CUNA advises balance in House mortgage bill


WASHINGTON, November 7, 2007 — The Credit Union National Association (CUNA) Tuesday said it supports legislation intended to eliminate predatory mortgage lending practices, but advised that some provisions are “more appropriately tailored” for the mortgage brokerage industry than for depository institutions.

“However, there are provisions in the legislation that we believe are appropriate for consideration for broader application, as long as the regulatory burden of compliance is minimized,” the credit union trade group added, referring to the Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915).

That bill was approved 45-19 by the House Financial Services Committee last night.

In a letter addressed both to the committee’s chairman, Rep. Barney Frank (D-Mass.), and its ranking Republican member, Rep. Spencer Bachus (D-Ala.), CUNA President/CEO Dan Mica noted credit unions’ favorable lending history.

He added, “Given credit unions’ member-owned, not-for-profit structure, it is not surprising that we would support efforts to eliminate predatory mortgage lending practices. It is also true that credit unions are heavily regulated in the area of mortgage lending and provide extensive disclosures to members seeking mortgage lending services to finance the purchase of their home.”

CUNA backed the bill’s proposed ban on prepayment penalties on subprime loans, and a requirement that all remaining prepayment penalties expire three months after a loan reset, noting that federal credit unions already are prohibited from charging such penalties.

Mica also asked the lawmakers to define some of the more subjective terms in a section of the bill that addresses reasonable and good-faith determinations of a borrowers ability to repay a loan. Such phrases as “net tangible benefit” and “rebuttable presumption” need to be clarified to avoid the potential of numerous lawsuits, the CUNA letter said.

Mica said credit unions also support the bill’s prohibition of certain mortgage lending activities, such as:

  • Prepayment penalties for HOEPA loans that are below the FHA loan limit;
  • Balloon payments unless the payments are adjusted to the regular income of the borrower;
  • Encouraging borrowers to default on an existing loan when refinancing their debt with a high-cost mortgage;
  • Charging multiple late fees on the same delinquent payment and capping those fees at 4%;
  • Unilaterally accelerating the loan;
  • Structuring the loan to evade HOEPA protections;
  • Making a high cost loan unless the borrower receives counseling; and,
  • Modification and deferral fees, unless it is beneficial to the borrower.

“While we do not support a complete prohibition on the financing of points and fees, which at times can be helpful to the consumer if structured appropriately, CUNA could support important limitations on this activity,” the Mica letter said.

CUNA, however, raised concerns regarding possible unintended consequences that could result from a provision requiring the licensing and registration of depository institution employees who are involved in the mortgage loan process.

“All of this will impose significant additional costs on credit unions and other financial institutions, which will be borne by consumers ultimately,” Mica warned.

CUNA also encouraged the lawmakers to direct the Government Accountability Office to study how the disclosures and requirements of this legislation compliment disclosures and provisions that are currently required by law, and the extent to which these new requirements are duplicative and represent an additional regulatory burden for depository institutions.

H.R. 3915 is expected to go to the House floor for a vote next Wednesday or Thursday.

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