Credit unions face systemic challenges refinancing small loans

November 29, 2022

Credit unions are consistently willing to refinance small balance loans, but face systemic challenges to refinancing those loans, CUNA wrote to the Consumer Financial Protection Bureau (CFPB) in response to its Request for Information on mortgage refinances and forbearances. These challenges include the secondary market and compliance implications involving high-cost mortgage loans and the Qualified Mortgage (QM) rule. 

“Credit unions exist only to serve their members, and the relationship between credit unions and their members is fundamentally stronger than the relationship other financial services companies have with their customers,” the letter reads. “However, credit unions have reported that when it comes to helping their members seeking to obtain or refinance smaller balance loans, there are several significant barriers that they face, many of which were enumerated by the Bureau in its RFI.”

The Bureau recognized fixed closing costs and lender capacity as common barriers to refinancing. The letter further detailed additional barriers including:

  • Secondary market and investor requirements, particularly those of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the high-cost loan requirements of Regulation Z. 
  • The QM safe harbor, primarily due to the points and fees test’s application to a small balance loan. CUA notes aligning the QM rule requirements with the GSE process would streamline the process significantly, make use of existing and implemented processes within credit unions, and provides credit unions with a safety value. 

CUNA also strongly discourages the CFPB from attempting to engineer specific products, or from being overly restrictive when it comes to specific loss mitigation terms or determinations.