3 Mortgage Lending Questions You Should Ask Yourself

By Henry Meier

oday, the Senate Banking Committee will be considering the nomination of Acting CFPB Director Richard Cordray to be the director of the CFPB.  While there’s much to be said about the CFPB regardless of who ends up as Director, for how long and under what constraints, credit unions will have to comply with new notice requirements by this summer and the bulk of Dodd-Frank mandated mortgage and servicing requirements by January 14, 2014.

You could create a blog simply for giving advice on complying with the mortgage provisions of Dodd-Frank, but with that caveat here are some of the basic questions I would be asking myself if I engaged in mortgage lending as a credit union:

1)  How important is a safe harbor?

Mortgages that meet certain underwriting criteria or that can be sold to the secondary market will be given a safe harbor when bringing a foreclosure action.  This means that, in theory at least, when bringing a foreclosure action you will simply have to document to a court that you have complied with federally mandated underwriting criteria and the homeowner will not be able to argue that he or she was given a mortgage he or she couldn’t afford.  Higher priced qualified mortgages will be given a presumption of legality.

Is this safe harbor so valuable that your credit union will only underwrite mortgages that qualify for this protection or will it instead underwrite mortgages outside of this safe harbor?

Throughout its regulations, the CFPB stresses that it does not want lenders to underwrite solely to safe harbor standards.  It argues that so long as lenders engage in sound underwriting practices they should not be afraid of legal defenses against foreclosure.  They may have a point.  But this is a question that your credit union should give thought to over the next year.  For instance, I would find out how many mortgages you provide that do not comply with secondary market standards and compare your existing underwriting criteria to the safe harbor provisions.

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