At first glance, a proposed rule issued Jan. 10 by the CFPB that provides a qualified mortgage exemption to institutions with fewer than $2 billion in assets is a big win for small lenders.
However, upon further analysis, compliance experts say the proposed rule doesn't provide much regulatory relief to credit unions after all.
Andrea Stritzke, vice president of regulatory compliance for the Des Moines, Iowa-based compliance firm PolicyWorks, said the proposed rule eases the 43% debt-to-income ratio requirement for qualified mortgages for small lenders that fund fewer than 500 mortgages per year.
However, the lenders must keep the mortgage in their portfolio for at least three years to qualify, and must also meet all other qualified mortgage product and underwriting standards.
“We'd rather have this proposed rule adopted rather than not at all, but (CFPB) could have eased the burden on credit unions a lot more than in just that one piece,” Stritzke said.
John Bundy, compliance manager for CUNA Mutual, said upon preliminary analysis, he thinks the rule might allow credit unions to offer new mortgage products that were previously restricted under current rules, such as closed end home equity products. Most credit unions fall well within the 43% debt-to-income ratio for first mortgages, Bundy said, but borrowers who own their homes outright and have enough equity to qualify for home equity lending are often older members on fixed or lower incomes.
Bundy added that the proposed rule and its increased flexibility to small lenders is a sign the bureau recognizes credit unions didn't cause the financial crisis.
“But, it remains to be seen how much effect it will have on credit unions,” he said.
The rule included a footnote explaining the CFPB's choice of $2 billion as a threshold for the proposed rule does not imply that it will use the mark to distinguish “small firms” for other purposes.
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