Mortgage Rule Changes and Major NCUA Rulemaking Start Busy Year

A special message from Mary Martha Fortney, President and CEO
January 2014

The year ahead promises to be another busy one for the credit union system. Nearly a half-dozen mortgage related rules issued by the Consumer Financial Protection Bureau (CFPB) take effect in January. Many credit unions will have to adjust their policies, procedures and practices, and state regulators must ensure examiners understand the new rules as well.
¬†Also in January, the CFPB's long anticipated Ability to Repay (ATR) and Qualified Mortgage (QM) rule will take effect. Credit Unions will have to evaluate the strategic benefits and detriments of originating loans to the QM standards versus continuing to make non-qualifying loans. Even if lenders choose to make loans to the QM safe harbor standard, credit unions, and all originators, will have to deal with the uncertainty of just how safe the “safe harbor” will be. Like credit unions, regulators will have to develop experience with the nuances of the rules and the risks presented by both QM, and non-QM, origination in their supervised credit unions.

Of course, NCUA will also be busy in 2014. Last year, NCUA finalized several major rules that will take effect in 2014. New rules applicable to federally insured state credit unions (FISCUs) include the electronic filing requirement (effective January 1, 2014), the emergency liquidity rule (effective March 31, 2014) and the Credit Union Service Organization rule (effective June 30, 2014). In addition to those already finalized rules, NCUA has three recently proposed rules that will likely go final in 2014.

Perhaps as early as this month, I expect NCUA to finalize a rule regarding derivatives activities in credit unions. As proposed, NCUA's rule would grant federal credit unions (FCUs) simple swap and cap authority while simultaneously limiting FISCUs to only those activities allowed for FCUs. The proposal would preempt state law and negate the authority in nearly a dozen states where derivatives activities are already allowed for state charters. NASCUS and several states filed comment letters objecting to the preemption of state authority and urging NCUA to work with state regulators, many of whom have experience supervising derivatives transactions in their state chartered banks, to develop a regulatory framework that addresses NCUA's concerns while acknowledging the expertise in the states.

NCUA has also proposed a rule regarding home-based FCUs and asking whether the proposed rule should be expanded to FISCUs.. Comments are due to NCUA January 23, 2014 and I urge our members to review our summary of the proposed rule on the NASCUS website and share their thoughts with us as we draft comments for submission.

A third NCUA proposal would make changes to NCUA Rules and Regulations, Part 702 (currently "Prompt Corrective Action, but to be renamed "Capital Adequacy" pursuant to the proposed rule). The rule would require federally insured credit unions with assets of $10 billion or more to develop and submit capital plans to NCUA and to undergo NCUA-conducted stress tests.

In comments submitted to NCUA at the close of 2013, NASCUS agreed that stress testing and formal capital planning requirements might be useful for supervision of very large credit unions, but stressed that NCUA's proposal needed substantial revisions. Among the issues we raised were discrepancies between existing bank regulations and what was proposed by NCUA that required $10+ billion asset credit unions to comply with rules only applicable to $50+ billion asset banks.

Of course, the proposed stress testing and capital planning rule is only one prong of what will be a two pronged approach by NCUA to re-visit credit union capital requirements. In early 2014 we expect NCUA will publish a proposed risk based capital rule applicable to all federally insured credit unions (likely to those with $50+ million in assets). It is likely that NCUA's risk based capital rule, when proposed, will require credit unions to meet a risk based net worth ratio of 10%. NASCUS and state regulators have been discussing issues related to capital requirements for credit unions and will be watching NCUA's rulemaking closely.

2014 will be a busy year indeed. In addition to engaging on these issues, NASCUS will continue to develop and offer forward-looking quality training for examiners, credit union professionals and credit union volunteers. We will continue to engage with Congress and other policy makers to advocate for the state system. We will continue to bring regulators and credit unions together to develop the most innovative approaches to ensure the state charter remains the charter of choice.

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