CFPB Ability-to-Repay Rule

The Consumer Financial Protection Bureau (CFPB) will later today issue its final ability-to-repay rule -- along with its “qualified mortgage” standard and related safe harbor provisions.

However, earlier this morning, the CFPB issued a press release with a fact sheet and summary of the final rule that show the “qualified mortgage” -- or QM -- definition under the regulation will be broad enough to encompass almost all current types of mortgages.

Loans that are not considered qualified mortgages under the rule are those with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. So-called “no-doc” loans also cannot be QMs.

“Finally, a loan generally cannot be a qualified mortgage if the [consumer’s] points and fees … exceed 3 percent of the total loan amount, although certain ‘bona fide discount points’ are excluded for prime loans,” the CFPB summary said.

The summary explained that qualified mortgages generally will be provided to people with debt-to-income ratios less than or equal to 43 percent.

For a temporary, transitional period, however, loans that don’t have a 43 percent debt-to-income ratio but meet government affordability or other standards -- such as those that are eligible for purchase by Fannie Mae or Freddie Mac -- will be considered QMs.

The final rule also implements a special Dodd-Frank Act provision that treats certain balloon-payment loans as qualified mortgages if they are originated and held in portfolio by small banks in predominantly rural or underserved areas.

While the summary didn’t provide the details the final rule will, it noted that safe harbor legal protections would be given to lower-priced qualified mortgages, which are typically made to borrowers who pose fewer risks.

A different legal standard -- a rebuttable presumption -- would apply to higher-priced qualified mortgages, which are typically for consumers with an insufficient or weak credit history. “If the loan goes south, the consumer can rebut the presumption that the creditor properly took into account their ability to repay the loan,” the bureau said.

The ability-to-repay final rule will take effect in January 2014.

Read the ability-to-repay rule summary.

Read the ability-to-repay fact sheet.

$72 Million

That is the estimated loss to the National Credit Union Share Insurance Fund as of November 2012 from the failure of Telesis Community Credit Union in Chatsworth, California.

Tiny Wisconsin CU Closed

The Wisconsin Office of Credit Unions liquidated New Covenant Missionary Baptist Church Credit Union (New Covenant) of Milwaukee, Wisconsin and appointed the National Credit Union Administration (NCUA) as liquidating agent.

The Wisconsin Office of Credit Unions made the decision to liquidate New Covenant after determining the credit union was in an unsafe and unsound condition to transact its business and had no prospect of restoring viable operations.

The credit union had a net worth ratio of -0.49 percent, as of September 2012. Almost 20 percent of the credit union's loans were 60 days or more past due.

New Covenant served 294 members and had assets of approximately $585,000.

New Covenant Missionary Baptist Church Credit Union is the first federally insured credit union liquidation in 2013.

Read the press release.

Conserved Credit Union Receiving Section 208 Assistance Makes Charitable Contributions

The Credit Union Times is reporting that AEA Federal Credit Union of Yuma, Arizona is looking to make a $10,000 charitable contribution to one of three community organizations.

Normally, this story would not be newsworthy, except the credit union is under NCUA conservatorship and is the recipient of $20 million in Section 208 Net Worth assistance. If it was not for this net worth assistance from the NCUSIF, the credit union would be insolvent. Even with the net worth assistance, the credit union is significantly undercapitalized, according to its September 2012 call report.

NCUA Sues J.P. Morgan

The National Credit Union Administration has filed suit in Federal District Court in Kansas against J.P. Morgan Securities as successor-in-interest to Washington Mutual Bank, alleging violations of federal and state securities laws in the sale of $2.2 billion in mortgage-backed securities to three failed corporate credit unions -- U.S. Central, Western Corporate and Southwest Corporate federal credit unions.

The complaint alleges the firms made numerous misrepresentations and omissions of material facts in the Offering Documents of the securities sold to the failed corporate credit unions. The complaint states underwriting guidelines in the Offering Documents were “systematically abandoned,” and the misrepresentations caused the credit unions to believe the risk of loss was minimal.

Read the press release.

Community Banks and Credit Unions Are Feeling the Impact of Durbin

A legislative provision meant to protect debit card revenues for small banks and credit unions does not appear to be working as well as lawmakers had expected.

Read the Washington Post article.

Another Congress, No Action on CU Business Lending Bill

The 112th Congress has left town without taken any action on the credit union business lending bill.

This is the fifth consecutive Congress, where the credit union lobby has sought expanded business lending authority for credit unions and came up empty.

I suspect that legislation to expand the business lending authority for credit unions will be re-introduced, when the 113th Congress convenes.

But I don't know why credit unions should believe that the outcome will be any different this time around. As Albert Einstein once said, "[t]he definition of insanity is doing the same thing over and over again and expecting different results."