Mortgage Rule Delay

NEW YORK (MainStreet) — Twenty-five U.S. Senators sent a letter to Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), asking the bureau to hear the complaints of credit unions and other small institutions regarding pending mortgage regulations and even possibly delay implementation.

The letter, dated November 21, implored Cordray to reconsider the current start date, because credit unions and community banks would find it burdensome if not impossible to put into effect the myriad of rules. Specifically cited were the Ability to Repay and the Qualified Mortgage Standards of the Truth in Lending Act (Regulation Z). These rules, required by the Dodd-Frank Act, will go into effect January 2014.

"This new mortgage regulation places an undue burden on community banks and credit unions," said Roger Wicker (R.-Miss), the lead Senator of the initiative, told MainStreet. "Given the overwhelming complexity of the regulation, I believe it warrants further review by the CFPB before being implemented. The current January 2014 deadline for compliance is unrealistic. Director Cordray should take a closer look at the compliance obstacles facing our nation's community banks and credit unions, and provide them some relief by delaying its implementation."

The Credit Union National Association (CUNA) said in a release that it suggested that Congress grant a one-year extension of compliance deadlines. The organization also continued: "If such a delay cannot be created, Congress should provide credit unions with a buffer of at least six months as they work to come into compliance with qualified mortgage standards, CUNA has said. CUNA has also recommended that a similar six-month delay should also be applied to legal liability provisions of mortgage regulations."

The problem with smaller financial institutions is that they lack the resources to apply the necessary policies and procedures so quickly. They do not have the compliance officers or the software available to execute the changes by the deadline.

The Senators are warning that the failure by these smaller companies to be able comply with the pending regulations could lead to "market distortions" and such problems could "adversely affect the availability of mortgage credit for consumers" in several states, particularly in rural or remote areas of the country.

According to the CFPB, the amended Regulation Z prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer's ability to repay the loan. The final rule implements sections 1411 and 1412 of the Dodd-Frank Act. This requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling and to establish certain protections from liability under this requirement for "qualified mortgages." Excluded from this are open-end credit plans, timeshare plans, reverse mortgages or temporary loans.

The rule also limits prepayment penalties and requires creditors to retain evidence of compliance with the rule for three years after a covered loan is made. The impact on consumers is also substantial.

Borrowers will have to provide will have to give the lender certain financial information. Lenders will demand reliable documents, such as a W-2 or pay stub to verify eight types of information:

  • 1. Current income or assets
  • 2. Current employment status
  • 3. Credit history
  • 4. The monthly payment for the mortgage
  • 5. Monthly payments on other mortgage loans you get at the same time
  • 6. Monthly payments for other mortgage-related expenses (such as property taxes)
  • 7. Other debts
  • 8. Monthly debt payments, including the mortgage, compared to your monthly income ("debt-to-income ratio"). The lender may also look at how much money you have left over each month after paying your debts. All of this is designed to eliminate the lending practices that led to the mortgage bubble of several years ago. The effects of which are still apparent.
  • While the senators believe the rules are necessary they just want some leeway for smaller institutions to be able to comply. They think the smaller businesses do not have the resources large ones do.

    "Since the passage of Dodd-Frank and the creation of the CFPB, smaller financial institutions have struggled to make sense of the avalanche of new rules and regulations coming from Washington," Sen. Barrasso (R-Wy), another signer of the CFPB letter, told MainStreet. "Unlike their larger counterparts, community banks and small credit unions don't have an army of lawyers and compliance staff to help them rapidly adapt to the new regulatory reality they're facing. As regulators at the CFPB continue working to implement new financial safeguards for consumers, they should develop smarter regulations – not just more red tape."

    --Written by Michael P. Tremoglie for MainStreet

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