WASHINGTON — The industry's two largest trade groups are telling Congress Tuesday credit unions need relief from the Consumer Financial Protection Bureau's qualified mortgage rule because of high compliance costs and restrictions on serving members.
In its submitted testimony to the House Financial Services Committee, CUNA contended the CFPB should use its authority to give credit unions and community banks blanket exemptions from the rule.
NAFCU didn't go that far — only urging Congress to provide credit unions for some relief from some of the QM standards without saying the burden should be lowered for local banks as well.
The basic argument both groups used is credit unions did not offer the kind of risky mortgages that led to the recession.
CUNA pointed out in the aftermath of the 2008 meltdown, the largest annual charge-off rate for bad mortgages by credit unions was four tenths of one percent while banks at one time suffered four times that one year.
"The structure of credit unions, their historic mission to serve the best interests of their members and their very low default and delinquency rates are the significant distinguishing factors that support an exemption for credit unions," CUNA President and CEO Bill Cheney wrote in a letter to the Financial Services Committee. He wants credit unions to have 100 days to comply with final changes to the QM rules after they are adopted.
In prepared testimony, Orion FCU CEO Daniel Weickenand, testifying on behalf of NAFCU, said: "The unique nature of the relationship between credit unions and their members means that credit unions demonstrate flexibility to give their members products that work for them on an individual basis. The restrictions of the new QM mortgage standard have eliminated this ability in many cases."
Weickenand listed loans with longer than 30-year terms or interest-only loans as two of the products some members appropriately want but credit unions would refrain from offering because of the rules.
QM limitations also include no negative amortization, no balloon payments and generally a 3% cap on points and fees and a debt-to-income ratio of 43 percent or less.
"This arbitrary threshold will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious impact in rural and underserved areas where consumers have a limited number of options. The CFPB should either remove or increase the DTI requirement on QMs," he said.
While credit unions have built their business model on lending standards, he warned the failure by an institution to follow the specific steps in the eight underwriting criteria and verification a borrower has enough income or assets for a reasonable belief to make the mortgage affordable could lead to that credit union being forced to refund proceeds paid by the borrower. In addition, the NAFCU board member said that credit union could lose the ability to foreclose on the property if the loan goes into default.
During the committee session, Rep. Carolyn Maloney (D-NY) countered that most economists say the debt-to-income ratio should be 33%.
“QM is one of the centerpieces coming out of the financial crisis,” Maloney said.
Financial Services Financial Institutions Subcommittee Chair Shelley Moore Capito (R-WV) who convened the session, said QM severely hampers the ability of community lenders to tailor mortgages to fit their borrowers and told Credit Union Journal she hopes legislation could be enacted this year to adjust the requirement.
But when it was noted the Democratic Senate has been reluctant to chip away at Dodd-Frank, which spurred the ability-to-pay guidelines, she said “I can’t predict the Senate.”
She is currently running for a seat in the upper chamber.
Also on Tuesday, the Mortgage Bankers Association blamed the QM rule in part for lowering its 2014 residential mortgage forecast by $57 billion to $1.12 trillion.
