By Ray Birch
WASHINGTON—Credit unions will make more MBL loans thanks to the passage of S 2155, and will face less paperwork when writing loans for non-owner-occupied dwellings with up to four units.
Those will be the two primary advantages from the newly enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, say credit union CEOs who offered their feedback to CUToday.info on the specific impacts they believe the regulatory relief bill will have on their organizations.
CUToday.info asked a number of CEOs about the specific impacts they believe the regulatory relief bill will have on their organizations.
In this, the first of a two-part series, CEOs discuss aspects of the regulatory relief bill related to mortgages. In part two, CEOs share their reactions to other language included in the legislation.
Among the mortgage related components of the bill are provisions:
- Raising the Home Mortgage Disclosure Act reporting threshold to 500 per calendar year
- Removing the three-day wait period when loan terms are improved for the borrower
Biggest Benefit
CEOs were very clear in feedback to CUToday.info that biggest benefit to credit unions is the ability to consider non-owner-occupied dwellings with up to four units as residential loans, rather than business loans, which will open up more room for small business lending when the properties no longer count against the MBL cap.
The legislation also removes some of the additional paperwork, requirements and restrictions for these loans that were required when they were considered business loans.
Phillip Buell
Phil Buell, CEO at $853-million Superior Credit Union in Lima, Ohio, said defining one-to-four unit, non-owner occupied residential property loans as real estate loans is “meaningful.”
“At Superior, 21% of our MBL portfolio is comprised of one-four unit non-occupied; 40% of our one-four family non-owner occupied loans are for members who purchased a home for a family member,” explained Buell. “These loans are not traditional MBLs but are defined and treated as MBLs. As an example, a parent purchasing a home for their child to attend college is considered an MBL. Going forward, these loans will be treated as real estate loans, thus reducing unnecessary regulatory requirements.”
‘Substantial Relief’
Bob Morgan, CEO of North Country FCU in South Burlington, Vt., said the impact of the legislation on his $583-million CU is easy to see.
“Without question the reclassification of one-four family non-owner-occupied mortgages as residential and not commercial is a big benefit,” said Morgan, noting that the credit union can now help more members. “This provides substantial relief from the member business loan cap for many credit unions and allows us to help serve the credit needs of the nation’s small and micro businesses.”
Scott Wilson
In Massena, N.Y., Scott Wilson agrees.
“The most important rollback for us is in the change in classification of one-to-four-unit, non-owner-occupied residential property loans,” said the CEO of the $537-million SeaComm FCU. “This will allow us to treat those loans that qualify for the exemption as residential, therefore making it less complicated for a member to receive financing and not have to go through a lengthy stringent commercial loan underwriting process.”
Appreciated by Membership
Lori Herrick, CEO of the $23-million Manchester Municipal FCU in Manchester, Conn., says the legislation will certainly be appreciated by the membership.
“We have many members in our small CU that have second homes as rental properties. We can now extend them a home equity loan or refinance that mortgage, and it will not be considered a small business loan,” said Herrick. “That is huge for us; we don't currently do small business loans. We've had to refer our members to other financial institutions to obtain a mortgage or home equity loan for a rental property.”
Eddie Black, CEO of the $31-million Vocal CU in Helena, Mont., said S 2155 came along at the right time for his credit union.
“The best piece of this legislation for Vocal is the reclassification of one-to-four-unit, non-owner-occupied residential loans as real estate loans—so these loans won’t count against the member business lending cap,” he said. “We are just getting into MBLs, so this allows us a little more room under the cap. Plus, it just makes sense, as these loans are real estate loans.”
New Mortgage Disclosure Act Reporting Threshold
Raising the Home Mortgage Disclosure Act reporting threshold to 500 open and closed-end mortgage loans per calendar year is going to bring noticeable regulatory relief to smaller credit unions, say three CEOs.
“We are a smaller CU, so this reporting has to be done manually,” noted Heri Garcia, CEO of $85-million Thinkwise FCU in San Bernardino, Calif. “We do about 20 a year, which takes up a great deal of my staff’s time.”
In Kettering, Ohio, Bill Burke, CEO of the $386-million Day Air CU said he also sees the higher reporting threshold is the biggest benefit from the bill for his organization.
“The item that’ll impact us directly is the increase of the HMDA reporting requirement to 500 loans,” he said. “We make about 300 annually, so will see some real regulatory burden relief.”
Tim Anderson, CEO at the $40-million Government Printing Office FCU in Washington, said the lower threshold is a necessity for small credit unions.
“The 500 threshold, certainly for small institutions under $100 million in assets is a big assist,” said Anderson. “To continue reporting under the previous thresholds was killing small credit unions, complying with all those requirements.”
‘Common Sense’
Anderson, who also chairs the African-American Credit Union Coalition (AACUC), said the AACUC was active in seeking passage of S 2155, speaking with members of Congress and sending letters.
“I think a common-sense approach is exactly what is in Section 104 (of S 2155), and that is OK,” said Anderson. “It says, ‘OK, banks and credit unions that originate fewer than 500 closed-end mortgages, take some reporting requirements away.’ But that is not taking away HMDA requirements, and we understand those are still in place to keep institutions away from discriminatory practices.”
Thomas O’Shea, CEO at the $157-million Aspire FCU in Clark, N.J., said the exemption will save small lenders money.
“But beyond the savings, one of my big concerns with applying HMDA to credit unions has always been that we have federally mandated fields of membership. As a multi-occupational credit union, we can’t make loans to everyone in the community, only those people that work for employers in our fields of membership,” O’Shea said. “HMDA, in our case, is a misrepresentation of our lending outcomes.”
No More Three-Day Wait
Superior CU’s Buell is projecting costs to his credit union to process mortgages will be decreased with the removal of the three-day wait period required under the Truth in Lending Act Real Estate Settlement Procedures Act integrated disclosure rule when a creditor extends a second offer of a credit union's lower annual percentage rate to the consumer.
Thomas O'Shea
“Removing the three-date wait period when a member’s APR decreases has an immediate impact. It never quite made sense to delay the closing three days when the APR lowers for the member,” Buell said. “Although well-intentioned, TRID (TILA-RESPA Integrated Disclosure) had unintended consequences that negatively impacted our members. Originally designed to create additional consumer protection, TRID increased the costs of mortgage processing and origination for our members by creating unnecessary delays. We certainly appreciate Congress exercising their statutory authority and providing common-sense relief. Our members will benefit immediately.”
O’Shea added that removing the three-day wait period when loan terms are improved for the borrower will “take a lot of anxiety and aggravation out of the home buying process.”
“This will lower our costs and increase member satisfaction. We are coming off a long period of economic malaise driven by excessive regulation following the real estate crisis. Reducing these barriers will benefit credit unions, our members and the economy.”
In part two of this series, CUToday.info will feature CEO feedback on other portions of the regulatory relief package.