WASHINGTON—NAFCU has joined with more than a dozen other trade groups representing various housing market stakeholders to voice concerns about the Federal Housing Administration's (FHA) current calculation of student loan debt "disqualifying otherwise creditworthy borrowers by using a formulaic calculation in lieu of the actual monthly obligation that appears on the credit report."
"The use of this calculation often results in an artificially inflated debt-to-income (DTI) ratio that could cause many borrowers to become ineligible for FHA financing," the trades wrote.
The covered plans include income-based, graduated, deferred, adjustable, and forbearance repayment plans. Borrowers enrolled in covered plans are only permitted to qualify using the contractually-obligated payment amount if the payment fully amortizes the student loan debt.
"Covered plans are attractive to borrowers who have taken out student loans to advance their earning potential but are unable to immediately afford a fully amortized monthly payment," the groups said. "While in some instances borrowers with significant student loan debt immediately earn incomes that can support a fully amortized payment, others utilize covered repayment plan options in order to gradually pay more over time as their income increases."
Revision Urged
Unlike the FHA's calculation, which continues to presume a monthly payment of 1% of the outstanding student loan balance, other government-backed mortgages qualify borrowers using the actual monthly obligation or an alternative that is more closely aligned with a fully amortized payment calculation.
The trades urged the Department of Housing and Urban Development to revise FHA guidelines to align with other government-backed policies, recommending that the presumed 1% be reduced to 0.5% of the outstanding student loan balance.
"[We] believe that FHA's acceptance of a more reasonable student loan debt calculation policy will remove unnecessary roadblocks that prevent FHA from fully carrying out this critical mission," the groups stated.
Rep Intro’s 2 Bills Aimed on Reg Burden
Separately, House Financial Services Committee Member Blaine Luetkemeyer (R-MO) has introduced two bills that seek to reduce credit unions' regulatory burdens. The first would eliminate regulatory requirements to comply with FASB’s CECL standard, and the second would extend relief provided in the CARES Act for troubled debt restructurings (TDRs) to March 2021.
In its analysis, NAFCU stated, “Luetkemeyer has long criticized the CECL standard, arguing that it could negatively impact credit unions' ability to lend to consumers in need. He was part of a bipartisan group of lawmakers who introduced a ‘stop and study’ bill last year to further investigate the standard's impact and earlier this year urged FASB to suspend and further delay its implementation amid the coronavirus pandemic.”
The proposed legislation specifies no person shall be required to comply with the CECL rule under any federal statute or regulation.
Letter Sent to FASB
NAFCU continues to maintain credit unions should not be subject to CECL. NAFCU President and CEO Dan Berger recently sent a letter to FASB's new chairman urging an exemption, citing concerns about procyclicality and the standard’s propensity to exacerbate capital and liquidity issues during economic downturns as well as lawmakers’ calls for additional studies on the impact of CECL.
As CUToday.info reported, NCUA has proposed a three-year phase-in plan of the day-one impacts of CECL on federally-insured credit unions' net worth ratios, which is on par with a rule issued by banking regulators for community banks. The proposed rule would also exempt credit unions under $10 billion from complying with CECL.