Preventing Fannie Mae and Freddie Mac from purchasing mortgages outside the parameters of the ability-to-repay rule will further constrict lending to non-traditional borrowers and rural areas, the National Association of Federal Credit Unions said this week. 

NAFCU went public with its objection after the Federal Housing Finance Agency issued a new rule, saying Fannie Mae and Freddie Mac will no longer purchase a mortgage that does not follow the ability-to-repay rule.

Carrie Hunt, general counsel and vice president of regulatory affairs for NAFCU, submitted a letter to Acting FHFA Director Edward DeMarco in response to the rule.

"NAFCU is concerned that this new policy will only serve to further constrain the mortgage lending market to qualified mortgage loans," Hunt wrote.

This is not the first time an association representing credit unions— or NAFCU in particular — has addressed serious concerns about the unintended consequences of the Consumer Financial Protection Bureau’s qualified mortgage rule.

Currently, lenders grant non-qualified mortgages, but the risks of doing so are great enough for lenders to debate whether they should continue to do so, NAFCU explained.

The CFPB has addressed this issue in the past, saying lenders should continue giving non-QM loans so long as lenders continue to consider the ability-to-repay provisions.

Meanwhile, the trade group said this new rule constricts lenders even more, further hindering their incentive to lend if Fannie and Freddie will not purchase the mortgages.

"The loss of a secondary market for non-qualified mortgage loans may only serve to exacerbate legal uncertainty and limit further the options of borrowers in undeserved and rural communities," Hunt said.

She added, "The end result is that a number of otherwise financially healthy borrowers, who do not meet the stringent qualified mortgage standards for one reason or another, may be denied a mortgage, and the housing market and the secondary housing market will contract, further exasperating the issues facing all involved parties."