Smart mortgage lending practices protected most credit unions from making the bad loans that drove many lenders under following the recent housing market collapse. So as the housing market gradually recovers, many consider credit unions the go-to lenders for conscientious borrowers.
But even though most shady players were driven out of the mortgage business, regulators are coming down hard on financial institutions offering the loans. That means credit unions will have to make sense of a jumble of new regulations in 2012.
“Impending regulatory changes include QRM [Qualified Residential Mortgage], which involves risk retention on loans sold in the secondary market that don’t meet QRM standards, and QM [Qualified Mortgage], which is a yet to be determined standard that will have to be met on all first mortgages,” says Wallace Jones, vice president/national training director at CU Members Mortgage. “There will also be new rules regarding servicing. There has been a lot of pressure to dramatically change what mortgage servicers are required to do.”
Tom Pisapia, executive vice president at QR Lending Inc., says impending regulations will follow a tsunami of recent changes contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. “We’ve seen only a small part of its impact on the origination and servicing of residential mortgage loans, but we know it will not lessen the compliance burden.”
Adding to credit unions’ burden, says Jones, is that the time given to implement changes has been cut. “The fuse is shorter. Financial institutions used to have a four- to six-month window for assimilating regulatory changes. Now it’s a much shorter span.”
Pisapia uses the same terminology: “Regulations are more fast-track than before and their effective dates come with shorter fuses. It’s probably related to the subprime meltdown and may be an overreaction to it.”
Many regulations, he says, are being implemented without regard for existing ones, or the fact that most bad players have been squeezed out of the market. “We’re getting layer upon regulatory layer to consolidate and wade through.”
Pisapia notes that the slowest part of the mortgage process is now the appraisal. “What used to take an average of six to eight days now takes 10 to 14.”
But while new regulations have slowed the process, he says increasing demand for appraisers’ services has been an encouraging sign.
Another bright note is the presence of mortgage lenders and service providers that can handle the new regulatory requirements, leaving credit unions free to pursue new business.
In fact, says Pisapia, such companies “can shield credit unions from almost any hassle in the mortgage process—except for accepting applications.
“Years ago, credit unions that produced a minimal number of mortgages per year might have been able to perform all the compliance functions necessary to appease regulators,” he continues. “However, the mortgage loan process has become so complex that it requires state-of-the-art technology and specialized expertise whether you do one or 1,000 loans a year.”
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