Many bankers are still waiting for vendors to update their systems as the CFPB continues to release amendments and clarifications to its ability-to-repay and QM rules. Although the industry welcomes the additional explanations from the agency, each change requires an update to their mortgage systems, operations and staff.
"Very few institutions, in my view, are really ready for the QM, and they have a long way to go before they have completely" complied, said Paul Noring, a managing director in the valuations practice at Navigant Capital Advisors, which is owned by a service provider. The industry is "really hoping there's a year extension because people have been inundated with regulatory changes over the last few years."
Banking advocates have pressed the CFPB in recent months for more time, but the agency has given no signal it will delay the January implementation date.
Many observers believe the CFPB is likely to be more flexible, particularly since director Richard Cordray was confirmed by the Senate and its legal powers are no longer in doubt.
"There's a difference now relative to three months ago when the discussions with the CFPB had been about their 'statutory obligation' to now thoughtful listening," said Bob Davis, an executive vice president at the American Bankers Association. "There are no declarations that it can't be considered."
Publicly, CFPB officials have remained committed to the deadline. In a recent interview with American Banker, Cordray said he believes banks are making strides in implementing the mortgage rules. He made it clear the CFPB is trying to help with that effort.
"We have a very bird's-eye perspective on how they're coming along. They've made tremendous progress, and we've found ways to address concerns they've raised about what the rule actually means instead of just leaving it to them and saying, 'It's your problem now,'" Cordray said Aug. 19. "We've been working with them to do some clarifications and tweaks to address operational issues, and I think that goes a long way in helping lenders."
But between now and January, the CFPB is expected to continue to clarify, and make adjustments to, its rules. It announced a second round of interim exam procedures earlier this month for a slew of mortgage rules including QM. Bankers welcome the alterations but say they require additional resources to implement.
"Even though the changes are helpful, banks are constantly having to change things," said Elizabeth Eurgubian, vice president and regulatory counsel with the Independent Community Bankers of America. "We just want the CFPB to be cognizant of the fact that community banks don't have a ton of resources to dedicate to compliance."
Neither do some of the vendors.
Based on a recent ABA survey, "banks said that about half the vendors in June had not given dates as to when they would be ready and [other] vendors said they would be ready at different dates from August to November," Davis said. "Being ready in November is really too late…bankers say it takes three months on average just to train staff on changes from vendors."
The ABA is asking for the CFPB to extend the implementation date to January 2015.
"You have to keep in mind that within the mortgage industry, technology and service providers are highly fragmented," said David Coleman, a managing director focused on mortgages and consumer lending at KPMG Advisory. "And most of these guys have staff in the tens. They don't have staff within the hundreds."
In addition, some banks are coming close to yearend regulatory and tax reporting requirements that create a so-called information technology "freeze" from November to January. That means some banks have roughly 10 weeks left to be fully compliant with the new mortgage rules.
However, not every banker agrees that more time will make a difference.
"It's a lot but can be done in a year," said Raul G. Valdes-Fauli, the president and chief executive of Professional Bank, a $177 million-asset community bank in Coral Gables, Fla. "I'm sure some people are more behind the game than others…but at the end of day, you've just got to get it done."
Still, Valdes-Fauli said getting QM implemented has taken "a lot of training, a lot of time and energy and resources."
He estimates his bank's preparations are more than halfway done. But some bankers, fearing they can't afford to implement the rules in time, are instead choosing only to write QM loans or exit the business entirely.
"I can tell you a lot of community banks are exiting the residential mortgage business because it's too compliance driven," Valdes-Fauli said. "'Credit crunch' might be too strong of a word, but it might create fewer lending options for people."
CFPB officials have repeatedly said to bankers and politicians that a majority of the loans currently in the marketplace would meet the QM standards and should not create a material disruption. The agency also added caveats to the rule to help banks transition past the implementation deadline, such as temporarily allowing a GSE-approved mortgage to be considered a qualified mortgage.
However, Noring says that while many mortgages meet Fannie Mae and Freddie Mac guidelines, banks don't have systems to evaluate whether those loans are eligible for qualified mortgage status, much less how they stack up under new legal protections. Under the CFPB rules, QM loans have greater protection from lawsuits than those that are not compliant with the regulation's underwriting criteria.
Lenders "first need to take all the required mortgage guidance out there and build down the processes in order to see where their loans fall" between QM and non-QM status, Noring said. "Although these rules make sense conceptually, the fact that it now goes beyond credit risk into legal compliance risk is a very new concept for people. These are really big conceptual changes."