New Rules from the Consumer Financial Protection Bureau on Qualified Mortgages
Credit unions may be detecting quite a bit of activity these days from the Consumer Financial Protection Bureau (CFPB) in the area of mortgage lending. It can feel daunting keeping up with the new rules and regulations. But fear not, there are several ways you can keep up. CUNA has released a helpful summary of the CFPB’s mortgage lending rules. The Federation is tracking the rules that uniquely affect community development credit unions.
Here are two new rules that have been causing a stir, both of which have exemptions that will likely affect your credit union.
CFPB released the Ability-to-Repay final rule (amending Reg Z), providing greater consumer protections on mortgage lending and targeting some of the most predatory practices. The final rule goes into effect in January 2014.
The rule requires lenders to evaluate a consumer’s ability to repay the principal and interest of any residential loan over the long term (not just during an introductory period with a lower rate).
The rule also provides a safe harbor for “Qualified Mortgages.”
The key definition points for “Qualified Mortgages” include:
The loan does not contain negative amortization, interest-only payments, or balloon payments (with some exceptions for rural or underserved areas);
The term does not exceed 30 years;
The points and fees generally do not exceed three percent of the loan amount;
The consumer has a total (or back-end) debt-to-income ratio that is less than or equal to 43 percent.
While there were some initial concerns that this may limit responsible lending to low- and moderate-income homeowners, particularly in high-cost housing markets, there are two important points to note:
The rule also allows for a temporary category of “Qualified Mortgages” that can have more flexible underwriting requirements (i.e., not meet the 43 percent debt-to-income requirement) so long as they are eligible to be purchased, guaranteed, or secured by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation (collectively, the GSEs), the Federal Housing Administration (FHA), or other federal agencies.
The Bureau also has a concurrent proposalproposing certain amendments to this final Qualified Mortgage rule which would include exemptions for non-profit lenders, community development financial institutions (CDFIs) and homeowner stabilization programs. It does not currently specify low-income credit unions (LICUs) but the Federation is seeking the adoption of LICUs into the exemptions. The comment period for this proposal is open until February 25. We welcome additional input from our members into our response letter.
The CFPB also adopted new rules to protect consumers with challenges resulting from mortgage servicing errors and attempting to standardize practices in this arena. These regulations cover nine major areas. These servicing standards exempt credit unions that hold their mortgages in portfolio or retain mortgage service rights and that service 5,000 or fewer loans.
CDFI Fund Issues Interim Rules for CDFI Bond Program
The CDFI Bond Guarantee Interim Rule was at long last made available to the public on January 31, 2013. As initially conceptualized the bond program, enacted as part of the 2010 Jobs Act, was to be a potential industry “game changer” bringing significant new capital to CDFIs and economic development opportunities to low- and moderate-income communities.
Upon initial review by the Federation, CDCUs and national partners, the interim rule fails to meet the potential contemplated for this program. We are concerned with how restrictive and ponderous the requirements for participating in the program appear to be. In addition, it is currently unclear whether the Bond Loan can be used to fund secondary capital.
Some significant challenges to CDCU participation include:
The Fund requirement for 100% recourse to the borrowing CDFI, and a pledge of underlying loan receivables as collateral;
Potential requirement for secondary loan collateral and additional credit enhancement beyond the statutorily required 3% risk share;
Financial covenants including the inability to take on additional senior debt from investors;
Limited revolving capability with only a 10% re-lending ability;
Penalties associated with bond prepayment.
Based on these rules and given the ten percent cap on monies in a Relending Fund, it is possible that the Fund intends the Bond Program to be used for financing long term projects such as hospitals or multi-family housing and not for financing the support of small businesses or other similar entities.
The Federation will be attending the CDFI Funds information session in Washington D.C. February 22nd. Formal comments are due to the CDFI Fund by April 8, 2013. We will continue to collaborate with CDCUs in reviewing responses and will keep all our members updated. If you have any comments or questions on the regulations please contact Pablo DeFilippi, [email protected] or Melanie Stern, [email protected].
Credit Union Journal Highlights the Work of the Federation in a Series of Articles on Elder Financial Abuse
The February 4th, 2013 issue of the Credit Union Journal devoted several pages to the growing national problem of elder financial abuse and the scams and schemes that target older Americans, costing them upwards of $3 billion a year. The article looks at ways in which credit unions can recognize and respond to abuse while specifically referencing the Federation’s Better Directions initiative, a program designed to help seniors build economic security.
In January, the Federation and CUNA offered an elder financial abuse webinar that brought together leading experts including Hubert Humphrey III, head of the Office of Older Americans at the Consumer Financial Protection Bureau and New York City District Attorney Elizabeth Loewy, who prosecuted the Brooke Astor case. Over 150 credit union staff listened in to this high-level webinar to better understand the warning signs of financial abuse and the reporting requirements.
To view the cover of February 4th, 2013 edition of the Credit Union Journal, click here.
Filling the Vacuum: How Tongass FCU is Expanding Access to Affordable Credit Union Services for Remote Alaskans
For the Metlakatla Indian Community on Annette Island in Southeast Alaska, Tongass Federal Credit Union is here to stay. Recognizing the community’s economic distress and abandonment by traditional banks, the credit union challenged geographic constraints to ensure critical financial services to the island’s 1,400 residents – a pioneering effort President and CEO Susan Fisher hopes to build on.
Founded in 1963 by a group of teachers and public employees, Tongass Federal Credit Union was granted a community charter in 2001. Ketchikan, a city of just 14,000 people, serves as the hub of the credit union’s vast assigned geographic area.
In 2005, Wells Fargo Bank closed the only bank branch on Metlakatla – a branch occupied by the National Bank of Alaska until its 1999 sale to Wells Fargo – citing the poor economy.
“The bank closure was a huge problem,” Fisher said. “No banks or other credit unions would tackle the situation.”
According to Fisher, the first step was working with the tribe to take over the vacant bank branch, firing up the ATM and building a member base. Through its affiliation with the Federation, Tongass FCU became CDFI certified. In 2010, Tongass FCU received a $1.6 million secondary capital investment through the US Treasury’s Community Development Capital Initiative (CDCI).
Looking for innovative ways to meet the needs of its membership, Tongass FCU also reached out to the Bureau of Indian Affairs (BIA) to participate in the BIA business loan guarantee program. While open to financial institutions that serve Native populations, Fisher found out that the program specifically excluded credit unions. The Federation persuaded BIA to amend the program’s participation requirement and allow CDFI certified credit unions to take part in it. Tongass FCU began offering Native Alaskans the new financing option last year.
More than seven years after Wells Fargo’s departure, the Metlakatla branch of Tongass Federal Credit Union now operates six days per week. The credit union opened a brand-new facility last spring and to date, Tongass FCU has roughly 1,000 accounts in Metlakatla, including businesses, nonprofits, churches, clubs, association, and individuals. Tongass FCU also works behind the scenes to ease the shortage of affordable housing on the island.
In the coming years, Fisher hopes to concentrate on better serving the residents of Prince of Wales Island, where the credit union currently operates two branches separated by a two-hour drive. Fisher opened a branch in far-flung Thorne Bay in 2006 because the town needed the services. “When we started we were all volunteers,” Fisher said. “We had services two days a week in a sporting goods store. We kept the money in a gun safe.”
Tongass FCU opened its Klowock branch on the western side of the island in 2008. Before the credit union opened its doors, residents had to travel eight miles to cash a check. “People assume that everyone has access to things like financial services and public transportation. Tongass remains committed to serving those living in remote, rural Alaska,” Fisher concluded.
NCUA Webinar on Net Worth Restoration Plans
For credit unions in distress, what can be done to restore their net worth? What are the regulatory requirements and resources available? Find the answers to these questions from NCUA staff members and hear about how a credit union has gone through the net worth restoration plan process. Join us for the free webinar “Net Worth Restoration Plans: A Path to Recovery” on Wednesday, Feb. 20, at 2:00 PM EST.
To register for this event, click here. Participants may also submit questions in advance to [email protected]. Please specify “Net Worth Restoration Plan Webinar” in the subject line of the e-mail. Participants with technical questions about accessing the webinar should call 703-518-6440.
Other Upcoming Webinars
Don’t forget to join us in the following dates for more webinars from the Federation and partners! Learn more about the webinars and register in advance by clicking the links below:
Check out our calendar for a full listing of all our upcoming events.
Deadlines & Events
Join Us for CDFI-Certified Credit Unions Roundtable at CUNA’s 2013 Governmental Affairs Conference
February 25, 2013 12PM | Room 202B at the Walter E. Washington Convention Center, 801 Mount Vernon Place NW Washington DC 20001
CUNA and the Federation invite you to join us for our CDFI Certified Credit Union Roundtable during CUNA’s GAC 2013 Conference.
Currently, there are more than 220 CDFI certified credit unions with collective assets of over $13 billion and providing services to nearly 2 million primarily low-income consumers. Many more are eligible! Thanks to the recent efforts by NCUA, the number of low-income designated credit unions has increased from 1,169 in June 2012 to 1,912 as of November 2012. CDFI Certified and low-income designated credit unions could represent as much as a third of the entire credit union system!
These institutions are among the most innovative in the entire credit union system. Get a CDFI Fund legislative update, learn about new development and opportunities, share your own experiences and unleash the true power of networking with your peers.
If you are CDFI-certified, low-income designated or a credit union interested in taking your community development to the next level, join us at this special session! Click here to register and check out the press release on Credit Union Times.
Nominations for Annie Vamper “Helping Hands” Awards Due on March 12, 2013
The Annie Vamper “Helping Hands” Awards, which recognize individuals whose contributions to the community development credit union movement have gone above and beyond the call of duty, is seeking nominations for 2013. Over the years, the Federation has honored credit union organizers, volunteers and staff for their outstanding work.
This year’s awards will be presented at our 2013 Annual Conference in Baltimore, MD at a special luncheon on June 7, 2013.
The nomination deadline for this award is Tuesday, March 12, 2013.
If you have any questions about the nomination process or to learn more about the Annie Vamper Awards, contact Pamela Owens,[email protected]or (800)437-8711 ext. 215.
39th Annual Conference on Serving the Underserved June 5-8, 2013 | Baltimore, Maryland
Our Annual Conferences bring together leading thinkers, researchers, policymakers and practitioners in community development and financial empowerment together with credit unions that are innovating and adapting new strategies and approaches to better serve their members and communities.
Conference sessions and workshops will focus on insightful tracks in the areas of research, technology, products and services, resource development, compliance and sustainability, and much more!
Registrations are now open. Special earliest-bird rates are available through February 28th and early-bird rates are available through March 1st.
CDCU News Briefs is published on a regular basis, based on the volume of news about CDCUs and affiliated Community Development Partner credit unions. We welcome member submissions of news items from your local periodicals, publications and news outlets, but reserve the right to publish or not publish any article at our discretion.
To submit an article, please email [email protected] and include the article and the web URL where the article can be found online. Questions or comments should also be directed to the email address listed above.
To submit information on an upcoming seminar or training opportunity, please email [email protected] and include the web URL where more information can be found online.