CFPB’s Dodd-Frank Exemptions Fall Short

May 31, 2013 at 8:05 am Leave a comment

On Wednesday, the CFPB finalized further revisions to its definition of qualified mortgages intended to ensure that small creditors don’t stop making mortgage loans once Dodd-Frank’s mandated mortgage reforms take full effect next year.  The definition of small lending institutions was not changed, which means that in order to qualify for substantial relief from Dodd-Frank’s mortgage requirements, your institution has to have $2 billion or less in assets and make 500 or fewer first lien mortgage loans a year.

The most important reform is that mortgages made by small creditors that exceed a 43% debt to income ratio will be eligible for qualified mortgage protection.  Remember that qualified mortgages have greater legal protection than other types of mortgage loans.  If your credit union is also a CDFI, the regulations also exempt your credit union from the baseline ability to repay requirements.  This is great news since it allows your institution to continue to make loans the way it has always made them without worrying about the cost of regulatory compliance.

At the end of the day, the requirements demonstrate once again the fact that the CFPB understands that there are fundamental differences between credit unions and other financial institutions, but is unwilling to extend flexibility from Dodd-Frank requirements for all but the smallest credit unions.  For example, in the preamble to Wednesday’s regulations, the CFPB noted that credit unions were not responsible for the lending crisis.  However, it refused to extend exemptions from Dodd-Frank mortgage requirements to all credit unions.   Why should credit unions be given categorical exemptions from the Dodd-Frank mandates?  Because they are not-for-profit institutions with a recognized track record of providing the types of safe mortgages that Dodd-Frank was ostensibly designed to encourage.  Another proposal rejected by the CFPB would have extended Dodd-Frank mortgage exemptions to low-income credit unions.  Ultimately, the CFPB was uncomfortable with the fact that LICUs don’t exclusively serve low-income communities.

So yet again, because the CFPB isn’t willing to give the credit union industry as a whole Dodd-Frank exemptions or, in the alternative, raise the threshold for small lender exemptions, credit unions will have to manage their mortgage portfolio in much the same way they currently have to manage their small business loans.  Those credit unions that are getting close to exceeding the 500 mortgage lending cap will have to decide whether exceeding the cap outweighs the increased compliance cost of Dodd-Frank.  It will be a de facto cap for many credit unions and community banks, for that matter, and one which will ultimately do more harm than good.

Entry filed under: Advocacy, Compliance, 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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