When It Comes To Qualified Mortgages, Take A Deep Breath
by Henry Meier
Last week, NAFCU released the results of a survey indicating that 88% of respondents will reduce or discontinue originating mortgage products that don’t conform to the CFPB’s definition of a qualified mortgage. Considering that slightly more than 37% of respondents reported underwriting mortgages that would not meet QM criteria in 2012, this is potentially big news and I just hope it is based on an objective assessment of the impact that the regulations will have on lending practices and not on a misconception about what the law requires.
So before you jump on the QM bandwagon, keep these points in mind. First, a QM is granted the highest form of legal protection regulators can give it, but it is a specific type of mortgage. In contrast, the CFPB wants all mortgages to be subject to an ability to repay analysis. This is the true baseline criteria and for the vast majority of credit unions, it is a requirement that they already meet. For example, how often do you not assess an applicant’s ability to repay a mortgage before you give them one? Do you make liar loans? Or do you actually request documentation that the person you are thinking of lending tens of thousands of dollars to actually has a job? This is just one example of the type of criteria which Congress and the CFPB justifiably felt compelled to mandate as a result of the non-existent underwriting standards that triggered the Great Recession.
Here’s another question for you. How many of your mortgages go into foreclosure and, of those, are you confident that your staff and lawyers understand the foreclosure process well enough to defend these foreclosures in court? The most practical benefit of a QM mortgage is that it provides a safe harbor against a homeowner’s claim that a foreclosure action should not go forward because proper underwriting standards and legal procedures were not followed. If you know this isn’t true, then why deny making the loan to the vast majority of members who may not qualify for QM loans but whom you are confident will repay their mortgage obligations? In any event, given the atrocious length of time it takes to foreclose in New York State, this should be a last resort anyway.
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