Three mortgage lending questions you should be asking yourself now

March 12, 2013 at 7:53 am 1 comment

Today, the Senate Banking Committee will be considering the nomination of Acting CFPB Director Richard Cordray to be the director of the CFPB.  While there’s much to be said about the CFPB regardless of who ends up as Director, for how long and under what constraints, credit unions will have to comply with new notice requirements by this summer and the bulk of Dodd-Frank mandated mortgage and servicing requirements by January 14, 2014.  You could create a blog simply for giving advice on complying with the mortgage provisions of Dodd-Frank, but with that caveat here are some of the basic questions I would be asking myself if I engaged in mortgage lending as a credit union:

1)  How important is a safe harbor?  Mortgages that meet certain underwriting criteria or that can be sold to the secondary market will be given a safe harbor when bringing a foreclosure action.  This means that, in theory at least, when bringing a foreclosure action you will simply have to document to a court that you have complied with federally mandated underwriting criteria and the homeowner will not be able to argue that he or she was given a mortgage he or she couldn’t afford.  Higher priced qualified mortgages will be given a presumption of legality.  Is this safe harbor so valuable that your credit union will only underwrite mortgages that qualify for this protection or will it instead underwrite mortgages outside of this safe harbor?  Throughout its regulations, the CFPB stresses that it does not want lenders to underwrite solely to safe harbor standards.  It argues that so long as lenders engage in sound underwriting practices they should not be afraid of legal defenses against foreclosure.  They may have a point.  But this is a question that your credit union should give thought to over the next year.  For instance, I would find out how many mortgages you provide that do not comply with secondary market standards and compare your existing underwriting criteria to the safe harbor provisions.

2)  Are foreclosures really worth it?  In New York, where foreclosures are the longest in the nation with the possible exception of California, the answer is increasingly, no.  Remember that there is no safe harbor from CFPB’s “loss mitigation” requirements for troubled homeowners.  Not only are we about to see nationwide pre-foreclosure notices, but attorneys, aided by sympathetic judges, are going to make it impossible to efficiently foreclose on property.  I would look at how much a typical foreclosure costs your credit union now in both direct and indirect costs, add a multiplier to that baseline average and decide when, if ever, a foreclosure is worth it.

3)  Although the CFPB is proposing safe harbors for smaller institutions that make 500 or fewer mortgages a year and that hold on to these mortgages in their own portfolio, credit unions should take a look at those aspects of the regulations with which you will have to comply and ask yourself, is the mortgage business worth it at this point?  If I was questioning Richard Cordray today I would take a break from the political posturing and ask him if he would consider creating a safe harbor for “loss mitigation” efforts and if he still believes, as he argued several months ago, that there is really no such thing as a safe harbor when it comes to mortgage lending.  You might use his answers to guide your own internal deliberations.

 

Entry filed under: Advocacy, Compliance, New York State, Regulatory. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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