April 24, 2020 NASCUS Report

THIS WEEK: CORONAVIRUS RESPONSE – Interest in garnishment issue grows  … Resource list expands … Ito on importance of diverse FOMs in crisis … Rule offers 0% risk weight on PPP loans … Letter sums up appraisal changes … Mortgages in forbearance can be bought … Today’s webinar looks at TDRs … CFPB groups to talk COVID-19; Feedback sought on cyber incident response; NCUA launches new ethics office


NASCUS follows issues affecting
garnishment of federal payments …

A new webpage highlighting guidance provided by states in the face of garnishments of federal coronavirus relief payments is the latest addition to the NASCUS website, as the association continues its efforts to focus on state actions in helping consumer affected by the crisis.

In addition, NASCUS published and sent to all members this week another of its StateFocus newsletters, focusing on the garnishment issue.

The state wage garnishment page looks at the impact of debt collectors and others from garnishing payments made by the federal government to consumer to assist them in coping with the COVID-19 pandemic. Unlike other government benefits payments (such as Social Security and other government benefits payments), those made as federal “Economic Impact” payments (or stimulus checks) may be garnished by creditors to cover unpaid debts.

But a number of states are taking action to shield citizens who are receiving the checks from garnishments. “States are taking the lead now to prevent those garnishments so that consumers obtain the relief they were promised,” said NASCUS President and CEO Lucy Ito.

Last week, 25 state attorneys general wrote to Treasury requesting the department issue guidance designating CARES Act payments as “benefit payments” exempt from garnishment. NASCUSReport described that action last week, focusing on the actions of four key states (Connecticut, Illinois, Ohio, and Washington).

StateFocus this week reported on actions taken by the District of Columbia and four more states (Massachusetts, Nebraska, New York and Oregon). The new NASCUS webpage (State wage garnishment guidance) includes a consolidated list of states that have developed guidance to date.

State Wage Garnishment Guidance

April 21, 2020 StateFocus State Wage Garnishment Guidance

Resource list continues to expand …

NASCUS continues to update its lists of resources related to dealing with the coronavirus crisis – including the addition this week of a list of “frequently asked question” (FAQs) from the Small Business Administration (SBA) about the paycheck protection program (PPP).

Importantly, the FAQs note that credit unions (and other lenders) as well as borrowers “may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rule The U.S. government will not challenge lender PPP actions that conform to this guidance, in effect at the time.”

The list, updated Thursday, covers 31 separate questions (with answers); question no. 31 is the latest added. The question is: Can a lender sell a PPP loan into the secondary market? The answer is yes — at any time after the loan is fully disbursed, without SBA approval, it remains 100% SBA guaranteed, and may be sold at a premium or a discount to par value

NASCUS Resources: SBA Paycheck Protection Program

NASCUS COVID-19 Resources & Guidance

Ito: Diverse FOMS in states can help CUs weather crisis

States took the initiative in enabling more diverse credit union fields of membership following the Great Recession – action that could likely well serve the entire state system in the economic downturn associated with the coronavirus crisis, NASCUS’ Lucy Ito indicated this week.

In comments to the Credit Union Journal (a trade publication) – included in an article focusing on the impact of the current crisis on credit union membership – Ito said that awareness of field of membership “concentration risk” was heightened during the financial crisis of 12 years ago.

Certainly in the last crisis, any credit union that was very narrow with its field of membership — say a particular employee group, a particular company or if that particular sector was hard hit in the last crisis — that made it very difficult … [if] it didn’t have a diversity of membership to absorb what was going on.”

Ito noted that state supervisory authorities recognized the pressure on credit unions then and took action. “Since the last crisis, at the state level many regulators have enabled credit unions to have a more diverse field of membership, which is a legitimate safety and soundness decision to spread risk across a credit union’s membership,” she said.

CU Journal: Post-coronavirus economy could reshape credit union charter landscape (subscription required)

Interim rule gives PPP loans 0% risk weight …

Loans made through the paycheck protection program will receive a 0% risk weight under regulatory risk-based net worth requirements, NCUA said this week, and will not be counted toward the credit union business lending cap. The action by the NCUA Board (taken in a unanimous notation vote) amends both the agency’s capital adequacy and member business loans and commercial lending regulations. The board took the action Wednesday by notation vote, according to a release from NCUA.

NCUA noted that last month’s Coronavirus Aid, Relief, and Economic Security Act (CARES Act) –which created the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) — requires that PPP loans made by federally insured credit unions receive a 0% risk weighting under the agency’s risk-based capital requirements.

The agency also said, under a conforming change to the definition of a commercial loan under the agency’s member business loans and commercial lending rule, the interim final rule excludes PPP loans from the definition of a commercial loan “because the unique nature of these loans mitigates the need for enhanced commercial underwriting.”

The PPP is intended to provide low-interest loans to businesses to help them ensure they may continue to meet their payrolls during the economic chaos rendered by the coronavirus crisis. Under the provisions of the program, the loans may become grants if borrowers keep all of their employees, rather than laying them off (or closing the business’s doors).

The credit union regulator also noted that the interim final rule allows that, if a loan is pledged as collateral for a non-recourse loan provided through the Federal Reserve System’s PPP Lending Facility (PPPLF), the covered loan can be excluded from a credit union’s calculation of total assets for the purposes of calculating its net worth ratio. “This ensures that credit unions can neutralize the regulatory capital effects of PPP loans pledged to the facility,” the agency said.

(The PPP Facility was set up by the Fed April 6 to extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.)

NCUA Board Approves Changes to Capital; Business Lending Regulations

NASCUS SBA Paycheck Protection Program Guidance

Letter sums up latest appraisal changes …

Recent changes in credit unions’ federal appraisal requirements and changes specifically affecting federally backed mortgage loans – most of them responding to disruptions brought by the coronavirus pandemic – are detailed in a new letter to credit unions issued this week by the NCUA.

NCUA Letter to Credit Unions (LTCU) 20-CU-10 summarizes: NCUA’s action April 16 to raise the threshold for credit unions’ real estate appraisal requirements; a recent interim rule temporarily allowing deferrals of appraisals; and appraisal flexibilities also allowed by the housing-related government-sponsored enterprises and other agencies.

The letter also notes that the federal departments of Housing and Urban Development, Veterans Affairs, and Agriculture have also updated appraisal flexibilities for residential mortgages that they insure or guarantee. “These new measures closely align with the appraisal flexibilities offered by Fannie Mae and Freddie Mac, including desktop appraisals and exterior-only inspections for certain real estate transactions,” it states.

NCUA Letter 20-CU-10

Mortgages in forbearance will be purchased, FHFA says …

Qualified single-family mortgages in forbearance will be purchased by the Federal Housing Finance Agency (FHFA) in order to support mortgage markets during the coronavirus crisis, the agency said this week.

The FHFA said it would ease the restriction that loans in forbearance (or delinquency) may not be sold to either Fannie Mae for Freddie Mac. The restriction, the agency said, would be lifted “for a limited period time and only for mortgages meeting certain eligibility criteria.” Loans in forbearance that are sold to either of the federally sponsored mortgage enterprises “will be priced to mitigate the heightened risk of loss to the Enterprises.”

A loan-level pricing adjustment of 500 bp for first-time buyers and 700 bp for all others will be imposed, according to guidelines issued by Fannie and Freddie. Borrowers may not be behind in their payments by more than one payment and the transaction must involve either a purchase transaction or a no-cash-out refinance, according to the guidelines.

According to FHFA Director Mark Calabria, the actions by the agency this week “will provide liquidity to mortgage markets and allow originators to keep lending.”

FHFA Announces that Enterprises will Purchase Qualified Loans in Forbearance to Keep Lending Flowing

Webinar – today – discusses loan modifications …

Loan modifications by credit unions and other financial institutions working with members and customers affected by the coronavirus crisis are the topic of a webinar set for today (April 24) by federal regulators including NCUA – particularly accounting and regulatory reporting considerations of a revised joint interagency statement issued April 7. Today’s webinar (running for one hour, from 3-4 p.m. ET) will be hosted jointly by NCUA, the FDIC, the Federal Reserve Board and the OCC. The webinar was originally scheduled for March 27 on the April 7 joint statement but was postponed the same day the president signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The statement was later revised for consistency with the new law. Participants are asked to preregister for the event; each institution should register no more than two representatives to attend the live session, to accommodate as many financial institutions as possible, the agencies said in a joint release.

Preregistration, April 24 webinar on loan modifications (interagency statement)

… CFPB advisors to discuss COVID-19 impact

The Credit Union Advisory Council (CUAC) of the CFPB will join the other advisory groups to the agency in a meeting May 1 to focus on the coronavirus crisis and its impact on consumers. Joining the credit union group will be the Academic Research Council (ARC), Consumer Advisory Board (CAB) and the Community Bank Advisory Council (CBAC). The meeting is scheduled to be held by conference call. The bureau had cancelled a joint meeting of the advisory groups in March. That agenda for that meeting was discussion of the bureau’s unified regulatory agenda and general scope of authority. Members of the public interested in listening to the meeting must RSVP by noon, April 30 (see the link below).

Info on May 1 joint meeting of CFPB advisory groups

Group seeks feedback on cyber incident response

Public feedback on 46 cyber incident response and recovery practices for financial institutions is being sought by the Financial Stability Board (FSB), the Basel, Switzerland-based group that monitors and assesses vulnerabilities affecting the global financial system and proposes actions needed to address them. The group issued the practices for comment this week; the deadline is July 20.

The practices are arranged in seven groups: governance, preparation, analysis, mitigation, restoration, improvement and coordination and communication. According to the FSB, while the practices are aimed at informing national regulators’ cybersecurity approaches, “the effective practices are meant to serve as a toolkit of options rather than applied in a one-size-fits-all manner, as not all practices are applicable to every organization or in every cyber incident.”

The group also said the toolkit does not constitute standards for organizations or their supervisors and “is not a prescriptive recommendation for any particular approach.”

FSB cyber incident response and recovery practices

New ethics office established at NCUA

A new ethics office was announced Wednesday by NCUA, following up on recommendations by the agency’s inspector general.

In a release, the agency announced the creation of the new Office of Ethics Counsel. The new office within the agency, according to the release, will include a chief ethics counsel who will serve as the agency’s most senior ethics official. “This individual will report directly to the NCUA Board and will be supervised by the NCUA Chairman,” the release stated. “The selection process for the new Chief Ethics Counsel is underway.”

According to the agency, the new office will certify NCUA compliance with “relevant federal ethics laws and regulations, promote accountability and ethical conduct, and help ensure the success” of the agency’s ethics programs.

The creation of the new office follows the retirement late last year of former NCUA General Counsel Mike McKenna, then the agency’s designated ethics official.

NCUA Establishes New Office of Ethics Counsel

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