A leading credit union executive called on Congress this morning to exempt credit unions from new Qualified Mortgage rules that would generally bar them from making subprime and other risky mortgages.
Jerry Reed, chief lending officer for Alaska USA FCU, told a subcommittee of the House Financial Services Committee the new Ability-to-Repay mortgage rule passed by the Consumer Financial Protection Bureau will have many unintended effects and preventing many low-income borrowers from obtaining home loans.
“Those expected to feel the impact of these rules the most are first-time, lower-income buyers; those with credit scores below 720, the self-employed and anyone wanting a reduced initial downpayment,” Reed told the panel exploring the impact of the rule, due to take effect next January.
The $5.3 billion Alaska USA serves 470,000 members all over the country—mainly in Alaska, Washington and California—and is one of the biggest mortgage lenders among credit unions.
The CFPB rule sets new parameters and requires lenders to make a credit decision on a borrower based on a good-faith determination of the borrower’s ability to repay the loan. This determination must be based on documented and verified income and limits the borrower’s debt load to 43% of income. The rule also establishes a cap on certain fees related to the transaction, limits the loan term to 30 years and excludes certain types of non-traditional loans.
Just as importantly, both Fannie Mae and Freddie Mac, currently the only active purchasers of residential mortgages, have been barred from buying non-Qualified Mortgage loans.
The credit union executive said a small issuer exemption the CFPB included in its rule does not go far enough and should include all credit union mortgages. “While we appreciate the fact that the Bureau has provided a modest exemption for small volume originators, we question the need to apply this rule to credit unions in the first place, and urge the Bureau to consider exempting credit unions from the rule entirely,” said Reed, who was appearing on behalf of CUNA.
“The unfortunate result will be that some members who would otherwise have qualified for a mortgage from their credit union may not receive loans,” said the Alaska USA FCU exec.
Reed’s concerns were shared by Rep. Shelley Moore Capito, R-W.Va., the chairman of the House Financial Services Subcommittee on Financial Institutions, who called on the CFPB to amend the mortgage rule because of worries it will severely limit access to mortgages in rural and moderate-income communities.
NAFCU in a letter to the Committee, joined CUNA in its opposition to the mortgage rule. NAFCU President Fred Becker said the 43% debt-to-income limit is particularly problematic for his members. “NAFCU believes 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,” he wrote.
The DTI requirement, according to Becker, “is too restrictive and would effectively exclude many otherwise creditworthy consumers from the mortgage market. The requirement also does not take into account a number of factors that are relevant in determining a consumer’s ability to repay, including debt that will be paid within a short period of time or likely increases to income, such as through inheritance.”
Also testifying at this morning’s hearing are: the Commissioner of the Kentucky Department of Financial Institutions on behalf of state regulators; representatives of the American Bankers Association, Mortgage Bankers Association, National Association of Realtors and the credit union-backed Center for Responsible Lending.
