Maximizing Regulatory “Relief”
By Andrew Duncan | VP of Compliance
Deregulation – it’s a loaded term, and for reasons beyond the political. Such efforts, though generally well-intentioned, can be loaded with nuances, exceptions and outliers. A Chutes and Ladders gameboard is arguably a fair visualization of the public policy picture surrounding modern financial regulation. It’s no wonder credit unions find mortgage compliance challenging, especially when they’re navigating the regulatory waters on their own.
A recent CUNA survey of credit union professionals asked respondents to list the existing Bureau of Consumer Financial Protection rules they would most like to see revisited. Mortgage-related issues took all three of the top spots, with TRID coming in at number one. Congress has taken notice of the need for reform, and the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) is now the law of the land.
S.2155 includes some key mortgage regulatory relief provisions for credit unions. Notably, the declassification of one-to-four unit non-owner occupied residential loans as member business loans will afford credit unions added flexibility in both member business and investment real estate lending. Also, a new QM category for certain portfolio transactions provides covered institutions (including credit unions under $10 billion in assets) with an empowering safeguard, so long as the requirements are followed.
Compliance Nuances & Exceptions
Then there’s those pesky nuances and exceptions. S. 2155 exempts certain small creditors from the expanded HMDA data points promulgated by Dodd-Frank. This exception creates a special compliance challenge whereby the mortgage industry must evaluate blended standards. Specifically, most loan origination systems have already made significant investments in developing reporting tools to comply with the Dodd-Frank expansion. Will those same companies make similar investments to create a second reporting tier that will only benefit smaller customers? Time will tell. Regardless, this will not be an overnight change. Certain rulemaking will be necessary to establish the new standards and, as usual, an analysis of those new rules will be necessary to ensure compliance.
Irrespective of the regulatory environment, we owe it to members to provide a compliant product. When evaluating S. 2155, determine how you’ll structure institutional policy to ensure any loans originated to fit within the new QM category will be free of prohibited features and properly underwritten to document prevailing ATR requirements. When evaluating your status as a small creditor for HMDA purposes, be sure to independently evaluate both your past closed-end and HELOC originations to project future activity, and plan accordingly. Hopefully, if you have a strong mortgage loan growth program, your forecast will be an upward trajectory.
Climb the Mortgage Ladder
Are compliance challenges restraining your mortgage offering or outright preventing you from providing mortgage solutions to your members? Choosing a trusted partner can help overcome these obstacles and maximize the benefits of regulatory relief in the process. And no matter your model, maintain a strong compliance program (including a proper review of all deregulatory activity) because it will improve the odds of climbing a ladder, rather than sliding down a chute.