Home ownership remains one of the best assets on which members build personal wealth and encouraging signs indicate the housing market is slowly recovering. Lower interest rates continue to entice members to refinance to improve their situation and home purchasing activity is on the rise. However, obstacles are closing in on credit union mortgage lending in the form of new rules and regulations.
While most of these regulations are well-intended and designed to protect consumers from abusive lenders, they will punish credit unions for the sins of others. Some of these requirements may already be managed within a credit union's current structure, but most will present some challenges.
Already in 2013, there have been a number of new rules handed down from the CFPB including:
Ability to Repay
This action sets a definition for a Qualified Mortgage and creates standard underwriting criteria.
Mandatory Escrow Accounts on High Priced Loans
For loans that are higher priced and higher risk, this rule creates requirements for escrow accounts to ensure borrowers can meet their tax and insurance payments.
These actions establish new rules regarding providing a copy of an appraisal to a borrower as well as new rules regarding appraisals for higher priced mortgage loans.
This establishes new requirements for servicing loans related to periodic statement requirements, interest rate adjustment notices, and error resolution (among many others).
Loan Officer Compensation
This action sets new standards for how loan officers can and cannot be compensated in order to prevent loan steering.
List of Home Ownership Counseling Organizations
Lenders are now required to provide written lists of such agencies to borrowers.
Credit unions leaders need to realize these changes not only relate to first mortgages, but can also relate to second mortgages. And while some of the rules have exemptions, many do not.
Compliance in real estate lending is more important than ever. Lending, lending operations, and staff must comply or face much stiffer penalties. So how can credit unions meet these challenges head on?
Get out of the business.
It’s always an option to stop making real estate loans, but it’s difficult to serve members without these core products.
Hire compliance staff.
A good compliance officer can come with a high price tag, but this can be money well spent if they keep the business compliant.
Partner with another credit union or CUSO to share the compliance burden.
There are compliance specific CUSOs capable of helping a credit union maintain its program, or you could create your own compliance-sharing program with a few credit unions.
Partner with a solid mortgage lending CUSO.
There are many mortgage lending CUSO options that typically have strong compliance programs in place for the entire loan process. Mortgage CUSO’s with several credit union clients help to spread the cost of compliance over a larger pool, as well as create other operational efficiencies and cost savings.
Hope and pray.
This may help you feel better individually and spiritually, but it is recommended that you couple it with one or more of the options above.
Credit unions have made strong gains in member mortgage lending. Those who have chosen to partner with mortgage lending CUSOs like myCUmortgage, benefit from built-in compliance expertise and monitoring, which eases their burden.
Regardless of the option or options your credit union chooses, sign up for alerts from the CFPB at consumerfinance.gov to stay informed. Credit unions have a choice. They can either allow these new compliance issues to hinder their progress, or they can take them on and meet members’ home loan needs the credit union way.
For more information, visit mycooportunity.com.
myCUmortgage is more than a mortgage lender; we are owned by a credit union and understand the importance of working together. Credit unions are at the center of what we do. Let myCUmortgage help you provide quality, cost-efficient mortgage products to your members and build a lasting relationship with your members.
Tim Mislansky is President of myCUmortgage and Senior Vice President/Chief Lending Officer for Wright-Patt Credit Union. He sits on the ACUMA Board of Directors, is a member of Mortgage Cadence Advisory Council and serves on the Dayton Ohio Habitat for Humanity Board. Tim has 20 years of credit union experience. He can be reached at (877) 630-3399.