After nearly a year of debate, comment, complaining and preparing, the Consumer Financial Protection Bureau's Ability-to-Repay and Qualified Mortgage Standards Rule will finally go into effect Friday.
Most credit unions say even though some uncertainties still exist as to how much of an impact the QM Rule will have on their lending programs — the majority feel prepared for the new mortgage-writing landscape.
"Most of us feel ready," said Barry Stricklin, VP of real estate lending for $2.6 billion Tower FCU in Laurel, Md. "Credit unions as a whole have not had to make big changes &nmash; they already were making sure to put their members in sustainable loans, as opposed to visiting them the next year to take their house."
Linda Clampitt, SVP for Dallas-based CU Members Mortgage, said the CUs that have been "very involved" in the company's training are "prepared, even if they are nervous."
"They understand there are consequences for non-compliance," Clampitt said. "They have had to train their staffs, write new loan policies, change forms, make sure vendors are ready, and test their systems. The credit unions that have made sure they are ready feel they are ready."
Stricklin, who also holds a position on the board of directors for Las Vegas-based American Credit Union Mortgage Association (ACUMA), said though there is not necessarily a feeling of relief that the regulation has arrived, most credit unions are far from a "panic point."
Some Leniency
According to Clampitt, the CFPB and NCUA have said they will lenient of minor errors if the institution can demonstrate it made a good-faith effort in compliance.
But, she noted, there are a number of credit unions that think they fall into the small institution exemption and have done little to prepare.
"Those credit unions will be shocked in a few weeks, or when they get examined," she noted.
Another issue, Clampitt pointed out, is some information was "late coming to the party" from CFPB and HUD, which left a lot of people scrambling.
"There is a lot of uncertainty, a lot of nervousness," she said. "I have heard from a lot of credit unions that are not writing policies, they are just implementing new procedures, which is going to be interesting because we have heard the CFPB wants a policy on everything.
"The reality is, until audits go down, we do not know exactly what is going to happen," Clampitt noted. "We do not know how these new regulations will impact Fair Lending. There are a number of attorneys out there just waiting on something a lender does wrong — why did a credit union waive a fee for one person but not another?"
Tina Powers, chief operating officer for CU Realty Services, a CUSO based in Scottsdale, Ariz., said most CUs feel the new regs will not have a huge impact on their mortgage-lending operations because the majority of their guidelines already are in alignment with the new requirements.
"Some believe it will have an impact on borrowers, possibly in the form of additional fees, because of the additional paperwork required," Powers said. When interviewed right before the rule went into effect, Powers reported that "no one I know of is hugely concerned, so it will be interesting to see how they feel about it 30 days in."
Bob Dorsa, president and CEO of Las Vegas-based ACUMA, said his trade association has covered the general concept expressed in the new regs for about three years. He praised NAFCU for doing a "great job" not only getting out information to credit unions, but also Dan Berger's letter to CFPB Director Richard Cordray helped win CUs some additional exemptions from the regs.
Angst Worse Than Reality?
Dorsa wondered if perhaps the angst many have felt will be worse than reality.
"A couple years ago the big looming issue was getting loan officers licensed," he recalled. "Everyone was so worried about it when the rule was getting ready to be implemented, but since then it has not been as big of an issue. Remember Y2K? There were supposed to be planes crashing out of the sky, but that did not happen."
According to Dorsa, the biggest issue is not allowing fear to push CUs out of the mortgage business.
"The new regs are a matter of debt ratios, but they should not be an excuse to turn away mortgages and let members go to Wells Fargo," he insisted. "Members come to the credit union because they want a trusted advisor. Hopefully, what we have established will keep going."
Dorsa said time will tell when it comes to the new regulations. Though most credit unions have put their best efforts in to compliance, until they go through a couple of exams no one will know for certain what the full impact will be.
"The current credit union mortgage market share is 6.75%, which is interesting considering the market has been dominated by refinances for several years," he said. "With that production taken away, there is a lot of uncertainty."
Tower CU's Stricklin said with most of the operational issues already settled as of the Jan. 10 implementation date, the biggest remaining question will be whether lenders write mortgages that are not "Qualified" as defined in the Dodd-Frank Act.
"Lenders have the right to do non-Qualified Mortgages, meaning they have to make a decision," he said. "Are they comfortable enough with their underwriting procedures?"
Stricklin estimated the split will be approximately 50-50 in lenders that will continue to make non-Qualified Mortgages versus those that will not.
"It is not illegal to do a non-Qualified Mortgage, but the lenders that do so will not have certain legal protections. This is the area of the reg where lenders have not made a final decision but will wait and see as time goes along. Both camps may change their mind. Some might say no at first, but then see other lenders doing so without problems. Others might agree to do non-Qualified Mortgages, but then change after going through an exam."
Count Tower CU among the credit unions that will continue to offer non-Qualified Mortgages. Stricklin said it is "confident in our ability to underwrite in a way to put someone in a sustainable loan."
"The reg said a debt-to-income ratio of 43% is the limit. But if the borrower makes $20,000 per month but has a DTI of 45%, that is not a Qualified Mortgage, but it is not a problem."
