January 11, 2019

Bureau reports note impact of ATR/QM, mortgage servicing rules on CUs

regsThe Bureau of Consumer Financial Protection yesterday released two assessment reports: one on its ability-to-repay (ATR)/qualified mortgage (QM) rule and another on its RESPA mortgage servicing rule. The bureau specifically reached out to NAFCU requesting credit union feedback in response to the reports.

The Dodd-Frank Act requires the bureau to review certain rules within five years after they take effect, thus the reason for these assessments. NAFCU is analyzing the bureau's findings.

The ATR/QM rule prohibits a creditor from making a mortgage loan unless the creditor makes a reasonable and good-faith determination (based on a set of underwriting standards) that the consumer will have a reasonable ability to repay the loan, including any mortgage-related obligations (such as property taxes). The rule took effect in January 2014. The full assessment report on the bureau's ATR/QM rule can be read here.

Of note, the bureau points out that:

  • data indicates that no credit union respondents apply pricing adjustments to non-QM loans when the debt-to-income ratio exceeds 43 percent (a small portion of small, medium and large banks do);
  • collecting borrower documentation usually isn't a barrier to obtaining credit;
  • small creditors held a higher share of their originations in portfolio between 2012 and 2016 as compared to non-small creditors;
  • although a vibrant primary and secondary market for non-QM loans was a goal of the rule, this does not exist yet;
  • the rule "was generally not associated with an improvement in loan performance" with respect to the percentage of loans that became 60 or more days delinquent within two years; and
  • use of the government-sponsored enterprises appears to add compliance certainty for loans that could satisfy the general QM test.

The RESPA mortgage servicing rule, which also took effect in January 2014, is aimed at giving borrowers new protections related to mortgage loan servicing by requiring servicers to provide borrowers with disclosures related to force-placed insurance, respond to errors asserted by borrowers in a timely manner, and follow certain procedures related to loss mitigation applications and communications with borrowers. The assessment report on the RESPA mortgage servicing rule can be read here.

Of note:

  • credit unions and community banks interviewed by the Government Accountability Office (GAO) said that the small servicer exemption was "helpful in reducing … compliance requirements" and "… helpful to their businesses and customers;"
  • according to the GAO report, the share of mortgage loans serviced by credit unions and community banks has increased since 2008;
  • some small and mid-size credit unions and banks said the rule's requirements were not necessary;
  • loans that became delinquent were less likely to go into foreclosure during the months after the rule's effective date;
  • loans that became delinquent were more likely to recover following the implementation of this rule;
  • servicing costs increased substantially between 2008 and 2013;
  • servicers had large one-times costs to implement this rule (technology and personnel costs);
  • some servicers reported significant ongoing costs to comply with this rule;
  • regarding the rule's loss mitigation provisions, many servicers said the costliest changes they made were to comply with the five-day acknowledgment notice, evaluate borrowers for all available loss mitigation options, and provide a decision letter that describes the outcome of this evaluation; and
  • servicers said they had to make "significant changes" to their foreclosure processes to ensure compliance.