As the January 10, 2014 compliance date approaches, the National Credit Union Administration (NCUA) issued Letter to Credit Unions 14-CU-01, which indicates credit union examiners will "take into account a credit union's good-faith efforts to comply with the [ability-to-repay/qualified mortgage rule]."
The Letter also emphasizes that credit unions may originate qualified mortgages (QMs) and non-qualified mortgages (non-QMs); however, examiners will be carefully evaluating each credit union's risk analysis.
Additionally, NCUA shared Supervisory Letter 14-01 which was sent to all credit union examiners. All credit unions originating mortgage loans should review the Supervisory Letter—especially the Risks and Exam Procedures sections.
The Supervisory Letter walks through the following risks for QMs and non-QMs:
- Credit Risk;
- Liquidity Risk;
- Concentration Risk; and
- Legal Risk.
The Exam Procedures emphasize specific steps credit unions should take to verify and document their business decisions, including:
- Establishing concentration limits for the overall real estate portfolio as well as concentration limits for any non-QM mortgages;
- Pricing any non-QM mortgages adequately to address the additional risk;
- Retaining knowledgeable and experienced personnel who understand the risks related to non-QM lending;
- Determining how providing non-QMs will fit into the credit union's strategic plan and benefit its members;
- Identifying and tracking non-QMs in the loan portfolio to provide for adequate monitoring regarding loan performance, loss ratio, and ALLL funding pools; and
- Addressing legal risks, including having qualified legal counsel review non-QM mortgage loan programs.
Throughout the Letter to Credit Unions and the Supervisory Letter, NCUA reiterates that credit unions may originate non-QM loans. However, it is clear NCUA expects credit unions to review and document the various risks involved in originating non-QM loans.
Additionally, while NCUA has reiterated its good-faith efforts review standard for compliance, the heightened legal risks associated with the new ability-to-repay and qualified mortgage regulations will be present for all loan applications received on or after January 10, 2014.