WASHINGTON (6/19/13)--Credit Union National Association witness Jerry Reed testified yesterday that credit unions worry that the Consumer Financial Protection Bureau's Qualified Mortgage (QM) rule will make it all but impossible for credit unions to write non-QM loans.
Reed, who is chief lending officer at Alaska USA FCU, said that the QM
|Rep. Shelly Moore Capito (R-W.Va.) shakes the hand of Jerry Reed, the CUNA witness who testified Tuesday on behalf of credit unions regarding concerns about the CFPB's QM rule. Reed is chief lending officer at Alaska USA FCU. (CUNA Photo)|
standard "designed to be an instrument of consumer protection, may serve as an instrument of prudential regulation, effectively setting a bureaucratic standard for loan quality."
Reed was representing credit unions at a House Financial Services subcommittee on financial institutions and consumer credit hearing on "Examining How the Dodd-Frank Act Hampers Home Ownership."
Reed told lawmakers that credit unions commend the CFPB for listening to their concerns and for incorporating many of their concerns into amendments to the mortgage rules. However, he underscored that credit unions continue to have serious apprehensions about how the QM rule will be implemented and believe that it could have the unintended effect of reducing credit union members' access to credit.
"Credit unions were created to promote thrift and provide access to credit for provident purposes to their members. The credit union structure and historical performance of credit union mortgage loan portfolios strongly support a full credit union exemption from the QM rule," Reed testified.
As not-for-profit financial cooperatives, Reed reminded, credit unions are owned by the members that they serve. This fundamental difference between the for-profit and not-for-profit sector of the financial services industry provides a significantly different incentive structure for those managing the institutions, Reed noted.
In addition, credit unions are primarily portfolio lenders, typically selling less than a third of their new originations. The fact that most of the loans they make will be held in their own portfolios is further incentive for them to be particularly attentive to the applicant's potential ability to repay.
"While we appreciate the fact that the bureau has provided a modest exemption for small volume originators, we question the need to apply this rule to credit unions in the first place, and urge the bureau to consider exempting credit unions from the rule entirely," Reed said.
Opening her subcommittee's hearing, Rep. Shelly Moore Capito (R-W.Va.) said it could be the very consumers that are meant to be protected by the CFPB's Ability-to-Repay mortgage rule, issued in conjunction with the QM rule, that could be harmed by unintended consequences of the rule.
She said low-income consumers, and those in rural areas with low property values, could find the ability-to-repay rule eliminates mortgage lenders' ability to engage in "relationship lending." She said "case-by-case, local lending" could disappear because of "rigid mortgage lending rules" proposed by the CFPB.
Rep. Sean Duffy (R-Wis.) said there appears to be a bipartisan agreement on the need to fix some parts of the Dodd-Frank Act, though other members spoke in favor of that law's provisions. For instance, Rep. Carolyn Maloney (D-N.Y.) said Dodd-Frank is intended to show "we learn from our mistakes." (See related story: FHFA QM Proposal Could Harm Credit Access, CUNA Warns.)