One analysis firm is noting that even if a credit union services fewer than 5,000 loans—the threshold for complying with the CFPB's more than 1,800-pages of regulations on mortgage servicing—it will still be subject to the new rules if it uses a master servicer whose total volume exceeds the threshold.
And that's just one of the challenges the new rules is presenting to credit unions that offer mortgages to members, according to PolicyWorks, a consultancy that works with CUs on regulatory compliance and government/public affairs. Andrea Stritzke, VP of regulatory compliance for the firm, and Jeff Andersen, regulatory counsel, told Credit Union Journal for starters, the new rules will be a drain on resources—human and capital.
"The biggest impact is time," assessed Andersen. "The time it takes breaking down and implementing the rules, plus there will be a high-dollar-amount cost."
There is also the possibility of creating more exam findings, said Stritzke. "Before this credit unions were processing and servicing loans as best they could and treating their members right, but now there are these new definitions about what they have to do and there may be more examination findings."
Andersen said he is concerned the bureau's well-intentioned efforts to help consumers will, in the long run, be a negative by reducing their number of options.
"I worry when you standardize how to interact with customers and members that it homogenizes the industry," he said. "This gives the larger institutions an advantage, because they will have efficiencies from the economies of scale. It is a balancing act for the CFPB."
Whether or not credit unions continue to book home loans depends on how lucrative the mortgage business is for them, Stritzke offered.
"There is no doubt all of these mortgage rules combined will drive some credit unions out of the market, or at least force them to go to a third party to handle things for them," she said. "Interest rates are low right now, and then all this compliance is added. At some point it becomes too difficult. This is not the best environment to be piling on new rules."
Added Andersen, "Any credit union that is on the cusp with mortgages might drop their program, but credit unions with a robust mortgage program should not be driven out."
When the CFPB released its mortgage servicing rules on Jan. 17, included was an exemption from some provisions for credit unions and other small financial institutions that service 5,000 or fewer loans, which they or an affiliate originate, up from a proposed 1,000-loan threshold. While the credit union trade groups celebrated the success of their lobbying efforts, the PolicyWorks team pointed out a problem—even if a CU services fewer than 5,000 loans, if still will be subject to the new rules if it uses a master servicer whose total volume exceeds the threshold.
Stritzke said CUs should be "pleased" with the small servicer exemption, but quickly added, "'pleased' is a relative word."
"We think the CFPB could have exempted more credit unions," she asserted. "It still is going to have a significant impact, including on some credit unions that were not expecting to be impacted by the rule. When you take this rule plus the ability to repay rule and the disclosure rule that is coming out later this year, it is overwhelming to many credit unions. Right now credit unions are gathering information and trying to figure out how the rules apply to them."
CUNA continues to work with the CFPB to address the subservicer/master servicer issue in an attempt to exempt more credit unions, Stritzke noted, but added, "There is still some question on this issue. If we had our pick we would like no credit unions subject to this rule, but it is helpful to see the number raised."
The current implementation target for most of the new mortgage rules is January 2014. Stritzke said those CUs that do not get the small credit union exemption will have to review their policies and procedures.
"On the RESPA servicing side there are many things credit unions are doing that they do not document at this time," she noted. "Larger credit unions will move through a project management process. They need to figure out the effects of the rules, as well as what vendors they need to get involved with."
On the Truth in Lending Act front, Andersen warned credit unions will have to review their periodic statements, and, in many cases, make changes to disclosures.
"The first quarter will be the time to get a really good understanding of the rule," he counseled. "This means examine how the process works, determine where responsibilities lie and figure out how to communicate with borrowers. Then, in the second, third and fourth quarters, implementation will take place."
Stritzke said an "efficiency model" is desired in working through compliance with regulatory changes.
"When credit unions were responding to the credit card rules a couple years ago they were not always efficient because they did not look at it from a project management standpoint."