WASHINGTON (5/22/13)--Qualified mortgage rules must be changed to ensure credit unions will be able to meet their members' borrowing needs in a way that minimizes risk and default, Credit Union National Association President/CEO Bill Cheney wrote in a letter submitted to the U.S. Congress on Tuesday.
The letter was submitted to House Financial Services financial institutions and consumer credit subcommittee chair Shelley Moore Capito (R-W.Va.) ahead of a hearing entitled: "Qualified Mortgages: Examining the Impact of the Ability to Repay Rule." Consumer Financial Protection Bureau Assistant Director for Mortgage Markets Peter Carroll and Assistant Director for Regulations Kelly Cochran testified at the hearing.
To help improve the regulation for credit unions, Cheney in his letter suggested expanding the ceiling on the debt to income ratio beyond the current 43% limit: "Credit unions often write mortgage loans for members that have a 45% debt-to-income ratio...Even so, our mortgage losses remain very low," he said.
Members of the subcommittee echoed some other concerns raised in CUNA's letter. There was broad consensus on both sides of the aisle that community based financial institutions should not be harmed by the "ability to repay" rule as currently written. Specifically, members raised concerns about the 3% cap on points and fees and asked questions about the debt-to-income ratio established in the rule. The cap could potentially harm those that participate in relationship banking, they said.
"As the loan amount decreases, certain fees cannot decrease alongside of it--some fees are fixed and are not dependent upon the size of the loan," Cheney wrote in the letter. "Therefore, the smaller the loan amount, the easier it is for fees to constitute a higher percentage of the total loan. This is especially true as the fees are currently defined as including loan originator compensation, and affiliate and non-affiliate fees."
Members of the subcommittee also discussed how this rule would interface with existing regulations. In his letter, Cheney also raised this point: "Examiners may be critical of credit unions and assess their CAMEL ratings accordingly if credit unions do not make mortgages that meet the qualified mortgage standards. We believe credit unions should retain the flexibility they currently have to either hold a loan in portfolio or sell it on the second mortgage market based on the needs of the credit union to manage its assets and obligations," the CUNA leader added.
For the full letter, use the resource link.