Increases Reporting Thresholds Under HMDA

Regulatory Alert 20-RA-04 CFPB Increases Reporting Thresholds Under HMDA

May 2020

NCUA’s Regulatory Alert discusses the May 12, 2020 CFPB final rule amending parts of Regulation C which implement the Home Mortgage Disclosure Act (HMDA). The final rule:

• Effective July 1, 2020 the threshold for collecting and reporting data about closed-end mortgage loans is increased from 25 to 100, for calendar year 2020. It also increases the threshold for collecting and reporting
• Effective January 2, 2022 the threshold for collecting data about open-end lines of credit is increased from 100 to 200.
• The asset size foe collection of data remains unchanged: credit unions with total assets of $47m or less of December 31, 2019, are not subject to HMDA in 2020.

 What this means for credit unions:

NOTE: This rule change only applies to HMDA. Other regulations, such as  Regulation B (requiring collection of  information regarding ethnicity, race, sex, marital status, and age when credit is sought for purchase/refinancing of a primary residence dwelling that also secures the credit.

For calendar year 2021, a credit union is not required to collect HMDA data for closed-end mortgage loans if it originated fewer than 100 closed-end mortgage loans in 2019 or 2020.

The HMDA provisions may be found in Regulation C. CFPB will not update the current version of Regulation C until the effective dates of the amendments.

NCUA Final Rule: Part 722 Appraisals

Prepared by NASCUS Legislative & Regulatory Affairs Department
May 2020

NCUA has published a final rule amending Part 772 regarding appraisals for certain residential real estate related transactions. The final rule increases the threshold level below which appraisals are not required for residential real estate related transactions from $250,000 to $400,000. In transactions below the threshold, federally insured credit unions have the option of obtaining either an appraisal, or a written estimate of market value of the real estate collateral. In addition, the final rule explicitly incorporates the existing statutory requirement that appraisals be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).

The Final Rule proposed rule may be read here. The rule became effective April 30, 2020.  

NCUA’s appraisal rules in § 722 apply to federally insured state credit unions by reference in § 741.203(b).

Summary

NCUA’s appraisal rule, Part 722, is promulgated pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI). The last time NCUA adjusted its appraisal threshold was in 2001 when the limit was raised to $250,ooo. NCUA notes that the $400,000 threshold for residential real estate related transactions would exempt about the same number of transactions as the $250,000 threshold when it was established in 2001.

• 722.3(b)(2) Appraisal Threshold

The final rule amended the appraisal threshold in § 722.3(b)(2) to raise the limit below which an appraisal is not required for a residential real estate transaction to $400,000. For residential real estate transactions less than $400,ooo, credit unions have the choice of obtaining either a waiver, or a written estimate of market value.

• 722.4(c) Uniform Standards of Professional Appraisal Practice

Part 722.4(c) will be amended to incorporate the existing statutory requirement that appraisals be subject to appropriate review for compliance with the Uniform Standards of professional Appraisal Practice (USPAP). The revisions also delete as unnecessary the additional requirements for the appraisal exemption for certain transactions in rural areas.

-End-

Summary: CFPB Debt Collection Practices (Regulation F)

12 CFR Part 1006

The Consumer Financial Protection Bureau (CFPB)

Prepared by the Legislative and Regulatory Affairs Department

May 2020

The Consumer Financial Protection Bureau issued a supplemental notice of proposed rulemaking to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA).  In May 2019, the Bureau issued a proposed rule that would prescribe Federal rules governing the activities of debt collectors as defined under the FDCPA.  This proposal supplements the May 201 proposed rule by proposing to require debt collection to make certain disclosures when collecting time-barred debts.

Comments must be received by August 4, 2020.  The proposed rule can be accessed here and here (date extension).

Summary:

The Bureau proposes to amend Regulation F, which implements the FDCPA, to require debt collectors to make certain disclosures when collecting time-barred debts.  Time barred debts are debts for which the applicable statute of limitations has expired.  The Bureau proposes to require a debt collector collecting a debt that the debt collector knows or should know is time barred to disclose:

• That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and
• If the debt collector’s right to bring a legal action against the consumer to collect the debt can be revived under applicable law, the fact that revival can occur and the circumstances in which it can occur.

The Bureau proposes model language and forms that debt collectors could use to comply with the proposed disclosure requirements.

The Bureau proposes that the effective date of the final rule would be one year after the final rule is published in the Federal Register.

Comments Requested:

The Bureau is requesting comments on the following (among other things):

• The merits of using a “know or should know” standard versus a “strict liability” standard for determining when debt collectors must provide time-barred debt and revival disclosures.
• The merits of using, as an alternative, a “strict liability” standard with safe harbor for debt collectors who provide the disclosures when neither knew nor should have known the debt was time-barred.
• Whether knowing if a debt is time-barred affects or is likely to affect a consumer’s conduct relating to the debt
• The frequency with which debt collectors should be required to provide required disclosures, including the basis for requiring more or less frequent disclosures;
• Whether additional guidance is needed to address situations in which a validation notice might be reissued voluntarily because, for example, the consumer requests a copy or a translation;
• Debt collectors’ current practices with respect to disclosing whether a debt is time barred and the circumstances, if any, in which revival can occur;
• Debt collectors’ current practices with respect to revival, including whether and how frequently they sue to collect debts when the right to do so has been revived.
• The burden of making a time-barred debt determination for the debt collectors who do not sue to collect debts
• The burden of requiring all debt collectors to determine, when collecting debt that they know or should know is time barred, which State’s law applies and the circumstances, if any, under which the law would permit revival.
• The burden of making these determinations under a strict liability standard
• The knowledge standard that should apply for determining when disclosures would be required under the proposed rule
• Whether, if the first communication after a debt becomes time barred (or after the debt collector knows or should know that the debt is time barred) is oral, the debt collector should also be required to provide the disclosures in the first subsequent written communication.
• The conflict that might arise between the Bureau’s proposed model forms and other disclosures required by applicable law.
• Whether proposed model forms B-4 through B-7 would allow debt collectors to comply with other applicable law, including whether any jurisdictions require time-barred debt or revival disclosures to be included on the front of the validation notice and
• Whether, if so, it is possible for a debt collector to comply with both the Bureau’s proposal and any such State laws.
• Whether consumers who receive both Federal and State time-barred debt (and if applicable, revival) disclosures on a validation notice may be confused by the dual disclosures.
• Whether the two conditions described on the model forms – payment and written acknowledgement-capture all circumstances in which State law permits revival

Letter to Credit Unions 20-CU-14 Establishment of CLF Agent Memberships

May 2020

NCUA issued LTCU 20-CU-14 to announce that all 3,700+ credit union with assets less than $250 million may access the Central Liquidity Facility (CLF). This is because all 11 remaining corporate credit unions agreed to subscribe to CLF stock as agents for all their members with less than $250 million in assets. In addition, the corporate credit unions action has increased the CLF’s borrowing authority by over $13 billion.

NCUA’s LTCU 20-CU-08, Enhancements to the Central Liquidity Facility Membership and Borrowing Authority provided information on changes to the CLF  resulting from the (CARES) Act, including allowing corporate credit union to become agent members of the CLF for a subset of their NPCU members rather than for ALL of their NPCU members. This special “subset” membership authority sunsets on December 31, 2020.

Credit unions seeking loans from the CLF should contact their corporate credit union. The corporate credit union can process the request for the credit union on behalf of the CLF. For more information, NCUA has resources on the CLF website.

NCUA Interim Final Rule: Parts 702 & 723 PPP Loans & PCA and MBL

Prepared by NASCUS Legislative & Regulatory Affairs Department
May 2020

NCUA issued this interim final rule (IFR) to make conforming amendments to Part 702, Prompt Corrective Action (PCA) and Part 723, Commercial Loans, following the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequent implementation of the Paycheck Protection Program (PPP).

The IFR makes the following changes to NCUA’s rules:

• Part 702.2 is amended to allow credit unions to exclude from the calculation of total assets when calculating net worth ratio any loans pledged as collateral for a non-recourse loan that is provided as part of the Federal Reserve Board’s Paycheck Protection Program Lending Facility
• Part 702.104 is amended to included PPP loans as low risk assets for the purposes of risk weighting under PCA
• Part 723.2 is amended to excluded PPP loans from accredit unions MBL cap calculation

The Interim Final Rule proposed rule may be read here. The rule became effective upon publication on April 27, 2020.

Comments are due to NCUA May 27, 2020.

Summary

Part 702 of the NCUA’s rules implements the risk-based net worth requirement for complex credit unions. Under § 702.103, a complex credit union is a credit union with   $50 million in assets and a RBNW requirement exceeding 6%. A credit union’s

RBNW is calculated by weighing 8 risk portfolios:

• long-term real estate loans
• member business loans (MBL) outstanding
• investments
• low-risk assets
• average- risk assets
• loans sold with recourse
• unused MBL commitments
• allowance

The NCUA’s MBL and Commercial Lending Rule limits the aggregate amount of MBLs that a credit union may make to the lesser of 1.75 times the net worth of the credit union or 1.75 times the minimum net worth required to be well capitalized under the Federal Credit Union Act (FCUA). The rule defines MBLs and commercial loans and distinguishes between the two with only MBLs counting toward the regulatory and statutory cap on loans. Note that while all MBLs are commercial loans, not all commercial loans are MBLs.

As part of the federal government’s response to the COVID-19 impact on the economy, the FRB authorized each of the Federal Reserve Banks to participate in the Paycheck Protection Program Lending Facility (PPPL Facility). Under the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund PPP loans with the SBA guaranteed PPP loans pledged as collateral for the PPL Facility loans.

The Interim Final Rule

• PPP loans will risk weighted zero percent – The IFR amends the NCUA’s risk-based net worth rules as discussed above to include the PPP loans in the definition of low-risk assets (#4 above in the RBNW categories). Other low-risk assets include cash on hand, the NCUSIF deposit, and debt instruments guaranteed by the NCUA. Under §702.106(d), low-risk assets receive a 0% risk weight.
• PPP loans excluded from calculation of total assets – In order to participate in the PPPL Facility, credit unions will have to originate and hold PPP loans on the credit union’s balance sheet. This in turn could potentially subject credit unions to increased regulatory capital requirements. To facilitate use of the PPPL Facility, the IFR excludes PPP loans pledged as collateral to the PPPL Facility from the definition of total assets in §702.2 for purposes of calculating a credit union’s net worth ratio.
• PPP loans are not “commercial loans” – The interim final rule excludes PPP loans from the definition of “commercial loans” under § 723. Because the PPL loans would not be defined as “commercial loans” they would not be counted for purposes of calculating a credit union’s aggregate MBL cap.

Summary: CFPB Bulletin 2020-02 “Compliance Bulletin and Policy Guidance: Handling of Information and Documents During Mortgage Servicing Transfers”

12 CFR Part 1024

The Consumer Financial Protection Bureau (CFPB)

Prepared by the Legislative and Regulatory Affairs Department

May 2020

The Consumer Financial Protection Bureau (CFPB) is issued this compliance bulletin and policy to provide guidance to residential mortgage servicers regarding the transfer of mortgage loans.

The bulletin became effective on May 1, 2020 and can be access here.

Summary:

The Bureau issued the bulletin to provide guidance to mortgage servicers and sub-servicers considering potential risks to consumers that may arise in connection with transfers of residential mortgage servicing rights.  The bulletin covers (i) transfer-related policies and procedures and (ii) loan information and documents for ensuring accuracy.

In 2014, the Bureau issued CFPB Bulletin 2014-01 that highlighted the Regulation X mortgage servicing rule requirements.  In addition, the bulletin also addressed frequently asked questions; focus areas of Bureau examinations; and other Federal consumer financial laws applicable to servicing transfers. However, the Bureau has noted that it continues to find weaknesses in compliance management systems and violations of Regulation X related to mortgage servicing transfers. The bulletin highlights a number of examples of servicer practices that the Bureau may consider as policies/procedures that are reasonably designed to achieve the objectives of the transfer requirements such as general transfer-related polices/procedures and loan information and documents to be transferred/received.  Additionally, the bulletin’s “Appendix A” provides examples of information and documents grouped by subject area which the Bureau intends to use to assess compliance with Regulation X.

The Bureau does note that during the duration of the National Emergency and (120 days thereafter), it will consider the challenges entities may face as a result of the pandemic, including operational and time constraints related to the transfer, as well as being sensitive to good faith efforts designed to transfer the servicing without adverse impact to consumers. As such, the Bureau intends to focus supervisory feedback for institutions, if needed, on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers.

 

 

 

 

 

CFPB Bulletin 2020-01

March 2020

Responsible Business Conduct: Self-Assessing, Self-Reporting, Remediating and Cooperating

In 2013, the Bureau issued a Bulletin that identified several activities that individuals/businesses could engage in that could prevent and minimize harm to consumers, referring to these activities as “responsible conduct.” The Bureau is issuing this updated Bulletin to clarify its approach to responsible conduct and to reiterate the importance of such conduct.

The Bureau’s focus is on building a culture of compliance among entities, in order to minimize the likelihood of a violation of Federal consumer financial law and thereby prevent harm to consumers.  When a violation of law does occur, swift and effective actions taken by an entity to address the violation can minimize resulting harm to consumers.  Specifically, an entity may self-assess its compliance with Federal consumer financial law, self-report to the Bureau when it identifies likely violations, remediate the harm resulting from these likely violations, and cooperate above and beyond what is required by law with any Bureau review or investigation.

The Bureau seeks to encourage responsible conduct.  Accordingly, if an entity meaningfully engages in responsible conduct, the Bureau intends to favorably consider such conduct, along with other relevant factors, in addressing violations of Federal consumer financial law in supervisory and enforcement matters.  The Bureau principally considers four categories of conduct when evaluating whether some form of credit is warranted in an enforcement investigation or supervisory matter: self-assessing, self-reporting, remediating and cooperating.  These categories are discussed in more detail below.

Additionally, other factors the Bureau considers in determining how to resolve violations of Federal consumer financial law include, without limitation, (i) the nature, extent, and severity of the violations identified and any associated consumer harm; (ii) an entity’s demonstrated effectiveness and willingness to address the violations; and (iii) the importance of deterrence, considering the significance and pervasiveness of the potential consumer harm.

Self-Assessing:

This factor, also described as self-monitoring or self-auditing, reflects a proactive commitment by an entity to use resources for the prevention and early detection of violations of Federal consumer financial law. Below is a list of questions the Bureau intends to consider in determining whether to provide favorable consideration for self-assessing activity including:

• What resources does the entity devote to compliance? How robust/effective is its compliance management system? Is it appropriate for the size and complexity of the entity’s business?
• Has the entity taken steps to improve its compliance management system when deficiencies have been identified either by itself or external regulators? Did the entity ignore obvious deficiencies in compliance procedures? Does the entity have a culture of compliance?
• Considering the nature of the violation, did the entity identify the issue? What is the nature of the violation or likely violation and how did it arise? Was the conduct pervasive or an isolated act? How long did it last? Did senior personnel participate in, or turn a blind eye toward, obvious indicia of misconduct?
• How was the violation detected and who uncovered it? If identified by the entity, how did the entity identify the issue (e.g. from customer complaints, audits or monitoring based on routine risk assessments or whistle blower activity?) Was the identification the result of a robust and effective compliance management system including adequate internal audit, monitoring and compliant review processes? Was identification prompted by an impending exam or an investigation by a regulator?
• What self-assessment mechanisms were in place to effectively prevent, identify or limit the conduct that occurred, elevate it appropriately, and preserve relevant information? In what ways, if any, were the entity’s self-assessing mechanisms particularly noteworthy and effective?

Self-reporting:

This factor substantially advances the Bureau’s protection of consumers and enhances its mission by reducing the resources it must expend to identify violations and making those resources available for significant matters.  Prompt self-reporting of likely violations also represents concrete evidence of an entity’s commitment to responsibly address the conduct at issue.  Below is a list of questions the Bureau intends to examine in determining whether to provide favorable consideration for self-reporting of likely violations of Federal consumer financial law including:

• Did the entity completely and effectively disclose the existence of the conduct to the Bureau, to other regulators, and, if applicable, to self-regulatory organizations? Did the entity report any additional related misconduct likely to have occurred?
• Did the entity report the conduct to the Bureau without unreasonable delay? If it delayed, what justification, if any, existed for the delay? How did the delay affect the preservation of relevant information, the ability of the Bureau to conduct its review or investigation, or the interests of affected consumers?
• Did the entity proactively self-report, or wait until discovery or disclosure was likely to happen anyway, for example due to impending supervisory activity, public company reporting requirements, the emergence of a whistleblower, consumer complaints or actions, or the conduct of a Bureau investigation?

Remediating:

 When violations of Federal consumer financial law have occurred, the Bureau’s remedial priorities include obtaining full redress for those injured by the violations, ensuring that the entity who violated the law implements measures designed to prevent the violations from recurring, and when appropriate, effectuating changes in the entity’s future conduct for the protection and/or benefit of consumers. Below is a list of questions the Bureau intends to examine in determining whether to provide favorable consideration for remediation activity regarding likely violations of Federal consumer financial law including:

• What steps did the entity take upon learning of the violation? Did it immediately stop the violation? How long after the violation was uncovered did it take to implement an effective response?
• What steps did the entity take to discipline the individuals responsible for the violation and to prevent the individuals from repeating the same or similar conduct?
• Did the entity conduct an analysis to determine the number of affected consumers and the extent to which they were harmed? Were consumers made whole through compensation and other appropriate relief, as applicable? Did affected consumers receive appropriate information related to the violations within a reasonable period of time?
• What assurances are there that the violation (or a similar violation) is unlikely to recur? Did the entity take measures, such as a root-cause analysis, to ensure that the issues were addressed and resolved in a manner likely to prevent and minimize future violations? Similarly, have the entity’s business practices, policies and procedures changed to remove harmful incentives and encourage proper compliance?

Cooperating:

Cooperating relates to the quality of an entity’s interactions with the Bureau after the Bureau becomes aware of a likely violation of Federal consumer financial law, either through an entity’s self-reporting or the Bureau’s own efforts. Below is a list of questions the Bureau intends to examine in determining whether to provide favorable consideration for cooperating in a Bureau matter including:

• Did the entity cooperate promptly and completely with the Bureau and other appropriate regulatory and law enforcement bodies? Was that cooperation present throughout the course of the review and/or investigation?
• Did the entity take proper steps to develop the facts quickly and completely and to fully share its findings with the Bureau? Did it undertake a thorough review of the nature, extent, origins, and consequences of the violation and related behavior? Who conducted the review and did they have a vested interest or bias in the outcome? Were scope limitations placed on the review? If so, why and what were they?
• Did the entity promptly make available to the Bureau the results of its review and provide sufficient documentation reflecting its response to the situation? Did it provide evidence with sufficient precision and completeness to facilitate, among other things, appropriate actions against others who violated the law? Did the entity produce a complete and thorough written report detailing the findings of its review? Did it voluntarily disclose material information not directly requested by the Bureau or that otherwise might not have been uncovered? Did the entity provide all relevant, non-privileged information and make assertions of privilege in good faith?
• Did the entity direct its employees to cooperate with the Bureau and make reasonable efforts to secure such cooperation? Did it make the most appropriate person(s) available for interviews, consultation, and/or sworn statements?

The Bureau notes that it intends for this guidance to encourage entities subject to the Bureau’s supervisory and enforcement authority to engage in more “responsible conduct” as defined within the guidance. The bulletin can be found here.

 

 

 

 

20-RA-02 Federal Reserve Board Issues Rule Allowing Credit Unions to Remove the Monthly Limit on Savings Withdrawals

May 2020

NCUA has issued guidance to credit unions on issues related the Federal Reserve’s changes to transfer limits under Regulation D. The Federal Reserve has issued an Interim Final Rule (IFR) amending Regulation D by removing the 6/month limit on transfers from savings deposits. Credit unions may now suspend enforcement of the limit immediately and permit members to make unlimited withdrawals and transfers from their savings deposits. The IFR became effective on April 24, 2020. The Federal Reserve also published FAQs that will be updated as needed.

In addition to the changes made by the IFR, the Federal Reserve had issued an earlier interim rule reducing reserve requirement ratios to 0% effective March 26, 2020.

It is up to the credit union whether to waive the transaction limit as now permitted by the IFR: it is not mandatory. Credit unions may also use their discretion to decide how they want to classify savings accounts IF they choose to waive the limit: credit unions MAY reclassify them as transaction accounts OR continue to classify them as non-transaction accounts even with the limits waived.

Credit unions should be aware of the impact of this interim final rule on account agreements and related matters.

Letter to Credit Unions 20-CU-13 Working with Borrowers Affected by the COVID-19 Pandemic

April 2020

On April 7, 2020, federal regulators issued a revised interagency statement on loan modifications and reporting related to COVID-19 and the CARES Act. NCUA issued LTCU 20-CU-13 to provide guidance for credit unions working with borrowers experiencing financial hardship as a result of the COVID-19 pandemic.

Noting that credit unions need to consider appropriate strategies for each member and whether members need new funds or modifications of existing loans, NCUA emphasizes credit unions must also continue to operate in a safe and sound manner. NCUA’s guidance discusses several options for working with distressed members:

New Funds to Borrowers

• Emergency Small-Dollar, Unsecured Loans – Intended to provide rapid shot term cash flow. Typically. $5k or less, 90-dya grace period and 2-3 year maturities.
• SBA’s Paycheck Protection Program and Economic Injury Disaster Loan – Special programs offered with 100% SBA guaranteed and eligible for forgiveness of the entire loan.
• Payday Alternative Loans (PALs) I and II– NCUA PALS I and II small dollar loan programs with maximum loans of $1K or 2K respectively and 6-12 month maturities. See § 701.21(c)(7).
• Increased Revolving Credit Limits – Increasing credit lines for credit cards, home equity lines, and other revolving credit products.
• Temporary Loan Modifications
  • Credit unions should comply with federal & state consumer financial protection rules, including fair lending laws, and provide accurate disclosures for all loan modifications. NCUA notes the following:
• CARES Act Forbearance – Provides forbearance for federally backed transactions for 180 days (with an option for an additional 180 days) with no additional fees, penalties, or interest beyond contractual payments. The law also provides for a moratorium on foreclosures of these loans.
• Payment Forbearance – A credit union may allow a borrower to defer monthly payments, w/an agreement to repay missed principal & interest at a later date.
• Waiving Late Payment or Modification Fees – Waiving fees can prevent additional increases to a borrower’s debt as fees are often added to loan balances.
• Interest-only Payments – This strategy results in lower payments for a defined period while preventing negative amortization. However, borrower’s payment would increase after the interest-only period.
• Reducing the Interest Rate – Provide temporary relief by reducing the interest for a defined period.

NCUA reminds credit unions to consider the borrower’s ability to repay the debt at the end of the temporary modification period, especially if the modification will result in higher payments or a balloon payment.

• Permanent Loan Modifications
  • NCUA notes the following strategies for permanently modifying or refinancing existing loans:
• Consolidating Loans– Combining multiple loans, especially with an improved interest rate or extended amortization, could lower payments for a borrower.
• Extending the Maturity Date– While this strategy can lower payments for a borrower, credit unions should consider whether the value of any collateral would remain sufficient through the extended term.
• Reducing the Interest Rate – Reducing the interest rate can provide relief to a borrower by lowering their payment without extending the loan term.
• Forgiving Principal – This would cause a loss to the credit unions and should generally be a last-resort concession, typically used only in cases where a borrower has negative equity in the property and a financial impact analysis indicates this modification appears favorable over foreclosure action.
• Restructuring into A-B Notes – Generally only used when analysis indicates foreclosure is not a better option for the credit union, credit unions can structure an “A” note with a loan amount that meets a borrower’s ability to repay the loan and a B note to be repaid when A note repayment is completed.
•  Monitor and Report Loan Modifications
• Credit union policies should:
  • address the use of loan workout strategies and outline risk management practices clearly define borrower eligibility requirements
  • set aggregate program limits
  • establish sound controls to ensure loan workout actions are structured properly
• A credit union’s risk-monitoring practices for modified loans should:
  • be commensurate with the level of complexity and nature of its lending activities
  • maintain safe and sound lending practices
  • comply with regulatory reporting requirements

The metric for successful modifications is the performance of the loan after it has been modified. Losses should be promptly recognized. The program should include periodic reports to executives and directors on all modified loans. The periodic reports may include:

• delinquencies and charge-offs
• number & volume of modifications by loan type
• first payment defaults
• high loan-to-value and debt-to-income ratios
• credit quality
• number of times each loan has been modified
• expected loss exposure

Credit union management must comply with regulatory reporting requirements and generally accepted accounting principles, as applicable. A credit union’s decisions related to loan modifications may affect regulatory reporting, including interest accruals, troubled debt restructurings (TDRs), and credit loss estimates.

Additional Information

Credit unions seeking additional information should reference the following sources:

1. 1. NCUA Letter to Credit Unions 20-CU-02, NCUA Actions Related to COVID-19

1. NCUA Letter to Credit Unions 20-CU-06, Small Business Administration Loan Programs to Help Small Businesses and Members During the COVID-19 Pandemic
2. NCUA Letter to Credit Unions, 10-CU-07, Commercial Loan Workouts
3. NCUA Regulatory Alert 10-RA-13, Final Rule – Part 701, Short-term, Small Amount Loans
4. NCUA Letter to Credit Unions, 09-CU-19, Evaluating Residential Real Estate Mortgage Loan Modification Programs
5. NCUA Supervisory Letter 13-02, Examiner Review of Loan Workouts, Nonaccrual, and Regulatory Reporting of Troubled Debt Restructured Loans and NCUA Letter to Credit Unions, 13-CU-03, Supervisory Guidance on Troubled Debt Restructuring
6. NCUA Letter to Credit Unions, 08-CU-20, Evaluating Current Risks to Credit Unions and the attached Supervisory Letter, Evaluating Current Risks to Credit Unions
7. CFPB Guide to Coronavirus Mortgage Relief Options

Letter to Credit Unions 20-CU-12 Outreach Related to COVID-19 Impact

April 2020

NCUA issued this LTCU to notify credit unions about an NCUA outreach initiative in which NCUA examiners will be contacting credit unions between May 4 and May 18 to review a list of  32 primary questions (with some questions having follow-up sub-questions).

NASCUS note: NCUA should be working with state regulators to coordinate the information gathering. NASCUS is aware that in some cases many of these questions have already been asked by state agencies in their ongoing remote supervision efforts.

For example, NCUA’s outreach questions include information requests related to:

• Credit union operational status
• How has the credit union altered services such as drive-thru only, lobby status, and appointments?
• Questions regarding % of CU staff still working
• COVID impact on the credit union’s membership
• Credit union liquidity
• Is the credit union experiencing higher than average cash withdrawals?
• What is the daily average cash withdrawal rate?
• Deposit and ACH information
• Question related to credit union borrowings and contingency funding plans
• Performance metrics
• Percentages of real estate and auto loans in forbearance
• Percentage of unsecured loans in forbearance
• Status of commercial loan portfolio
• Participation in SBA or other programs
• Information on collections staffing

NCUA notes that the agency has also been monitoring the effect of COVID-19 on credit unions through information provided by:

• corporate credit unions
• other financial service providers
• other government agencies

Letter to Credit Unions 20-CU-11 Regulatory Treatment for Paycheck Protection Program Loans

April 2020

 NCUA issued LTCU 20-CU-11 to discuss the agency’s recently published interim final rule related to the SBA’s Paycheck Protection Program (PPP) loans and the Federal Reserve’s PPP Lending Facility (PPPLF) advances. The regulatory changes in NCUA’s interim final rule became effective on April 27, 2020. NCUA has also provided information on the PPP in LTCU 20-CU-06.

 PPP Loan Related Regulatory Changes

NCUA has made changes to its rules related how PPP loans are classified for regulatory capital and commercial underwriting purposes:

• Part 702.104 was amended to include PPP loans as low-risk assets for purposes of calculating a credit union’s risk based net worth ratio. PPP loans will receive a zero-percent risk weight.
• PPP loans have been excluded from the definition of commercial loans per 723.2 and therefore will not be subject to the enhanced underwriting and monitoring requirements for commercial loans and will not count toward the MLB cap.

 PPP Loans to Officials

Although SBA regulations generally prohibit lenders from making an SBA loan to an affiliate or an owner, the PPP loans are uniform for all borrowers, and the standard underwriting process does not apply. The SBA’s most recent interim final rule on the PPP loan program  appears to allow for loans to a business owned by a Director as long as the Director is not an employee or officer of the credit union. Federally insured state credit unions(FISCUs) must still comply with § 701.21(d)(5) concerning non-preferential treatment for loans and lines of credit to officials (applicable by reference in § 741.203).

• PPP Loans to Non-Members

The Federal Credit Union Act prohibits FCUs from originating loans to non-members. FISCUs should look to state law.

 Background: Federal Reserve System’s PPP Lending Facility

 Complete information on the PPPLF is available on the Federal Reserve’s PPPLF website. The Federal Reserve will supply liquidity to participating financial institutions through term financing backed by PPP loans. Only SBA-guaranteed PPP loans that are originated by an eligible institution may be pledged as collateral for this special lensing facility.

• Treatment PPP Loans Pledged to the PPPLF as Collateral for Calculating Net Worth

NCUA has amended § 702.2 to allow credit unions to exclude PPP loans pledged as collateral for a non-recourse loan that is provided as part of the PPPLF from the calculation of total assets for the purpose of calculating its net worth ratio.

Only PPP loans pledged to the PPPLF will be excluded from the net worth ratio calculation. Unpledged PPP loans will still be included in total assets for purposes of calculating the net worth ratio with a zero-percent risk weight for purposes of risk based net worth.

 Call Reports

Future NCUA Call Report instructions will include guidance on how to categorize PPP loans and advances obtained through the PPPLF on the Call Report.

NCUA will continue to update its own FAQs on its COVID-19 Information webpage.

NCUA Temporary Final Rule: Parts 722 & 741.203 Loan Participations FCU Eligible Obligations FCU Occupancy

Prepared by NASCUS Legislative & Regulatory Affairs Department
April 2020

 NCUA has published a Temporary Final Rule (TFR) making changes to NCUA’s loan participation rule for all federally insured credit unions (FICUs), federal credit union (FCU) eligible obligation rules, and FCU occupancy rules. NCUA is enacting these changes on a temporary basis to help FICUs remain liquid and otherwise operational during the COVID-19 crisis. Specifically, NCUA is making the following temporary changes, effective thru December 31, 2020:

• raising the maximum aggregate amount of loan participations that a FICU may purchase from a single originating lender to the greater of $5 million or 200% of the FICU’s net worth (applies to federally insured state credit unions “FISCUs” by reference in § 741.203(b))
• suspending limitations on the eligible obligations that a FCU may purchase and hold
• tolling the FCU requirement to occupy credit union owned properties not being used for FCU business

The Temporary Final Rule proposed rule may be read here. There is NO COMMENT Period. The TFR is effective from April 21, 2020 through December 31, 2020.

Summary

• Increased aggregated loan participation purchase threshold

Part 701.22(b)(5)(ii) (applied to FISCUs by reference in § 741.204) of NCUA’s rules limits the aggregate amount of loan participations that a FICU may purchase from any one originating lender to the greater of $5 million or 100% of the FICU’s net worth. NCUA promulgated the limitation to mitigate a FICU’s concentration risk. FISCUs could seek a waiver from the limitation from the NCUA RD and the state regulator.

In order to facilitate FICUs’ ability to manage the COVID-19 crisis, maintain operations, and maintain liquidity, NCUA believes it prudent to temporarily raise the cap. Under the temporary final rule, the aggregate limit below which a waiver is not required will be raised to the greater of $5 million or 200% of the FICU’s net worth.

After December 31, 2020, a FICU must return into compliance with the current limitation of the greater of $5 million or 100% of net worth by ceasing to purchase loan participations from the originating lender or requesting a waiver pursuant to the rule.

Regulatory relief for FCUs Only

 The following 2 changes made by NCUA only apply to FCUs.

• Purchase, Sale, and Pledge of FCU Eligible Obligations

Part 701.23(b) of NCUA’s rules govern an FCU’s ability to purchase, sell, or pledge all or part of an eligible obligation of its members. The rule provides that an FCU may purchase an eligible obligation from any source, provided the FCU is empowered to grant the loan or the loan is refinanced within 60 days following its purchase so that it is a loan the FCU is empowered to grant. FCUs with a composite CAMEL rating of “1” or “2” can purchase eligible obligation from any FICU without regard to the member nexus. NCUA is now expanding that exception to include composite CAMEL “3” FICUs.

• FCU Occupancy and Disposal of Acquired Premises

Part § 701.36(c) of the rules generally limits an FCU’s investments in fixed assets authorizes and provides that if an FCU acquires premises, including unimproved land or unimproved real property, it must partially occupy them ‘‘no later than six years after the date of acquisition. NCUA is temporarily tolling the regulatory mandated timeframes for an FCU to occupy premises. Any days that fall within the period commencing on April 21, 2020 and concluding at the close of December 31, 2020, shall not be counted for purposes of determining an FCU’s compliance with the regulatory time periods.