"Credit unions are thriving" in the words of Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB).  He told members of the National Association of Federal Credit Bureaus on Wednesday that while purchase mortgage lending increased by 4 percent in 2014 and by 13 to 14 percent last year, credit unions originated 39 percent more of those mortgages in the first nine months of 2015 than during the same period in 2014.

Credit unions often note that they made consumer protection their first priority long before CFPB was born, Cordray said, and it is clear they did not create the financial crisis and performed well during it.  For that reason, the Bureau has regularly looked at how credit unions operate and has worked to accommodate their needs.

Many credit unions have focused on the compliance burden of new rules but have overlooked their positive benefits, he said. "A safer mortgage market that does not allow "no-doc" loans, or loans that can be underwritten over misleading teaser rates, is a market that presents more favorable ground for responsible lenders like credit unions. When bad practices are rooted out, good practices are able to thrive, freed from the unfair competition of a race to the bottom."

He said that is what has happened for credit unions over the past two years, CFPB has both been building a vigorous supervision program over non-bank mortgage lenders and mortgage servicers, and putting credit unions on a level playing field with their competitors for the first time ever.

The positive trends are not restricted to mortgage lending but have allowed credit unions to grow their auto lending and credit card lending as well and credit union membership has hit record highs in the last year.

Discussions with smaller creditors have taught the Bureau that they operate differently from larger financial institutions so there is a need to think hard about the challenges faced by credit unions to maintain their tradition of flexible yet responsible lending.  Based on input from credit unions, for example, CFPB broadened the definitions of "small creditor" and "rural area," raised the loan origination limit for small-creditor status for first-lien mortgage loans from 500 to 2,000 per year, and stopped counting loans held in portfolio by smaller creditors and their affiliates toward that limit. Under the new rule, the small creditor provisions now cover all but about 150 of the very largest credit unions.

The Bureau also took another look at the definition of "rural." The new rule added all census blocks that are not in urban areas - he emphasized it was indeed all of them - which expanded the definition to embrace about 22 percent of the population. Last year, Congress weighed in further with the HELP Rural Communities Act and CFPB adopted a new interim rule to move even further, exempting small creditors from some escrow requirements and allowing the origination of certain balloon payment mortgages, it is also even easier to qualify as a lender that is "operating predominantly" in a rural or underserved area.

Cordray reviewed some of the other changes in mortgage lending that have occurred in the five years since CFPB was created, then concluded the mortgage related part of his speech by explaining some existing and planned changes to reporting under the Home Mortgage Disclosure Act. First, the implementation date creating higher thresholds for HMDA reporting exemptions has been moved forward a year to January 1, 2017 to allow smaller institutions to take advantage of the exception as soon as possible. 

Also, to ease compliance burdens the final HMDA rule aligns as much as possible with MISMO standards so as to harmonize with the approach being taken by Fannie Mae and Freddie Mac.  This, Cordray says, should improve the quality of the data and reduce long-term costs.  The Bureau is working with the National Credit Union Association and other agencies to streamline how HMDA data is submitted and it is estimated this could save the industry between $30 million and $50 million per year.