QM safe harbor set; concerns remain

Jan. 10, 2013 – A NAFCU-recommended safe harbor for credit unions that issue mortgages according to a new "qualified mortgage" standard is included in the final ability-to-repay rule issued today by the CFPB, bureau Director Richard Cordray said in a phone call to NAFCU President and CEO Fred Becker.

Becker welcomed the inclusion of a safe harbor for credit union loans that meet the rule's qualified mortgage standard. “Credit unions have always been responsible lenders seeking to meet their members’ needs with safe and sound products,” he said. “NAFCU strongly believes that the safe harbor approach is preferable for all parties involved in a mortgage loan transaction as it provides parties clarity and certainty, and consequently discourages frivolous lawsuits, claims or defenses.”

Today's final ability-to-repay rule (see summary) takes effect in January 2014.The bureau is also issuing proposed amendments that would, among other things, provide QM status for certain loans made and held in portfolio by small creditors, such as community banks and credit unions. The proposal will seek comments on how to calculate loan origination compensation under the points and fees provision of qualified mortgages. Additionally, final rules are being issued on escrow accounts and on triggers and restrictions for mortgages subject to Home Ownership and Equity Protection Act requirements.

The ability-to-pay rule, called for by the Dodd-Frank Act, lists the characteristics of a qualified mortgage, or one that regulators will presume will be within the borrower's ability to repay the loan. The proposal originally sought comments on whether the rule should include a safe harbor or a rebuttable presumption of compliance. The safe harbor says the QM meets that standard, helping to better protect compliant lenders against civil actions. 

Even with the safe harbor in place, NAFCU still has concerns. “It has been our members’ experience that a rigid approach to regulation is counterproductive, often unworkable and frequently leads to unwanted results,” Becker said. "As the rule is likely to have greater effect on smaller institutions, NAFCU will continue to pursue avenues and solutions that will limit the rule’s impact on credit unions, including seeking an exemption for small, federally insured lenders."

The final rule includes both a safe harbor and a rebuttable presumption. Loans with safe-harbor status are generally lower-priced loans, generally prime loans that are given to consumers who are considered to be less risky. A rebuttable presumption applies to higher-priced loans, those generally given to consumers with insufficient or weak credit history. The final rule and proposed amendments will be available online today, the CFPB said.

NAFCU’s board and CFPB Director Richard Cordray discussed the QM standard and more during a meeting last month at bureau headquarters. NAFCU has also pressed for a safe harbor in joint trade letters to Cordray and Congress, its own communications with Congress, in official regulatory comment letters and in discussions between Cordray and NAFCU President and CEO Fred Becker.

The proposed rule was issued by the Federal Reserve Board in 2011 and has been under review at the CFPB ever since the reg was transferred to the new agency. NAFCU strongly urged that the final QM provisions include a safe harbor and warned that lack of a safe harbor could discourage many credit unions from continuing to provide mortgage loans.