Three Key Questions To Implement Your Mortgage Lending Policy

December 16, 2013 at 8:20 am Leave a comment

The NCUA issued a joint statement with the Federal Reserve, the OCC and the FDIC on Friday reiterating a point that any one who reads this blog or who takes advantage of the Association’s compliance overviews should already know. Specifically, with the qualified mortgage rules taking effect on January 10, the agencies emphasized that there are “several ways to satisfy the ability to repay requirements including making loans that do not qualify as qualified mortgages.” The second part of the memo, which doesn’t apply to credit unions, stressed that financial institutions that decide to exclusively make qualified mortgages do not violate the community reinvestment act.

Are the regulators talking out of both sides of their mouth? Not at all. The ultimate goal of the Dodd-Frank Act and its enacting regulations is to ensure that borrowers have the ability to repay their mortgage loans. One way, but not the only way of doing this, is to offer mortgages that meet the qualified mortgage standards. It’s this simple. What’s changed is the requirement that you be able to document in the loan file why you thought someone could repay a mortgage. Another big change has been the legal risk associated with not being able to document why you thought the member could repay the loan.

The safest way to maximize your credit union’s legal protection is to only make qualified mortgages. But this is by no means the best way of implementing your lending program. For instance, are you suddenly going to tell the member who has been with the credit union for 10 years and never been delinquent on a loan that his debt-to-income ratio of 46% means that you can’t give him a mortgage?

If you haven’t done this already, your credit union should sit down and come up with answers to the following questions.

1. How many of the current mortgages you provide already qualify as QM Mortgages either because they meet the criteria laid out in the regulation or because they are saleable to the secondary market?

2. Of your non-qualified mortgage pool, how many were granted consistent with long-standing criteria used by the credit union?

3. Are you willing to put these criteria in writing, document loan files consistent with these underwriting standards, and ultimately defend them in court in the event that someone claims that they were given a house they couldn’t afford?

If you can affirmatively answer these questions, and I bet that many of you can, then go ahead and make the loans the way you have in the past. Just be able to document what it is you are doing and make sure that whatever decisions you make reflects the level of risk your credit union is willing to take.

I’m hoping many of your have already done this, but the mere fact that federal regulators came out with a memo on Friday tells me that not all of you have.

Entry filed under: Compliance, General, 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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