WASHINGTON — A recent advisory from the Consumer Financial Protection Bureau continues to muddy the waters for credit unions trying to decipher seemingly conflicting messages from the bureau regarding its Qualified Mortgage (QM) rule that goes into effect in January.
Under QM rules, lenders that make "qualified mortgages" — which must conform to certain underwriting criteria — have greater legal protections than those that don't. But in a fact-sheet distributed by the CFPB to consumers, the agency emphasized that borrowers still have recourse against lenders — and that the CFPB would support them.
"We will stand with borrowers and homeowners to ensure financial institutions treat them properly," the CFPB factsheet said. "Borrowers who fall behind now have more options to take control."
Such language is not altogether surprising considering the CFPB was specifically created to protect consumers, yet some observers said the message could be misunderstood to encourage borrowers to sue.
Tessema Tefferi, senior regulatory affairs council with NAFCU, told Credit Union Journal that the CFPB — including bureau director Richard Cordray — has encouraged lenders to do both QMs and non-QMs, "so it's difficult for credit unions to decipher what the CFPB's intentions are at times because of seemingly conflicting messages. One can reasonably find that the fact sheet and advisory conflict with what the CFPB has said previously regarding non-QMs."
'A Guessing Game'
Similarly, Barry Stricklin, VP of real estate lending at Laurel, Md.-based Tower FCU and a board member of the American Credit Union Mortgage Association (ACUMA), noted said that "at this point it is a guessing game."
In an e-mail to Credit Union Journal, Stricklin reminded that the CFPB head has stated publicly that he feels CUs have acted responsibly when underwriting loans, that they were not accountable for the problems of the past, and that CUs should not be afraid to issue non-QM loans.
"Many CUs have taken this to heart and are looking to continue to help as many members as possible, including making non-QM loans," he said. "Cordray recently made clear to the public their options if a loan is not a QM and that lenders may be liable. Lenders are now reading into this that Cordray is going to go after lenders making non-QMs. Only time will really tell. My personal point of view is that if you use prudent underwriting (inclusive of meeting ATR guidelines) and place borrowers in sustainable positions as credit unions have done in the past the potential for legal issues is minimal."
Lenders are hypervigilant to any proclamations from the CFPB concerning the new mortgage rules that go into effect Jan. 10, and many are nervous about making non-QM loans. Up until now, the CFPB has been trying to reassure lenders that the new rules will not spark a credit crunch or open up new legal liability.
CFPB Director Cordray has repeatedly knocked down such theories, arguing that there is little legal risk so long as lenders follow the rules.
"The key point here is that we left little room for legal challenges to whether a given mortgage is a QM," said Cordray at the Mortgage Bankers Association's annual conference in Washington in October. "We crafted the rule to avoid that result, which is why critics are now forced to dream up hypothetical factual disputes about whether debts and income were correctly calculated in their efforts to criticize the rules or sow anxiety about them."
NAFCU's Tefferi said that the agency has not heard any concern from its member credit unions about the latest CFPB advisory, in part, he said, because "barring a few CUs out there, most credit unions probably have already made their decisions about lending policy." NAFCU does not currently have plans to address the advisory, but Tefferi said it will continue to closely monitor and review CFPB's actions.
CFPB's Advice To Consumers
The CFPB's No. 1 tip to homebuyers in its recent guide tells consumers that they ultimately determine how much of a mortgage they can afford.
"The new mortgage rules will make the market safer and easier to understand. For example, lenders now have to make a good faith effort to determine if you have the ability to repay your loan," the tipsheet stated. "But in the end, only you can decide how much you are comfortable paying for a mortgage."
Among a handful of consumer materials on the mortgage rules, the agency also included a 100-page guide for housing counselors outlining how to offer loss mitigation options to struggling borrowers. Under the mortgage servicing rule, struggling borrowers — whether delinquent or not — are given certain timeframes to apply for loss mitigation options before the home is foreclosed upon. The guide also highlighted how consumers can resolve servicing errors and request for more information.
"Taking on a mortgage may be the largest financial obligation of a consumer's lifetime," said Cordray in the release. "We want to make sure that potential homebuyers have the information they need to make responsible decisions and that current borrowers know about their new protections."
