June 12, 2020, NASCUS Report

THIS WEEK: CORONAVIRUS RESPONSE – State system backs appraisal deferrals … Summary looks at Reg D changes … Letter details PCA, NWRP changes; Deal promotes export biz lending; CFPB issues fact sheet, FAQs on title insurance; Tools aim to prevent elder fraud; Webinars explore crisis management (and beyond); BRIEFLY: GA CU conserved; NASCUS leader invited to join state groups’ committee; CFPB consumer law task force update outlined


State system supports appraisal deferrals …

The interim final rule deferring appraisals by credit unions for up to 120 days for residential and commercial real estate transactions has won the support of the state credit union system, as outlined in a comment letter submitted by NASCUS late last week.

In its comment on NCUA’s proposed interim final rule (IFR) on real estate appraisals, NASCUS said it supported the proposed interim final rule offering federally insured credit unions greater flexibility in obtaining appraisals and written estimates of market value for certain transactions.

NCUA issued the IFR April 21; the rule became effective that date (although the agency accepted comments until June 5) and remains in effect through year’s end. The IFR defers the requirements for a credit union to obtain an appraisal or written estimate of market value for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions. The rule, according to NCUA, was issued to provide credit unions with regulatory relief to respond to the financial effect of the coronavirus pandemic. Similar rules were issued by federal banking agencies for banks.

Appraisals and written estimates of market value are important tools to enhance safety and soundness of lenders as well as consumer protection for borrowers,” NASCUS wrote. “We note that the IFR is not waiving the requirement for appraisals or written estimates of market value where applicable. Rather, the IFR provides credit unions an additional 120 days in which to obtain the appraisals or written valuation.”

NASCUS also pointed out that the rule stresses credit unions are expected to use all available information to establish a valuation of the collateral and to adhere to appropriate underwriting standards in analyzing creditworthiness and repayment ability. “In addition, nothing in the IFR prevents or discourages a credit union from obtaining appraisals or written estimates of market value prior to loan closing,” NASCUS wrote.

Although NASCUS “strongly supports” provisions in federal law requiring notice and comment of rules before making them final, the association wrote in its letter that, in this case, “delaying this relief is contrary to the public interest.”

NASCUS wrote that “obtaining an appraisal on property in the near term can be complicated by social distancing recommendations designed to slow the pandemic. The immediate effective date allowed transactions to move forward pending the public comment period. The public interest has been better served by the procedure of this rulemaking.”

NASCUS Comment Letter: NASCUS Comments on Interim Final Rule: Real Estate Appraisals (RIN 3133-AF17)

Summary looks at Fed’s Reg D reserve requirements …

The Federal Reserve’s decision to allow credit union members and bank customers to make unlimited, convenient transfers and withdrawals from savings accounts is outlined in the latest NASCUS summary.

In late April, the Fed said it had deleted the six-per-month limit on convenient transfers from the definition of “savings deposit,” which allows members and customers to make the unlimited numbers of transfers and withdrawals “at a time when financial events associated with the coronavirus pandemic have made such access more urgent.”

In announcing the new policy, the Fed also issued an interim final rule to amend its Regulation D (Reserve Requirements of Depository Institutions) in order to make the change. The central bank noted that the regulatory limit in Reg D was the basis for distinguishing between reservable “transaction accounts” and non-reservable “savings deposits.” “The Board’s recent action reducing all reserve requirement ratios to zero has rendered this regulatory distinction unnecessary,” the Fed said.

The NASCUS summary is available to members only.

NASCUS Summary: Federal Reserve Bd Part 204: Reserve Requirements of Depository Institutions (members only)

… Letter details PCA, NWRP changes

Earnings retention required for credit unions classified as adequately capitalized, and credit unions’ streamlined net worth restoration plans (NWRPs), are addressed in a letter to credit unions issued by NCUA this week.

In May, the agency adopted new, temporary regulations that relieve credit unions of an earnings transfer requirement when they drop from “well capitalized” to “adequately capitalized” status and that ease NWRP documentation for “undercapitalized” credit unions. The rules, which took effect May 28 (and stay in effect until year’s end), were issued by the board in response to the coronavirus crisis.

“The NCUA understands the COVID-19 pandemic is affecting credit unions and their members in unprecedented ways,” the letter (LTCU 20-CU-18) states. “Where possible, the NCUA Board is providing regulatory relief to reduce the burden on credit unions and facilitate the flow of credit and liquidity within the system.”

  • No written application required for earnings retention …

Regarding the earnings transfer relief, NCUA’s letter states that an adequately capitalized credit union unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease its earnings retention amount.

“If, however, a credit union poses an undue risk to the (National Credit Union) Share Insurance Fund or exhibits material safety and soundness concerns, the Regional Director may require the credit union to submit an application for a decrease in the earnings retention requirement” in accordance with agency rules, the letter states. It adds that credit unions required to submit a waiver request to the NCUA regional director will be notified by the agency at least 45 calendar days before the end of the quarter.

In effect until Dec. 31, the rule covers any decrease in earnings retention applications that an adequately capitalized credit union would otherwise have been required to submit prior to the ends of quarters in June, September, and December. A federally insured credit union classified as adequately capitalized based on Dec. 31, 2020 call report data and unable to retain 0.1% of its assets in the first quarter of 2021, must submit a written application as outlined under agency rules, the letter states.

  • Streamlined NWRP allowed when shares mushroom

Under the NWRP section, the letter states that for credit unions which see their net worth ratios decline, predominantly due to share growth, the agency will temporarily permit a streamlined NWRP to be submitted. “The streamlined NWRP must attest that the reduction in the credit union’s net worth ratio was predominantly caused by share growth and that such share growth is a temporary condition due to COVID-19,” the letter states. “Credit unions that become classified as undercapitalized based on June or September 2020 Call Report data may submit a streamlined NWRP under this authority if share growth is the predominant factor for the decline in the net worth ratio and the share growth is temporary.”

The agency said its regional directors will analyze whether share growth was the top factor in a credit union’s net worth ratio when analyzing streamlined plans. “More specifically, the NCUA will verify that the decline in the net worth ratio was driven by an increase in total assets, and that the increase in total assets is attributed to an increase in shares, not borrowings or other sources of funds,” NCUA said.

The letter also outlines that:

  • Credit unions expecting a continued decline in their net worth ratio to a level below 4% should notify their NCUA examiner and submit an NWRP;
  • A credit union that becomes less than adequately capitalized for reasons other than share growth, or falls below undercapitalized, must submit a NWRP (although the agency will consider the impact of the pandemic when evaluating the NWRP);
  • NCUA will evaluate compliance with outstanding NWRPs, including those approved under the temporary provision in the rule, on a case-by-case basis. Less than adequately capitalized credit unions that continue experiencing capital deficiencies, NCUA said, whether a result of share growth or other factors, may be required by the regional director to submit a revised NWRP that meets the criteria outlined.

NCUA Letter to Credit Unions (20-CU-18) Prompt Corrective Action Regulatory Relief Measures in Response to the COVID-19 Pandemic

Three-year deal with Exim bank announced

Better understanding, and use, of the U.S. export credit agency by credit unions, primarily through education opportunities, is the stated aim of an agreement announced this week by NCUA and the Export-Import Bank of the U.S. (Exim).

The focus of the three-year agreement (a “memorandum of understanding” or MOU) with the bank, according to an NCUA release, is to “bring small businesses and credit unions together and expand awareness about Exim programs.” That includes use of such Exim programs as guaranteed loans and resources.

NCUA Board Chairman Rodney Hood said his agency would work with Exim to develop educational and training initiatives on export financing opportunities to share with credit unions. He said that would allow the cooperative financial institutions to educate their small-business members about the available opportunities, such as guaranteed loans from Exim being exempt from the cap on credit union member business loans of 12.25% of total assets.

Exim President and Chairman Kimberley A. Reed said the MOU is the bank’s first-ever “targeted outreach” to credit unions and their members. Reed said the deal will provide important support to America’s small businesses – “especially those that may be exporting for the first time.”

NCUA/EXIM Bank Partnership Will Help Credit Unions Support Small Businesses

Fact sheet, FAQs on title insurance released

A fact sheet on title insurance disclosures and updated frequently asked questions (FAQs) – such as the requirement to include seller information in some instances – for required disclosures under TRID were issued this week by CFPB.

The fact sheet and FAQs on Truth in Lending Act-Real Estate Settlement Procedures Act (TILA-RESPA) integrated disclosures – commonly referred to as TRID – were both published as guidance, CFPB said. The fact sheet generally focuses on how to disclose title insurance on the Loan Estimate and Closing Disclosure, including when a negative owner’s title insurance cost disclosure is appropriate (a “negative owner” is when a loan estimate and closing disclosure yield a negative number). Among other things, the fact sheet outlines: disclosures on loan estimates and closing; disclosure of simultaneous title insurance on the loan estimate and closing disclosure; differences between state disclosures and TRID disclosure requirements for simultaneous rates; and simultaneous issuance if the seller agrees to pay the amount of the full owner’s title insurance premium.

The FAQs touch on a broad range of issues related to TRID compliance. Among them: total of payments disclosure, using the optional signature line on the loan estimate and closing disclosure, and the requirement to include seller information on the consumer’s disclosures if providing separate closing disclosures.

TRID Title Insurance Factsheet and TRID FAQs

Online tool aims to prevent, respond to elder financial fraud

Helping communities form networks for increasing their capacity to prevent and respond to elder financial abuse is the stated aim of a new online resource unveiled by the CFPB this week. According to the bureau, the Elder Fraud Prevention and Response Networks Development Guide offers planning tools, templates, and exercises to “help communities create a collaborative network to fight elder fraud or refresh or expand an existing network.” The online tool, the bureau said, includes a meeting model on how to set up a retreat and training event to rally stakeholders and community leaders. It also provides resources for reconvening after the retreat to help community leaders take further action to expand network capabilities, the bureau said.

CFPB Releases Tool to Help Communities Prevent and Respond to Elder Fraud

Webinars look at managing through (and beyond) crises

Managing a credit union during times of great uncertainty – particularly the unprecedented economic turmoil associated with the coronavirus crisis – is the focus of two days of webinars scheduled for June 23 and July by NASCUS.

Whether the economic recovery is V-, U-, or L-shaped, the webinars will shine a spotlight on the essential role of scenario planning to set up contingencies to ensure credit unions brave the economic upheaval and be ready to “raise the bar” for member service and support. The seminars will also show how the pandemic is acting as a catalyst accelerating themes and trends that might otherwise have taken many years to unfold.

Presented by long-time credit union analysts and leaders C. Alan Peppers and John Lass, the one-hour webinars get underway at 2 p.m. ET for both sessions (“V, U, or L:  The Role of Scenario Planning in Managing Through Great Uncertainty,” set for June 23; and, “The Future Has Arrived Early: Are We Ready for It?” set for July 1).

John Lass is president of Lass Advisory Services LLC; C. Alan Peppers is founder of CAP Advisory Services. Lass is a former senior executive for strategy and business development at CUNA Mutual Group (CMG); Peppers served as a credit union CEO for four decades.

See the link below for more information, including registration.

V, U, or L: The Role of Scenario Planning in Managing Through Great Uncertainty

BRIEFLY: GA credit union conserved; NASCUS leader invited to serve on state association advocacy group; CFPB consumer law task force update outlined

Southern Pine Credit Union of Valdosta, Ga., was placed into conservatorship Thursday, NCUA said, in consultation with the Georgia Department of Banking and Finance. The $46.4 million CU (with 2,149 members) was conserved because of “unsafe and unsound practices at the credit union,” NCUA said in a release … NASCUS President and CEO Lucy Ito has been invited to join the State Issues Advocacy Committee of the American Association of Credit Union Leagues (AACUL), a professional group made up of executives from state credit union associations; her one-year term (which began this week) runs through April of next year … The CFPB said this week it intends to issue a two-volume report on consumer financial protection law later this summer that will include historical information, analysis of products and services, and recommendations for improvements; public hearings are also expected later in the fall.

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