HIGHLANDS RANCH, Colo. — Steve Von Sickler, SVP and chief lending officer for Red Rocks Credit Union here, is also chairman of the ACUMA Regulatory Compliance Committee that drafted an extensive response to the NCUA's request for comment on subprime lending. The recently released Interagency Statement on Subprime Mortgage Lending, he said, "included most all of our recommendations." Of particular mention was:
* Underwriting Standards — An institution's analysis of a borrower's repayment capacity should include an evaluation of the borrower's ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule.
* Consumer Disclosure Issues — The Agencies have determined that, given the growth in the market for the products covered by the Statement and the heightened legal, compliance, and reputation risks associated with these products, guidelines are needed now to ensure that consumers will receive the information they need about the material features of these loans.
Recommended For You
Von Sickler stressed that, "Communications with consumers, including advertisements, oral statements, and promotional materials, should provide clear and balanced information about the relative benefits and risks of the products. This information should be provided in a timely manner to assist consumers in the product selection process, not just upon submission of an application or at consummation of the loan. Institutions should not use such communications to steer consumers to these products to the exclusion of other products offered by the institution for which the consumer may qualify."
Other salient points are that information provided to consumers should clearly explain the risk of payment shock and the ramifications of prepayment penalties, balloon payments, and the lack of escrow for taxes and insurance, as necessary.
Two Masters?
"We focused on the disclosures from the point-of-view of the consumer," Von Sickler said, but "overall, credit unions need to be mindful of the member relationship," and understand that they can no longer rely solely on collateral value" when making loans. "We need to look at everything; and ask, 'Is it within a calendar time frame that can be explained' [to a member] when discussing an Interest Only or Option Loan or other variety of non-standard products." He explained that some of those so-called exotics might be right for members in certain circumstances. The devil is in the details and making sure the members "gets it," he said. There is no bright line credit score (FICO) that determines by itself what a subprime borrower is, so more distinct disclosures were required.
"The prior NCUA Letter was about nontraditional mortgage lending guidelines and that has been adopted by many states already," Von Sickler noted. "I'm also chairman of the State legislative Committee of the Colorado Mortgage Lenders Association and I've sent those guidelines, which only apply to federal entities, to many other states. The idea is that state legislatures will adopt them as law, and that's how we get the guidelines to include mortgage brokers [who were omitted]."
Colorado passed what Von Sickler called a strong consumer protection bill, which was signed into law at the end of July. "Our law includes the requirement that a loan must provide a 'Tangible Net Benefit' to a borrower. It's an ethical standard and it applies to everyone, including a credit union, bank or broker. You can't put someone in a loan that's wrong for them."
Brokers balked, of course. Von Sickler said their argument was that the legislature was trying to force them into a fiduciary responsibility to do what's best for the borrower. "They said they couldn't because they can't 'serve two masters.' They can only serve one master, and for them, it's the bank or broker."
The irony is that now, the Colorado CU Association is using that argument as a marketing tool, he laughed. "Our message is that credit unions are member-owned, so our members are the masters."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
