April 10, 2020 NASCUS Report

THIS WEEK: CORONAVIRUS RESPONSE – NASCUS pumps out summaries … New resources offer PPP help … Off-site exams earn press interest … Regulators clarify TDR use … PPP loans won’t count against biz loan cap … Key CU provisions in CARES Act outlined; NCUA Board to consider appraisals, CLF rules; BRIEFLY: Change in NH, Ito talks leadership, study looks at virus surface infection risk


Summaries (all public) outline NCUA COVID-19 actions …

Four new summaries of actions by NCUA – all related to the coronavirus crisis – have been developed and posted by NASCUS. All four are open for public review.

(In the meantime, the agency has also issued two additional LTCUs, outlined in items below this one; summaries are in process of being developed for both.)

Typically, NASCUS reserves access to these high-level reviews of NCUA regulatory actions only to NASCUS members,” said association President and CEO Lucy Ito. “However, given the national pandemic and crisis, we believed it critical that all in the credit union system have the opportunity to understand what the impact of these actions are on the state system.”

The four summaries deal with NCUA letters on:

  • Agency actions related to COVID-19 (LTCU 20-CU-02; March 16): Lays out strategies credit unions may consider when determining how to work with their members to address the impact and challenges of COVID-19.
  • Identification of essential critical infrastructure workers during COVID-19 (LTCU 20-CU-03, March 16): Outlines that certain credit union workers are on the list of “critical infrastructure sector” workers who, during the coronavirus crisis, are needed to ensure continuity of functions “critical to public health and safety, as well as economic and national security.”
  • Responsible small-dollar lending in response to COVID-19 (LTCU 20-CU-04, March 26): Notes important role responsible small-dollar loans can play in meeting customers’ credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries.
  • Offsite examination and supervision approach (LTCU 20-CU-05, March 30): Details priorities for NCUA during the crisis, including: Continuation of offsite examinations (at least until May 1), attention to credit unions experiencing problems, and discussion with all supervised institutions.

NASCUS Summary of LTCU 20-CU-02

NASCUS Summary of LTCU 20-CU-03

NASCUS Summary of LTCU 20-CU-04

NASCUS Summary of LTCU 20-CU-05

New resource offers PPP guidance, more …

A new resource on the NASCUS website provides insights – from both federal and state perspectives – on the paycheck protection program (PPP), the $349 billion program set up under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became law March 27.

The program, administered by the Small Business Administration (SBA), makes loans available (either directly from SBA and through credit unions and other lenders) to small businesses to help them continue to provide paychecks to their workers. As of Wednesday, according to reports, 381,000 applications for $100 billion in loans from 3,600 lenders had been submitted through the program.

The NASCUS page lists guidance issued by states in using the program (including Iowa and New York), as well as federal guidance (from SBA and NCUA).

This week, the Federal Reserve unveiled its PPP lending facility, designed to extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

(See item below on NCUA’s April 7 letter to credit unions on the PPP program.)

NASCUS PPP page: SBA’s Paycheck Protection Program

Off-site exams, crisis, earn press …

Off-site exams, and state supervisory authority use of them during the coronavirus crisis, were the topic of comments by NASCUS’ Lucy Ito in an article published by Credit Union Journal (a trade publication) this week.

The article, headlined “How the coronavirus is changing credit union exams,” focused on how both state regulators and NCUA were deploying virtual exam programs “on a wider scale to practice social distancing” in order to halt the spread of the disease while fulfilling their supervisory duties.

The article suggested that off-site exams can help to reduce disruptions while also cutting down on costs and improving the work-life balance of examiners. Ito noted that at least 10 states were working on remote exam programs prior to the outbreak. Now, she noted, virtually every state was either postponing exams or completing them remotely.

The publication reported that Ito said many aspects of a credit union exam are conducive to an offsite review since technology allows institutions to securely share information, such as board and supervisory committee minutes and risk reports. Exam scope meetings and exit meetings for well-run institutions could also potentially be done through videoconference, she added.

But the NASCUS leader also agreed with others quoted in the article that off-site exams are not the complete answer for all credit union reviews. “I would say both regulators and credit unions would agree even though some parts of the exam should be offsite, both sides welcome the value of looking someone in the eye,” Ito said.

CU Journal: How the coronavirus is changing credit union exams (subscription required)

Regulators clarify: TDRs are ‘positive, proactive’ …

NCUA joined other federal and state financial regulators with a joint statement this week noting that loan modification programs (including troubled debt restructurings (TDRs)) offered to financial institution customers affected by COVID-19 are “positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.”

The joint statement – issued in an effort to match up newly enacted laws with past statements by NCUA, the CFPB, the FDIC, Federal Reserve, and the OCC, “in consultation with state financial regulators” – said regulators encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe-and-sound manner.

Their statement is intended, the agencies said, to clarify the interaction between their interagency notice issued March 22 and the temporary relief provided by Section 4013 of the CARES Act.

The agencies pointed out that Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs). (The March 22 statement said that regulators would not direct supervised banks, credit unions, and savings associations to automatically categorize loan modifications as TDRs).

In this week’s statement, the agencies said their examiners “will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk-rate credits that are affected by COVID-19, including those considered TDRs.” The agencies added that “regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.”

The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)

PPP loans won’t count against biz loan cap …

Loans credit unions make through the Paycheck Protection Program (PPP) of the Small Business Administration (SBA) are 100% guaranteed and will not count against a credit union’s member business loan cap, the NCUA noted in a letter to credit unions this week (LTCU 20-CU-06).

Created by the CARES Act, the program – available on a first-come, first-served basis – has been allocated $349 billion and will accept applications through June 30 or until funds are exhausted. (In fact, Congress is working on providing $250 billion more for the program, at the request of the Trump Administration.)

Small businesses were able to apply to the PPP as of April 3. Independent contractors and self-employed individuals may begin to apply today (April 10).

NCUA’s letter to credit unions notes that this program is administered by the SBA’s 7(a) loan program but operates differently. For example, it notes:

  • Unlike a 7(a) loan, PPP loans are 100% guaranteed, meaning there is no credit risk to a credit union if it complies with the applicable lender obligations set forth in the interim final rule. Again, PPP loans are not included in the federal statutory member business loan cap imposed on credit unions.
  • The full principal amount of a PPP loan may qualify for loan forgiveness.
  • PPP loans may be in amounts up to $10 million – twice the amount of a 7(a) loan.
  • Lenders must comply with the applicable lender obligations set forth in the interim final rule but will be held harmless for any borrower’s failure to comply with program criteria.

“The NCUA will not criticize credit unions’ good faith efforts to prudently use the SBA programs with members affected by COVID-19,” the agency said.

The letter notes that non-depository financing providers, including credit union service organizations (CUSOs), may qualify as a PPP lender subject to the requirements listed in the interim final rule. However, the letter stated, “[f]inancial businesses primarily engaged in the business of lending…” cannot borrow under the PPP due to SBA regulations. That definition – at least for now – includes credit unions.

NCUA Letter to CUs 20-CU-06

Key provisions for CUs in CARES outlined …

Eight key portions of legislation enacted late last month to bolster the economy (including workers and businesses) that affect credit unions and their operations are outlined in yet another letter to credit unions this week. NCUA, in its letter to federally insured credit unions (LTCU 20-CU-07), said the key provisions of the CARES Act will:

  • deal with the agency’s Central Liquidity Facility (CLF, a facility designed to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions experiencing unusual or unexpected liquidity shortfalls);
  • raise the threshold for insured deposits;
  • provide temporary relief for troubled debt restructurings (TDRs);
  • establish the loan guarantee “Paycheck Protection Program”;
  • provide optional, temporary relief from the current expected credit losses (CECL) accounting standard issued by the Financial Accounting Standards Board (FASB);
  • extend credit protection to borrowers (such as reporting loan modifications resulting from the impact of the pandemic as “current” or as the status reported before the accommodation, unless the consumer becomes current);
  • impose a moratorium on single-family mortgage foreclosures and establish a right for consumers to request forbearance;
  • provide up to 90 days’ forbearance for borrowers with a federally backed, multifamilty mortgage loan experiencing a financial hardship.

In outlining the amendments to the CLF borrowing facility, NCUA noted that the changes “can help provide significant liquidity support to the entire credit union system as we work through the COVID-19 pandemic.”

The changes include provisions that:

  • Remove the “primarily serving natural persons” reference under the Federal Credit Union (FCU) Act’s definition of “liquidity needs” to permit temporary access for corporate credit unions in addition to natural-person credit unions.
  • Amend the act’s membership provision for the CLF to provide greater flexibility to corporate credit unions serving as agent members with respect to the amount they must pay to subscribe to the capital stock of the CLF.
  • Alter the FCU Act provision regarding member applications for extensions of credit by removing the reference to the NCUA Board disapproving applications that are filed with the intent to expand credit union portfolios. “Instead, under the CARES Act, the applicant must provide evidence to the Board that they have made reasonable efforts to first use primary sources of liquidity, including balance sheet and market funding sources, to address its liquidity needs,” the agency said.
  • Temporarily increase (by 16 times the subscribed capital stock and surplus of the CLF) the NCUA’s borrowing authority on behalf of the facility. “Together, these amendments enhance the CLF’s ability to serve as an effective liquidity provider to credit unions,” the agency said.

NCUA said that the amendments sunset on Dec. 31.

NCUA Letter to Credit Unions (LTCU) 20-CU 07: Summary of credit union provisions in CARES Act

NCUA to consider actions on appraisals, CLF, pandemic response

Rules related to regulatory relief in response to the coronavirus crisis, as well as those implementing legislative changes related to the agency’s liquidity facility for credit unions, are on the agenda for the NCUA Board at its meeting April 16 in Alexandria, Va.

The board will also consider at the meeting – which will be streamed live via the Internet, but will not be open to an in-person public audience – rules related to real estate appraisals for both regulatory relief and threshold levels.

The meeting is set to begin at 10 a.m. ET.

The CARES Act contains at least four provisions affecting the Central Liquidity Facility (CLF) of the agency (see preceding item). The agency will have to craft rules to implement those provisions.

Regarding appraisals, in November the board proposed a rule that would increase the threshold level below which appraisals would not be required for residential real estate-related transactions from $250,000 to $400,000. The agency said that, consistent with the requirement for other transactions that fall below applicable appraisal thresholds, federally insured credit unions (FICUs) would be required to obtain written estimates of market value of the real estate collateral that is consistent with safe and sound banking practices in lieu of an appraisal. Comments closed on the proposal in late January.

Sunshine Act: Notice of NCUA Board Meeting (April 16)

BRIEFLY: Transition in NH; NASCUS chief talks leadership; study looks at risks from surfaces (including ATM pads, cash)

New Hampshire Banking Commissioner Gerald “Jerry” Little has accepted a new assignment in state government heading the new Governor’s Office for Emergency Relief and Recovery. In the position, he will guide the distribution of federal emergency relief funds coming to the state as it faces the impact of the coronavirus crisis. Deputy Commissioner Emelia Galdieri is now in charge at the department … NASCUS CEO Lucy Ito is featured in a podcast this week produced by Canvas Credit Union of Lone Tree, Colo., on leadership during a time of crisis (among other things). The hour-long production of “In the Room” is hosted by Canvas CEO Todd Marksberry … Indirect transmission of the coronavirus, for example by contaminated surfaces (including ATM keypads and even cash), is “exceedingly rare,” according to a paper posted this week by the American Bankers Association. “With appropriate precautions, it is likely that the risk from fomites can be de minimis during shopping excursions out of the house and the focus should be ensuring appropriate social or physical distancing is maintained to minimize the risk from droplet/aerosol-based transmission,” the paper concludes.

“In the Room” podcasts from Canvas CU

ABA paper: Confronting COVID-19: An Analysis of Surface Contamination Risks

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