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CUNA Tells Lawmakers CUs Merit Full QM Exemption

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WASHINGTON (6/19/13)--Credit Union National Association witness Jerry Reed testified yesterday that credit unions worry that the Consumer Financial Protection Bureau's Qualified Mortgage (QM) rule will make it all but impossible for credit unions to write non-QM loans.

Reed, who is chief lending officer at Alaska USA FCU, said that the QM
Click to view larger image Rep. Shelly Moore Capito (R-W.Va.)  shakes the hand of Jerry Reed, the CUNA witness who testified Tuesday on behalf of credit unions regarding concerns about the CFPB's QM rule. Reed is chief lending officer at Alaska USA FCU. (CUNA Photo)
standard "designed to be an instrument of consumer protection, may serve as an instrument of prudential regulation, effectively setting a bureaucratic standard for loan quality."

Reed was representing credit unions at a House Financial Services subcommittee on financial institutions and consumer credit hearing on "Examining How the Dodd-Frank Act Hampers Home Ownership."

Reed told lawmakers that credit unions commend the CFPB for listening to their concerns and for incorporating many of their concerns into amendments to the mortgage rules. However, he underscored that credit unions continue to have serious apprehensions about how the QM rule will be implemented and believe that it could have the unintended effect of reducing credit union members' access to credit.

"Credit unions were created to promote thrift and provide access to credit for provident purposes to their members. The credit union structure and historical performance of credit union mortgage loan portfolios strongly support a full credit union exemption from the QM rule," Reed testified.

As not-for-profit financial cooperatives, Reed reminded, credit unions are owned by the members that they serve. This fundamental difference between the for-profit and not-for-profit sector of the financial services industry provides a significantly different incentive structure for those managing the institutions, Reed noted.

In addition, credit unions are primarily portfolio lenders, typically selling less than a third of their new originations. The fact that most of the loans they make will be held in their own portfolios is further incentive for them to be particularly attentive to the applicant's potential ability to repay.

"While we appreciate the fact that the bureau has provided a modest exemption for small volume originators, we question the need to apply this rule to credit unions in the first place, and urge the bureau to consider exempting credit unions from the rule entirely," Reed said.

Opening her subcommittee's hearing, Rep. Shelly Moore Capito (R-W.Va.) said it could be the very consumers that are meant to be protected by the CFPB's Ability-to-Repay mortgage rule, issued in conjunction with the QM rule,  that could be harmed by unintended consequences of the rule.

She said low-income consumers, and those in rural areas with low property values, could find the ability-to-repay rule eliminates mortgage lenders' ability to engage in "relationship lending." She said "case-by-case, local lending" could disappear because of "rigid mortgage lending rules" proposed by the CFPB.

Rep. Sean Duffy (R-Wis.) said there appears to be a bipartisan agreement on the need to fix some parts of  the Dodd-Frank Act, though other members spoke in favor of that law's provisions. For instance, Rep. Carolyn Maloney (D-N.Y.) said Dodd-Frank is intended to show "we learn from our mistakes." (See related story: FHFA QM Proposal Could Harm Credit Access, CUNA Warns.)

NEW: Tax Options Paper Gets CUNA 'Inside Exchange' Spotlight

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WASHINGTON (6/19/13, UPDATED 5:15 p.m. ET)--The threat level of credit unions of tax reform--raised by the release June 13 of a "tax options" paper by the Senate Finance Committee--is explored in the latest episode of "Inside Exchange," the Credit Union National Association's video series of key legislative, regulatory and political topics.

In this episode, titled "Impact of tax reform on credit unions," Paul Gentile, CUNA executive vice president of communications, and Ryan Donovan, CUNA senior vice president of legislative affairs, discuss what the "tax options" paper means for credit unions, how that affects the threat level for credit unions, and the process going forward. They also discuss why now is the time for credit unions to become engaged in preserving and protecting the tax exemption.

CUNA created the "Inside Exchange" video series as a new way to directly communicate to member credit unions, and to provide detailed insights into what's happening in Washington, D.C., in the legislative, regulatory and political arenas.

For more on this new video, and previous videos featuring CUNA comments on credit union advocacy efforts, use the resource link.

The Inside Exchange videos can also be found by clicking on the "stay informed" section of the gray menu bar at the top of the cuna.org homepage and scrolling down to the "Inside Exchange" pane.

CUNA Warns FHFA QM Proposal Could Harm Credit Access

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WASHINGTON (6/19/13)--The Federal Housing Finance Agency's (FHFA) decision to prohibit government-sponsored enterprises Fannie Mae and Freddie Mac from purchasing mortgages that do not meet the definition of qualified mortgages (QM) could prevent credit unions from working with their members to customize financial products that meet their individual needs, Credit Union National Association President/CEO Bill Cheney wrote in a Tuesday letter to FHFA Acting Director Ed DeMarco.

"The ability of credit unions to customize their products is important because, as member-owned, democratically controlled financial institutions, credit unions understand that every member brings different circumstances to a home purchase transaction...And always look to exhaust every option in order to satisfy a member's needs," Cheney explained. These circumstances may lead to the creation of loans that fall outside the QM box, he added.

"The FHFA decision leaves the impression in the minds of many credit unions that this kind of individualization is no longer welcomed," Cheney wrote.

The Consumer Financial Protection Bureau issued standards to define QMs under the agency's "ability to repay" rules, and mortgage servicing rules, in January. The FHFA's purchasing prohibition would become effective at the same time as the CFPB's ability to repay rules: January 2014.

Loans with terms that do not exactly match certain CFPB QM requirements, such as 40-year loans, or loans with points and fees exceeding the thresholds established by the rule, will not be purchased by the GSEs.

The FHFA will allow the GSEs to continue to purchase loans that meet the underwriting requirements stated in their respective selling guides, including loans with debt-to-income ratios above 43%. Cheney in the letter commended this decision.

However, he wrote, the FHFA's decision could adversely impact "Americans who need the flexibility credit unions provide to their members the most." (See related story: CUNA Tells Lawmakers CUs Merit Full QM Exemption.)

NCUA Adds Loan Participation Rule To Thursday Agenda

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ALEXANDRIA, Va. (6/19/13)--A final rule on loan participations has been added to the National Credit Union Administration's June open board meeting agenda.

While the details of the final rule will not be available until the board meeting, the Credit Union National Association has raised serious concerns about the proposal as it was issued December 2011 and is hopeful important changes will be included in the final rule.

In its comment letter and subsequent advocacy efforts on the proposal, the CUNA urged the agency to withdraw it, as the net worth limitations on loan originations from one originator and one borrower in particular would be very problematic. CUNA also urged the agency to provide a waiver process.

CUNA also raised concerns about the impact of the proposal, saying it would add to the regulatory burden of affected credit unions in a manner that is wholly disproportionate to the risks associated with loan participations.

A proposed Illinois Member Business Loan rule is the other item on the open board meeting agenda. Supervisory activity considerations will be considered during the closed board meeting.

The open meeting is scheduled to being at 10 a.m. (ET) on Thursday. The closed meeting will follow shortly thereafter.

For more on the NCUA agenda, use the resource link.

NCUA Offers Tips On CyberGrants

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ALEXANDRIA, Va. (6/19/13)--Tips and guidance to help credit unions navigate the National Credit Union Administration's CyberGrants system are provided in this month's edition of the NCUA Office of Small Credit Union Initiatives FOCUS e-Newsletter.

The CyberGrants system is an online portal that allows credit unions to apply for multiple grant initiatives with a single application, and makes the agency's application review process more efficient.

The FOCUS article provides tips on:

  • Accessing the CyberGrants system;
  • Logging in;
  • Navigating and using the system; and
  • Completing and filing an application.
The NCUA began accepting 2013 funding round grant applications from low-income credit unions on Monday.

Eligible credit unions may apply for as much as $24,000 in funding. A total of $1.18 million in grant funds are available. Applications will be accepted until July 12, and grantees will be announced at the end of August.

The grant money may be used to support credit union financial literacy, product development, collaboration, staff and board member training, office relocation and computer modernization efforts, according to the agency.

For more of FOCUS, use the resource link.

Waters Wants Probe Of Mortgage Servicers That Mislead On HAMP

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WASHINGTON (6/19/13)--Rep. Maxine Waters (D-Calif.), who is the ranking Democrat of the House Financial Services Committee, Tuesday called for an investigation of "Bank of America or any other mortgage servicer, who allegedly benefited by misleading borrowers eligible for the Home Affordable Modification Program (HAMP)."

The letter to Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Christy L. Romero was sparked by an article in Bloomberg that, according to a release from Waters, cited court documents in which former loan employees stated that, Bank of America, the second-biggest U.S. lender, allegedly schooled employees "to maximize fees" by "fostering and extending delay of the HAMP modification process by any means."

Waters' release said the congresswoman also sent a letters to the Office of the Comptroller of the Currency and the Federal Reserve Board to ask them to investigate "how or whether these allegations against Bank of America interact with the Independent Foreclosure Review settlement reached between regulators and mortgage servicers in January 2013."

CUNA: HUD Reporting Changes Would Ease CU Burdens

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WASHINGTON (6/19/13)--"Credit unions strongly support efforts to simplify their compliance obligations," including a proposed U.S. Department of Housing and Urban Development (HUD) rule that would streamline Federal Housing Administration (FHA) financial statement reporting requirements, Credit Union National Association Deputy General Counsel Mary Dunn said in a comment letter filed this week.

Under the HUD proposal, small credit unions and other financial institutions with less than $500 million in assets would not be required to submit separate annual audited financial statements as a condition of FHA lender approval and recertification. Unaudited statements that are submitted to the National Credit Union Administration or other prudential regulators would suffice.

Audited financial statements would only be required if HUD determines an institution poses heightened risk to the FHA insurance fund.

"We believe the proposed rule makes sense," Dunn wrote. "By aligning the FHA financial reporting requirements with those credit unions are already required to undertake, FHA will permit credit unions to avoid redundant compliance obligations and minimize compliance costs," she said.

"Credit unions currently face substantial regulatory burdens related to mortgage lending in light of the large volume of recently issued regulations coming from regulators with jurisdiction in this area," Dunn added.

For the full comment letter, use the resource link.