BEAVER, Pa. — WEST-AIRCOMM FCU currently plans to continue business as usual with its mortgage loans come January when the CFPB's QM rule goes into effect, despite the potential regulatory and legal risks involved.
But consumers could feel the pinch when many other mortgage lenders choose not to run those risks.
"The CFPB has the best of intentions to protect consumers," said Ray Brunner, CEO of the $190 million credit union. "But there are going to be unintended consequences."
That's why Brunner, along with Sharon Sweeney of Clearview FCU and a host of other mortgage lenders and even consumer advocacy groups, participated in a roundtable on CFPB's QM rule hosted by U.S. Reps. Shelly Moore Capito (R-WV) and Keith Rothfus (R-PA) earlier this week in Pittsburgh.
"We had a really good discussion about concerns about QM and whether it will really benefit people of modest means," Brunner told Credit Union Journal. "Even the representatives from some of the community development corporations — people who are dedicated to helping the low-income community — are very concerned about some of these rules."
The consumer advocates, Brunner said, are concerned about lenders shying away from much-needed loans as a result of the new rules. "The CFPB says not to worry about it, that if they really are good loans, we can still make them but we need to document why we made the loans. But what happens if we get sued over this. You know there are going to be law firms that will specialize in QM law, and they will be out looking for victims."
And when that happens, the question will be whether the documentation is enough, and even if it is Brunner, noted, the lender will still have to shell out a lot of money to defend itself.
"Our plan right now is to continue making these loans, but that could change. What we are going to do is starting Dec. 1, we will document in detail why we made this loan," he explained. "Like if we have a member who been a member in good standing with us for 16 years, and we've 17 loans to her during that time and she's always made all her payments and handles her debt well, so we determine that even though her debt ratio will be over 43%, we believe she can handle it."
While there's been a lot of focus on how QM will affect first mortgages, it could also have a negative impact on other real estate loans, as well, said Sweeney, AVP of Real Estate Lending at $804 million Clearview FCU, Moon Township, Pa. "We do a lot of closed-end equity loans, for example, and that's a real concern, too," she said. "A lot of people use those loans to consolidate credit card debt. A lot of people use them to send their kids to school, so it affects a lot more than just first mortgages."
Sweeney said Congress is trying to push back implementation of the rule for another year, but she is skeptical about that happening — and even if it does, it doesn't truly resolve anything.
"A lot of [lenders] simply aren't going to be ready to comply with this," she said. "So delaying implementation will help them. But it really doesn't solve the problem, it doesn't provide us with the safe harbor we need for these loans.
"I'd be amazed if they can get it extended out another year," she continued. "It's just two weeks until Thanksgiving, and then Christmas is right around the corner. This is a tough time of year to get anything done. If they can, more power to them, but I think we need to be ready for this to be implemented in January."
Like WEST-AIR COMM, Clearview doesn't plan to pull the plug on all loans that don't conform with QM, but they are going to be looked at and documented very carefully. "We're not going to automatically boot a loan just because it's above that 43%, but we are going to be cautious and document all of our decisions," Sweeney offered. "And we're adding in some layering, as well. When something like this comes in, there will be another layer of review. We'll be taking it on a case-by-case basis."
What is frustrating, Sweeney said, is that credit isn't being given where credit is due. "[CFPB needs] to dig further and look at our delinquency rate. It's incredibly low. We aren't setting people up to fail," she said. "We're here to help people. This is just going to make it that much harder for us to help people. Because I can take all the notes in the world and document every single thing, and that still might not be enough if a lawsuit is filed."
Among the QM concerns outlined by Brunner and Sweeney:
- The total debt to total monthly income of 43% should be expanded. "Where did CFPB even come up with that 43% figure? Nobody seems to know," Brunner said. "CUNA is asking that it be increased to 50%."
- The 3% limitation on points and fees for a qualified mortgage loan may be problematic for some credit unions. "A lot of that depends on what all is included in the cap," he suggested. "It looks like they're throwing everything and the kitchen sink into it."
- Credit unions should not have to face retribution from examiners when writing non-qualified mortgage loans. "One of the things we have to ask is will NCUA view this as a safety and soundness issue if we continue to make these loans," Brunner said.
- The need for a secondary market to accept non-QM loans.
- Congressional support for the Consumer Mortgage Choice Act (H.R. 1077), legislation that clearly defines points and fees.
- Protections from litigation for mortgage originators.
- Delay the Upcoming Mortgage Rules' effective dates.
- Greater use of the CFPBs exemption authority.
- "To CFPB's credit, if you're under $2 billion, you're in the small creditor category, and you're exempt, and that should cover most credit unions," Brunner said. "But it doesn't, because if you work with a CUSO, you can lose your small creditor status."
