NAFCU Seeks Change To Non-Traditional Mortgage Rule

NAFCU is calling for several changes by NCUA to a proposed rule on nontraditional mortgage products.

In a comment letter filed with NCUA, NAFCU President Fred Becker said the trade association largely supports the proposal, but honed in on two different areas of the bill as needing some clarification. The following is an excerpt from his letter on the "Proposed Illustrations of Consumer Information for Nontraditional Mortgage Products:" "The Proposed Illustrations pertain to nontraditional residential mortgage products that permit borrowers to defer repayment of principal and/or interest, including "interest-only" mortgage products and "payment option" adjustable rate mortgages (ARMs). These products pose a greater risk than traditional mortgage products because of lack of amortization and potential for negative amortization.

"The Interagency Guidance addresses prudent loan terms and underwriting standards, appropriate portfolio and risk management practices, and recommends best practices for consumer protection. The Agencies provided the Proposed Illustrations to demonstrate how financial institutions can provide sufficient information on nontraditional mortgage products to consumers.

"NAFCU commends the Agencies for providing the Proposed Illustrations so that credit unions can see examples of how to achieve the goals delineated in the Interagency Guidance.

"NAFCU generally supports the Proposed Illustrations as demonstrations of ways to provide information to credit union members. However, NAFCU would like to take this opportunity to submit the following comments.

"NAFCU appreciates the Agencies' pronouncement that the Proposed Illustrations are not mandatory and are provided for demonstrative purposes only.

"Nonetheless, NAFCU is concerned that use of the Proposed Illustrations will become mandatory despite the Agencies' stated intent. Therefore, NAFCU encourages the Agencies to ensure that use of the Proposed Illustrations remains non-compulsory. By ensuring that the use of any of the Proposed Illustrations is not mandatory, the Agencies would enable credit unions to seek more effective ways, if and where appropriate, to communicate the information to members.

"Comments are sought on the usefulness of the Proposed Illustrations. While the Agencies provide the Proposed Illustrations as samples of how to present important information to consumers on nontraditional mortgage products, there is no evidence that they would be useful or effective.

"NAFCU recommends that the Agencies undertake consumer testing to determine how useful and effective the Proposed Illustrations are. Without further evidence of the effectiveness of the illustrations, credit unions adopting the illustrations would be taking a leap of faith that the information they seek to provide to members is presented in a manner that is most useful and valuable to all parties involved."