Bracing For Mortgage Reform

Without investing capital yet, credit unions can understand the Consumer Financial Protection Bureau’s basic mortgage reform proposals.


New regulations from the Consumer Financial Protection Bureau are inevitable, but without a final ruling many credit unions are unsure how to prepare for them. Some credit unions are taking a wait-and-see approach while others may already be investing in larger compliance departments or new technology based on proposed versions.

But no matter the approach to pending regulatory change, credit unions agree that now is the time to start understanding the details of what new rules are being proposed, particularly in the realm of mortgage lending, under the Truth In Lending Act (TILA) and the Real Estate Spending Procedures Act (RESPA). The CFPB has a January 21 deadline to finalize portions of regulations required under Dodd-Frank, meaning credit unions may face new and significant challenges with mortgage reforms as early as July 2013.

In a recent session at the American Credit Union Mortgage Association (ACUMA) annual conference in Las Vegas, Jonathan Ihrig, senior assistant general counsel for CUNA, and Wilkes Harden, compliance analyst for Delta Community Credit Union ($4.3B, Atlanta, GA) reviewed the proposed regulation changes that would likely require significant operational changes in most credit unions. Among the most burdensome: rules on mortgage periodic statements. They would require credit unions to send statements each billing cycle with details on the account.

“The last the last thing on your mind is going through 1,000 proposed pages of regulation and drafting letters to the CFPB to get these changes in place,” says Ihrig. “But just because you might not originate first mortgages, doesn’t necessarily mean that these rules won’t apply to you.” The CFPB issued a 535-page report on how and why it crafted the rules, which Ihrig says indicates that the proposed version will be “very close to the reality.”

Delta Community Credit Union is not investing in major internal changes until after the rules are finalized, but Harden says he has been busy understanding how the details will impact the credit unions’ operations.

Delta Community does not currently provide periodic statements that would be required under the proposed rules, so adjusting operations to comply with that will likely require major investment. Like many credit unions, it provides abbreviated mortgage information on a member’s monthly share statement, which is produced in the credit union’s core deposit system. The credit has a dual processing system – a mortgage processing system for its first mortgages and a consumer lending system for its second mortgages. Like many credit unions, Delta Community CU has had challenges in the past getting those systems to communicate with each other and would really struggle to overhaul it to meet new standards.

“The data’s there, it’s just a matter of getting it to aggregate properly,” Harden says. “We’re going to look into our options for third parties. Whether we want to try to handle this in-house, or whether we want to use a third-party to produce it for us. At this point, we’re still researching, but we know it’s going to be an expensive change.”

Per proposed rules, members may agree to receive the monthly mortgage statements electronically, which would help credit unions avoid significant mailing costs. But the electronic statements must be in a form members can print or download. Members who are billed bi-weekly may receive just a monthly statement.

The CFPB also wants to include both an “important notices” section on the statements to identify whether or not the credit union has accepted a member’s partial payment, and a “delinquency notice” section, which must include details like when the borrower became delinquent, how many days delinquent they are, and review six months of their account history. The “delinquency notice” section must refer delinquent borrowers to housing counseling programs.

“To your programmers or vendors, these are going to be significant coding changes,” Ihrig says. “I don’t think it’s too early to being considering these things for budget purposes as you work through the budget processes this fall.”

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» Plan For Proposed CFPB Regulations
» Bracing For Mortgage Reform