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Cordray to Cheney: CFPB rules will include safe harbor for prime loans
WASHINGTON (1/10/13)--The Consumer Financial Protection Bureau (CFPB) is expected to address the standards to define a "qualified mortgage (QM)" under the agency's "ability to repay" rules. The rules have not yet been released and are anticipated later today.

The Credit Union National Association (CUNA) will post its summary of the final rules with credit union perspective shortly after they are released.

CFPB Director Richard Cordray called CUNA President/CEO Bill Cheney Wednesday to discuss the rules and the changes advocated by CUNA on behalf of credit unions. Based on early information and summaries the agency has released this morning, the agency has taken steps to address various CUNA concerns, including legal protection from challenges for noncompliance with qualified mortgage standards.  

CUNA has been consistently seeking to minimize the impact of these rules on credit unions since they were ordered by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. As recently as Tuesday, CUNA sent another letter to the CFPB director addressing concerns about the mortgage rules and urging that the bureau bring its awareness of the credit union difference into play as it develops all new rules.

Also today, SECU of Maryland President/CEO Rod Staatz will testify on behalf of CUNA and credit unions at a CFPB Jan. 10 mortgage-policy field hearing in Baltimore, Md. He will drive home CUNA's message that the agency must direct its appreciation of the way credit unions operate into meaningful regulatory relief for credit unions so that they can do even more to serve their communities.

News Now will provide details of the new mortgage rules as soon as the rules are released.

Congress directed that the ability to repay rules include provisions that would help shield lenders whose loans meet QM standards if challenged in court by a borrower alleging the loan is not in compliance. CFPB information indicates the rules take differing approaches to higher-priced loans and lower priced ones regarding legal protection.

For lower-priced loans, the CFPB announced it created a "safe harbor" status for lenders. These prime loans generally are made to consumers who are considered to be lower risk borrowers.

It is anticipated that most credit union mortgage loans would qualify for the safe harbor status, an outcome that CUNA has aggressively pursued. Consumers could challenge their loan if they feel it does not meet the definition of a Qualified Mortgage but such a safe harbor is intended to provide lenders with legal protection that QM standards have been met.

For higher-priced loans, sometimes given to consumers with insufficient or weak credit histories, the CFPB indicated that legal challenges would involve a "rebuttable presumption." A borrower seeking to challenge such a loan would have to prove he or she did not have sufficient income to pay the mortgage and other living expenses.

The CFPB's summary also indicates requirements such as the following are included:

  • Before making a loan, a lender must document such things as a borrower's employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations;
  • Therefore, lenders would be banned from offering "no-doc" and "low-doc" mortgages--loans that don't ask for documentation of such things as income and assets; and
  • A borrower would need to show sufficient assets or income to pay back the loan and lenders must evaluate this information; and
  • Lenders would be prohibited from basing their evaluation of a consumer's ability to repay on teaser rates.
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