives say it'sonly the first of what needs to be many such changes.

The rule, which the CFPB released for public comment on May 1, would allow credit unionsand other mortgage loan originators to “fix” or “cure” previousmiscalculations around the cap in closing points and fees whenmaking Qualified Mortgages.

Currently, closing costs and fees on mortgage loans of more than$100,000 in face value are capped at no more than 3% of the loans'value minus closing costs and fees. Costs and fees also are cappedfor smaller loans, but according to a schedule which often comes inat around 5%.

Under the CFPB's current regulations, if a mortgage lendercloses a QM loan and finds that, inadvertently, it had charged theborrower 3.25% in closing costs and fees instead of 3% it can nolonger consider the loan a QM loan. This increases the lender'sexpenses with the loan and makes it harder to sell on the secondarymarket.

But under the CFPB's proposed rule, the same lender would beable to reimburse the borrower for the 250 basis point overchargein closing costs and fees and still consider the loan a QM loan,thus both reducing the expense of the loan and making it easier tosell.

David Motley, president of Colonial Savings and CU MembersMortgage, a Dallas-based originator for more than 1,000 creditunions, said the rule could significantly impact how many mortgageloans credit unions make.

Allowing such a fix, Motley explained, would help mortgageoriginators feel more confident about lending to borrowers whoseloans might approach the cap which, he said, cautious lenders haveeffectively lowered to as little as 2.7% to stay clear of thecap.

He also argued that a similar cure is needed for the 43%debt-to-income ratio which he estimated had effectively become 39%because so few lenders wanted to mistakenly go over the 43%limit.

“This in particular would mean a great deal to borrowers withhigh student loan debt or who are buying in a very expensivehousing market,” Motley noted. He added that he believed otherfactors, such as a sluggish job market, had also been cuttingdemand.

“But every little bit of relief would help,” he said.

Motley also tied the current rules to the current sluggishnessin overall housing finance, arguing the debt-to-income limit andpoints and fee cap helped depress mortgage lending.

“One way an originator might make sure they remain under the capmight be to eat some of those closing costs it would otherwisecharge for,” he said. “But if they do that they will likely justrecapture some of those costs in an interest that might be slightlyhigher than it would otherwise need to be,”

Tracy Ashfield, EVP at Strategic Mortgage Solutions, agreed withMotley that every bit of relief is good, but she doubted whetherthe change would make as much difference at most credit unions.

She said many credit unions are already committed to having somepercentage of loans not be QMs and so may not be as concerned aboutgoing over the points-and-fees cap. She also suggested that thiscap fix pales compared with the potential impact of taking moneypaid to CUSOs out of the points-and-fees calculation.

Currently, if a credit union owns at least 25% of a CUSO that ituses for part of its mortgage loan underwriting, any fees theborrower pays to that CUSO must be counted against the cap.

Ashfield said this hurts the member because while a credit uniontitle CUSO might be significantly less expensive than othersavailable, using the CUSO might take the loan over the 3% cap. Thatcould require the credit union to send the member to a moreexpensive alternate provider.

A credit union title CUSO might be $500 less expensive than atitle firm across town, but using the CUSO could add $700 to thepoints-and-fees calculation, she pointed out, so the credit unionmight have to send the member to the $1,200 title firm that moneywould not go against the cap.

“Changing that would be huge,” she said.

But she also observed that this new rule indicated the agencyhas been listening to mortgage industry stakeholders about theirconcerns and that the industry, including credit unions, shouldmake sure the agency understood that its efforts wereappreciated.

“It's too easy sometimes to just complain,” she said. “We shouldalso speak up when they are trying to make things better.”

NAFCU Director of Regulatory Affairs Michael Coleman agreed withAshfield, but also noted that CUSO change is actually statutory andnot just in regulation.

“More work needs to be done regarding the rules' treatment ofpoints and fees and other areas of the mortgage rules,” hesaid.

Dennis Hardiman, CEO of Embrace Home Loans, a Newport, R.I.,independent mortgage firm which has started offering mortgageservices to credit unions, also praised the agency for listening tothe mortgage industry. But called for additional changes.

“A real change in the cap,” he said, “would raise the face valueof the loans that are subject to it. Make it at least $150,000 oreven $200,000. That would be a lot closer to where you could keepexcessive fees from creeping in but still not depress the abilityto make loans at a reasonable profit.”