NAFCU letter in advance of tomorrow’s Senate banking hearing

April 15, 2015

The Honorable Richard Shelby
U.S. Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Sherrod Brown
U.S. Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510

Re: Regulatory Burdens to Obtaining Mortgage Credit

Dear Chairman Shelby and Ranking Member Brown:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association exclusively representing our nation’s federally chartered credit unions, I write today to submit comments in conjunction with tomorrow’s full committee hearing: “Regulatory Burdens to Obtaining Mortgage Credit.” We thank you for holding this important hearing.

While credit unions did not participate in the widespread proliferation of subprime loans that led to the financial crisis, they are subject to new rules and requirements in mortgage lending that emerged from the crisis. In 2013, the Consumer Financial Protection Bureau (CFPB) implemented eight new mortgage rules, seven of which were finalized in October of 2013 and were effective by January of 2014. A majority of credit unions are small financial institutions which operate with a limited staff. It is a struggle for them to keep abreast with the constantly changing regulations and growing regulatory burden. Congressional and regulator action to provide relief and assistance in the areas outlined in this letter will assist credit unions in providing mortgage credit to their 100 million members.

Qualified Mortgages

NAFCU continues to have serious concerns about the “Qualified Mortgage” (QM) standard. In short, given the unique member-relationship credit unions have, many make good loans that work for their members that don’t fit into all of the parameters of the QM box and fall into the “non-qualified mortgage” category. NAFCU would support the changes outlined below to the QM standard to make it more consistent with the quality loans credit unions are already making.

Points and Fees

NAFCU strongly supports bipartisan legislation to alter the definition of “points and fees” under the “ability-to-repay” rule. NAFCU has taken advantage of every opportunity available to educate and discuss with the CFPB on aspects of the ability-to-repay rule that are likely to be problematic for credit unions and their members. While credit unions understand the intention of the rule and importance of hindering unscrupulous mortgage lenders from entering the marketplace, it is time for Congress to address unfair and unnecessarily restrictive aspects of this CFPB rule.

NAFCU supports exempting from the QM cap on points and fees: (1) affiliated title charges, (2) double counting of loan officer compensation, (3) escrow charges for taxes and insurance, (4) lender-paid compensation to a correspondent bank, credit union or mortgage brokerage firm, and (5) loan level price adjustments which is an upfront fee that the Enterprises charge to offset loan-specific risk factors such as a borrower’s credit score and the loan-to-value ratio.

Making important exclusions from the cap on points and fees will go a long way toward ensuring many affiliated loans, particularly those made to low- and moderate-income borrowers, attain QM status and therefore are still made in the future.

Loans Held in Portfolio

NAFCU supports exempting mortgage loans held in portfolio from the QM definition as the lender, via its balance sheet, already assumes risk associated with the borrower’s ability-to-repay.

40-year Loan Product

Credit unions offer the 40-year product their members often demand. To ensure that consumers can access a variety of mortgage products, NAFCU supports mortgages of duration of 40 years or less being considered a QM.

Debt-to-Income Ratio

NAFCU supports Congress directing the CFPB to revise aspects of the ‘ability-to-repay’ rule that dictates a consumer have a total debt-to-income (DTI) ratio that is less than or equal to 43 percent in order for that loan to be considered a QM. This arbitrary threshold will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious impact in rural and underserved areas where consumers have a limited number of options. The CFPB should either remove or increase the DTI requirement on QMs.

CFPB’s Definition of Rural Area

NAFCU supports S. 1916, the Helping Expand Lending Practices in Rural Communities Act, introduced by Leader McConnell. This bill would be helpful to small creditors, including credit unions, as they deal with the CFPB’s “rural area” definition particularly as it relates to the ability-to-repay rule.

We are also pleased that the CFPB has taken steps to improve its small creditor exemptions, but aspects of the proposal remain problematic. We believe the CFPB must go farther than its arbitrary definition of small creditor and recognize that all credit unions are small creditors. We would encourage the Bureau to use its authority under Section 1022 of the Dodd-Frank Act and exempt all credit unions from the burdensome mortgage rules.


Dodd-Frank directed the CFPB to combine the mortgage disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act. Under this mandate, the Bureau, in November of 2013, released the integrated disclosures rule. This 1900-page rule requires a complete overhaul of the systems, disclosures, and processes currently in place for a consumer to obtain a mortgage. For example, the rule mandates the use of two disclosures: the three-page Loan Estimate (which replaces the Good Faith Estimate and initial Truth in Lending Disclosure); and the five-page Closing Disclosure (which replaces the HUD-1 and final Truth in Lending disclosure). There are also a number of stringent timing requirements and other substantive changes lenders must follow. The rule is effective August 1, 2015, but lenders are still feeling pressure to be compliant on time. The sheer magnitude of this rule, read in conjunction with the totality of the other mortgage rules, has created a very burdensome regulatory environment and many credit unions are finding it difficult to continue lending. Credit unions must comply with the current disclosure requirements, which are extensive, and they must prepare their compliance solutions for the upcoming ones effective in August 1, 2015, further exacerbating costs. We are pleased that National Credit Union Administration (NCUA) Chairman Debbie Matz indicated to NAFCU in a March 24, 2015, letter that NCUA examiners would be looking for “reasonable and good faith efforts by credit unions toward substantial compliance with the new rule as of the effective date.” We hope that the CFPB will follow suit and provide similar guidance on this issue.

We would also support a legislative change to ensure that a consumer is not precluded from closing a mortgage because of a legal technicality, by protecting the right of a consumer to waive the requirement that certain mortgage disclosures be provided to the consumer 3 business days before closing.

FHFA Proposed Rule

In September of 2014, the Federal Housing Finance Agency (FHFA) released a proposed rule that would establish new asset threshold for both Federal Home Loan Bank (FHLB) applications and ongoing membership. Specifically, FHLB members and applicants would be required to keep 1 percent of assets in home mortgage loans. Also, current FHLB members would be required to hold at least 10 percent of assets in residential mortgage loans on an ongoing basis – a marked change from the current rule, which only requires this 10 percent threshold at the application stage. The proposal would also require FHLBs to evaluate member compliance annually and to terminate membership after two consecutive years of noncompliance.

This proposed rule threatens to severely hamper credit unions’ access to the valuable services the FHLBs provide and must be carefully considered for its full impact before moving forward. In 2007, 11.4% of credit unions were members of an FHLB, representing 61.7% of total credit union assets. Today, however, 19% of all credit unions are members of an FHLB, and these credit unions represent 75.8% of the total credit union assets and this number continues to grow. This growth of credit union membership in FHLBs only underscores the need to ensure that the eligibility requirements for membership in FHLBs are set appropriately. Unfortunately, this proposal would disenfranchise over 1 million credit union member-owners from receiving the benefits of FHLB resources as their institution’s membership would be terminated under the newly proposed requirements.

While NAFCU appreciates FHFA’s intention of fostering FHLB’s housing finance missions, we believe the current regulatory requirements effectively ensure that FHLB members demonstrate ongoing commitments to mortgage lending in their communities. For example, when an FHLB member borrows an advance, it must provide eligible collateral to secure the advance. Nearly all eligible types of collateral, which are determined by Congress, are related to housing. In addition, current members must certify their active support of housing for first-time homebuyers to the FHFA every two years through the Community Support Statement. Further, FHFA has failed to provide any data or empirical evidence to support its claims that the FHLB system is at risk because some members may not meet the proposed asset percentage requirements on an ongoing basis. Given the sufficient existing requirements, and the lack of statistical support for the proposed changes, NAFCU does not believe FHFA needs to move forward with the newly proposed “ongoing” membership requirements for depository institutions in this rulemaking.

Further exacerbating this issue for credit unions is the statutory exemption for FDIC-insured banks with under $1.1 billion in assets from the 10% requirement as outlined in the Federal Home Loan Bank Act. In addition to seeking changes to the underlying FHFA proposal, NAFCU believes this discrepancy also needs to be addressed to ensure an even playing field between all financial institutions including credit unions on this matter. We would urge the committee to act on this matter and create parity for credit unions.

NCUA’s Risk Based Capital Proposal and Mortgage Servicing Assets

NAFCU supports bipartisan legislation that has advanced through the House Financial Services Committee that would require the federal financial regulators, including the National Credit Union Administration (NCUA), to study the appropriate capital requirements for mortgage servicing assets. Relative to NCUA’s recently proposed risk-based capital system, this legislation would promote much-needed transparency, require a thorough analysis of the proposal’s impact on mortgage servicing assets and generally encourage NCUA to consider the full impact of the costly proposal and how it will affect the ability of credit unions to make mortgage loans to consumers. We would urge the committee to consider similar legislation in the Senate.

Thank you again for holding this hearing and your continued focus on regulatory relief to community based financial institutions including credit unions. We look forward to continuing to work with the Banking Committee as you move forward in addressing many of these issues. If my staff or I can be of assistance to you, or if you have any questions regarding this issue, please feel free to contact myself, or NAFCU’s Vice President of Legislative Affairs Brad Thaler at (703) 842-2204.

Carrie R. Hunt

Senior Vice President of Government Affairs and General Counsel

cc: Members of the Senate Committee on Banking, Housing, and Urban Affairs

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