Credit unions and smaller banks made a final push Tuesday to revamp key Dodd-Frank Act lending rules before they take effect in January.
A failure to achieve some of the credit unions' recommended regulatory changes could result in market participants giving up on certain mortgage products altogether or failing to provide some of the services requested by members, said Linda Sweet, president and CEO of Big Valley Credit Union and a representative for the National Association of Federal Credit Unions.
Sweet visited Capitol Hill to speak directly to the Subcommittee on Investigations, Oversight and Regulation about the impact QM and other lending regulations are having on credit unions.
Dealing with mortgage compliance just in anticipation of the new rules has led to added expenses, she claimed.
"Now, we are often slower to offer services that our members want, and there are some services we have been forced to cut back on," Sweet said.
At other times, credit unions feel they are unable to offer mortgage products previously included on their list of offerings. Credit unions that belong to NAFCU have even voiced concerns about their need to outsource some mortgages on the grounds that they can no longer afford a loan officer with all of the training needed to stay compliant.
Congresswoman Shelley Capito, R-W.Va., noted in an interview with HousingWire that lawmakers are listening and taking heed, but right now, they are stuck in wait-and-see mode. CFPB Director Richard Cordray pushed back on a proposal to delay the rules for another year, she said. This means for good or bad, the rules take effect next month.
"Congress is taking very seriously the concerns of credit unions,” the congresswoman told HousingWire. Some of their main concerns revolve around credit availability and compliance.
QM remains a large barrier until the market sees it’s exact impact.
Rep. Capito says credit unions are frightened by the prospect that the ability-to-repay QM definition will restrict the ability of originators to write certain mortgages. "A lot of their membership will not qualify for a QM mortgage," she said. "It removes their flexibility. One of the many things credit unions have done well is working with individual members to tailor their financial products.”
The lingering fear is that compliance burdens and costs will push credit unions further away from their missions.
"We will see within six months the ramifications of this," she noted. "If (the outcome) becomes a denial of credit or an inability to write the mortgages, it will become apparent almost immediately."
Capito believes adjustments will have to be made eventually, but it's an issue that will have to be addressed once the real impact is felt.
Sweet, on the other hand, is backing H.R. 2572, a bill filed by Rep. Gary Miller, R-Calif., which aims to offer regulatory relief for credit unions during the transformation of the mortgage originations space.
"At Big Valley FCU, I have seen our compliance costs steadily climb from year to year, and skyrocket over the last few. Unfortunately, this is the same at many credit unions,” the CEO noted. "A recent survey of NAFCU members found that of those credit unions that are increasing their education budgets for next year, 84 percent cited increasing compliance burdens as the most important factor for this increase."
But not everyone is convinced the concerns are as serious as they seem. Adam Levitin, professor of law at Georgetown University Law Center, told the committee there is a trade-off for safety and small institutions benefit from all players acting fair, just as larger players do. And while he admits that he doesn't doubt the rules have caused a few issues, his testimony came out more in support of the mortgage regulations.
There will always be compliance costs, he said. But added, "Ultimately, marginal changes in regulator compliance costs are not what will determine the viability of smaller financial institutions, and no institution's profitability should depend on being able to take advantage of consumers of the ability to gamble with federally insured deposits."