CUNA contacts FFIEC to urge delay of mortgage reg legal liability, sanctions

Federal financial regulators should work with the Consumer Financial Protection Bureau (CFPB) to provide a short-term reprieve, until September, from examiner sanctions for noncompliance that might be imposed on regulated financial institutions that are making good faith efforts to comply with upcoming mortgage regulations, the Credit Union National Association's (CUNA’s) CEO Bill Cheney urged in a letter to the Federal Financial Institutions Examination Council (FFIEC).

CUNA has called for a delay in possible sanctions and legal liability under the mortgage rules in several forums in recent days: For instance, Chief Economist Bill Hampel sought short-term reprieves or an outright delay of the mortgage regulations in Senate Banking Committee testimony delivered last week. CUNA's Bill Cheney also argued for a delay in an American Banker op-ed piece published on November 7.

In a letter to the leaders of the FFIEC, CUNA urged the regulators to work with Congress to delay legal liability under the new rules, again until September. The FFIEC was formed in 1978 to promote uniformity in financial institution regulation. It includes the heads of the Federal Reserve Board, the National Credit Union Administration, and the Federal Deposit Insurance Corp., as well as the Comptroller of the Currency and the director of the Consumer Financial Protection Bureau.

"We believe these requests are reasonable and, if implemented, would be enormously useful to smaller creditors as they work to meet their responsibilities under these rules," CUNA wrote in the letter. "This approach, to delay examiner sanctions and legal liability only for a short but reasonable time, will ultimately support full compliance--in the best interests of consumers, creditors, servicers, and regulators," CUNA added.

Delaying compliance with upcoming mortgage rules would also "provide welcome, although temporary, relief particularly for smaller creditors and servicers, such as credit unions," CUNA wrote. However, CUNA, in the letter, recognized that the CFPB has said a full delay is not possible because of the implementation directive in the Dodd-Frank Act.

The letter also calls on the regulators to do more to address concerns about the risk of disparate impact discrimination that could result because of the focus on "qualified mortgages." The concern is that examiners and the secondary market could favor QMs, which require the borrower to have no more than a 43% debt to income ratio.

Other borrowers that have higher ratios that still could be good mortgage credit risks might not be able to obtain a mortgage or have to pay more for one.