No credit union that is lending in today’s mortgage market will be unaffected by the steady stream of new rules pouring out of the Consumer Financial Protection Bureau (CFPB). However, smaller institutions may have a little extra time to quietly observe the impact of a few of the more burdensome new requirements and, thanks to some targeted small creditor and small servicer exemptions, assess new technology and best practices before adopting an all-in approach to the new mortgage regulations come January 2014.
Why did the CFPB provide for small servicer and small creditor exemptions from some of the rules? Two reasons: (1) to avoid overburdening smaller institutions with excessive regulation not strictly mandated under the Dodd-Frank Consumer Protection and Wall Street Reform Act (i.e., discretionary rulemaking); and (2) to acknowledge that smaller institutions already have a more intimate, hands-on relationship with members, which naturally results in fewer at-risk borrowers.
Take underwriting for example. There are small creditor exemptions available on the origination side for creditors with assets less than $2 billion who make fewer than 500 dwelling-secured loans per year. This exemption can provide relief from parts of the new Ability-to-Repay and Qualified Mortgage rules. What does that really mean for a small credit union? More lenient underwriting requirements go with Small Creditor Qualified Mortgages (SCQMs) and Balloon Payment Qualified Mortgages (BPQMs), which are available only to qualifying small creditors. The main advantage of the SCQM is that you can avoid strict compliance with Appendix Q of Regulation Z (Standards for Determining Monthly Debt and Income) while still originating a Qualified Mortgage that comes with enhanced compliance presumptions. The main advantage of the BPQM is that it is the only type of qualified mortgage that allows for a balloon payment. In order to make an adequate assessment of whether you might benefit from these exemptions, you’ll have to look at the finer details of the small creditor criteria, including portfolio requirements and, when additional requirements kick in two years from now, whether you are lending in a rural or underserved area.
In terms of discretionary rulemaking, many of the new servicing rules came out of the National Mortgage Settlement. The National Mortgage Settlement was designed to address issues in dealing with distressed borrower and applied specifically to the nation’s five largest mortgage servicers. In providing for a small servicer exemption relative to that part of the servicing rule, the CFPB recognized that small institutions might already have sufficient policies and procedures in place for dealing with troubled homeowners, particularly with respect to error resolution, continuity of contact, and loss mitigation procedures. For purposes of the servicing rules, small servicers are broadly defined as those servicing fewer than 5,000 mortgage loans. Here, the small servicer still must determine whether it makes sense to adopt some of the discretionary requirements as best practices.
With these exemptions, small credit unions can initially concentrate on the requirements under the new mortgage rules for which there are no exemptions: new ARM disclosures; prompt crediting and payoff statement requirements; rules for high costs loans; appraisal requirements; and the definition of SCQMs and BPQMs. Although not exactly a luxury, it is a significant advantage in that exemptions from periodic mortgage statement requirements, strict underwriting standards for qualified mortgages, and certain servicing procedures represent freedom from some of the most complicated aspects of the mortgage origination and servicing rules. To be able to step back, knowing that the technology will be available when and if it is needed in these areas, buys valuable time for achieving compliance where and when it really matters.
For that, solid compliance tools and technology are imperative as indicated by Trisha Loker of Beacon Credit Union ($1.04B, Wabash, IN), a $1 billon institution that relies on Harland Financial Solutions for reliable and compliant technology solutions.
“The compliance that LaserPro offers is the best in the industry,” says Loker, who recently went through the selection process for a new document preparation system for Beacon Credit Union. “We contacted current LaserPro users to find out what their attorneys thought about the solution. All of the feedback that we have received about the compliance of LaserPro has been spectacular. Simply having that knowledge is very comforting in today’s complex and fast-moving regulatory environment.”
Beacon Credit Union is continuing to revamp the consumer and mortgage side of the credit union by adding two more Harland Financial Solutions products that will provide it with a streamlined consumer lending process with an integrated, online loan application and automated application processing. Growth is definitely in its future, and knowing that solid, compliant solutions are in use enables Beacon Credit Union to move forward with confidence, whether or not it elects to take advantage of the small servicer or small creditor exemptions that may be available to it. For more information about LaserPro, click here.
Tammy Campbell is Sr. Compliance Counsel for Harland Financial Solutions.
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