(Dec. 17, 2021) Finally, the board also approved a change to its investment regulation to allow FCUs to purchase mortgage servicing rights (MSRs) from other federally insured credit unions (FICUs, including states), under certain conditions.
Under the final rule, FCUs with a CAMEL or CAMELS composite rating of 1 or 2, including a “management” component rating of 1 or 2, may purchase the mortgage servicing rights of loans from FICUs, provided that: 1) the underlying mortgage loans of the assets are loans the FCU is otherwise empowered to grant; 2) the purchase will be made in accordance with the FCU’s written policies that address the risk of these investments and servicing practices; and 3) the FCU’s board of directors or investment committee approves the purchase in advance.
NCUA cited comments submitted during the comment period that “strongly recommended” NCUA work with state regulators to address supervisory concerns regarding mortgage servicing rights in a manner that “does less harm to the dual chartering system, more effectively mitigates material risk, and improves oversight while not unnecessarily burdening credit unions.”
In the commentary of its final rule, NCUA noted that the final rule only applies to FCUs by removing its previous prohibition against purchases of MSRs. “It is not apparent to the Board that state laws applicable to FISCUs widely provide for similar investment authority, although most state regulators can grant parity for state-chartered credit unions so those institutions may engage in the same activities authorized for FCUs,” NCUA wrote. “Further, to the extent that FISCUs engage in the purchase of MSAs from other parties, the conditions on these assets under the RBC requirements in part 702 apply to all complex federally insured credit unions.”
The agency vowed to monitor such activity in state-charted, federally insured CUs and “will consider whether to extend § 703.14(l) to FISCUs under part 741, subpart B, if necessary.” The agency also noted its commitment to “continued communications with state regulators to address supervisory concerns, including those related to MSAs.”
LINK:
Final Rule, Part 703, Mortgage Servicing Assets
(Dec. 10, 2021) The 2022 budget, and three final rules — on mortgage servicing rights, subordinated debt and the complex credit union leverage ratio — are among the items the NCUA Board will consider at its meeting next week.
In November, the board released publicly its proposed budget for the new year, which called for a 1.2% increase from the previous year’s. However, the components of the spending plan show significant changes from the previous year. For example, the agency’s capital budget (which funds such things as purchases of new equipment) is down 30.7% from the previous year (for a total of $13.1 million). The administrative budget for the National Credit Union Share Insurance Fund (NCUSIF) is down by 21.7% (to $6.2 million) from the previous year.
But the agency’s operating budget – which is funded mostly by funds from the National Credit Union Share Insurance Fund (NCUSIF) via the overhead transfer rate (OTR) of a proposed 63.4%, and accounts for 94.4% of the agency’s overall budget – is up 3.6%, according to the NCUA proposed budget for a total of $326 million. It includes 46 new full-time equivalent (FTE) staff positions for 2022 (including 32 regional and specialist credit union examiners). Employee pay and benefits makes up 79% of the operating budget.
(As noted in the item on NASCUS’ comments made during the NCUA budget briefing, the association has pointed out this year’s proposed OTR is the third straight year NCUA has raised the transfer rate.)
The mortgage servicing rights proposal, if finalized, would amend the agency’s investment regulation to permit federal credit unions to purchase mortgage servicing rights from other federally insured credit unions, subject to certain conditions. Describing the proposed rule as “half baked” when it was proposed and released for comment a year ago (and voting against it), NCUA Board Chairman Todd Harper said he could find a way to support a final rule if changes were made.
Also on Thursday’s agenda:
- Share Insurance Fund 2022 Normal Operating Level.
- Final Rule Complex Credit Union Leverage Ratio (parts 702 and 703)
- Subordinated Debt Final Rule (parts 702 and 741).
The NCUA Board meeting is scheduled to broadcast live via the Internet, and to get underway at 10 a.m. ET on Thursday.
LINK:
NCUA Board meeting agenda, Dec. 16
(Nov. 19, 2021) A flexible approach is ended for supervision and enforcement of certain mortgage servicing timing requirements initiated in spring, 2020, NCUA, federal and state banking and credit union agencies and the CFPB said late last week in a joint statement.
The regulators issued the statement that the flexibility, declared as the financial impact coronavirus crisis first ramped up in April 2020, is no longer necessary given the amount of time servicers have had to adjust processes to accommodate the demands arising due to the pandemic.
Under the declaration made a year-and-a-half ago, the agencies said that they would not take supervisory or enforcement action against mortgage servicers for delays in sending certain early intervention and loss mitigation notices and taking certain actions relating to loss mitigation set out in the mortgage servicing rules, provided that servicers were making good faith efforts to provide these notices and take these actions within a reasonable time. The regulators said then that that stance would continue “until further notice.”
“More than 18 months have passed since issuance of the April 2020 Joint Statement,” the agencies said last week. “While the COVID-19 pandemic continues to affect consumers and mortgage servicers, the agencies believe the temporary flexibility described in the April 2020 Joint Statement is no longer necessary because servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities.”
With the temporary flexibility at an end, the agencies said they “will apply their respective supervisory and enforcement authorities, where appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after the date of issuance of this statement,” they stated. (Regulation X implements provisions of the Real Estate Settlement Procedures Act, or RESPA.)
LINK:
(Sept. 24, 2021) Earlier in the meeting, the NCUA Board voted – 2-1, with Harper the “no” vote – to act on three outstanding proposed rules over the span of the final three months of the year. Under the board’s vote, an expanded list of permissible activities and services of CUSOs would be considered for final action at the board’s Oct. 21 meeting
Action on two other outstanding proposals – on FOM shared service facility requirements, and mortgage servicing – were also scheduled for action at upcoming board meetings (Nov. 18 and Dec. 16, respectively). All three rules have been awaiting final action since this spring, following the close of their comment periods.
The CUSO proposal would allow the origination by a service organization of any type of loan that a federal credit union may originate, and grant the NCUA Board additional flexibility to approve permissible CUSO activities and services. In the comment request, the agency also sought comments on broadening federal credit unions’ authority to invest in CUSOs.
The proposal was issued by the NCUA Board Jan. 14, also on a vote of 2-1, with then-Board Member Harper dissenting (he became chairman later that month). Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns.
He essentially repeated those objections at Thursday’s meeting, calling the proposal the “wrong rule at the wrong time.” He asserted that the rule is not related to COVID-19 pandemic relief, and more likely to cause harm to small credit unions rather than help them. “It will grow an already unregulated space within the credit union system with little accountability to consumers and credit unions,” Harper said.
He also reiterated a call (which he has made before Congress) for NCUA to have oversight authority of CUSOs and other third-party vendors.
Regarding the FOM shared service facility requirements and mortgage servicing proposals, the NCUA chairman voiced continued opposition to both, but also aired some optimism about “a path forward” for each.
Under the FOM shared service facility requirements, any federal credit union shared branch, ATM, or electronic facility would meet the definition of “service facility” for membership requirements in multiple-common-bond FCU that participates in a shared branching network, thus expanding membership reach of federal credit unions. Under the mortgage servicing proposal, the agency’s investment regulation would be amended to permit FCUs to purchase mortgage servicing rights from other federally insured credit unions subject to certain conditions.
Those two proposals were issued for comment in December, on a vote of 2-1 for both with Harper dissenting on both.
Thursday’s action on the three proposals was advanced jointly by Vice Chairman Kyle Hauptman and Board Member Rodney Hood. They presented a joint memo to the board for approval that set the meeting dates, specifically meant to force action on the three outstanding proposals. “The items put forth by this Board Action Memorandum shall be brought before the Board as final rules in the timeframe set by this action. Nothing in this action should be construed to alter NCUA’s obligations under the Government in the Sunshine Act,” their memo stated.
LINK:
Board action memorandum: Action on NCUA Board Agenda Items for 2021
(Aug. 20, 2021) Summaries of three recent issuances from NCUA – on capitalizing loans, the rollout of the new examination tool, and on mortgage servicing rules – were published by NASCUS this week.
All three are available to members only. The summaries cover issuances – two letters to credit unions and one regulatory alert – issued by the agency over the last three weeks or so.
Early this month, the agency issued letter to credit unions (LTCU) 21-CU-07, which outlined limits on capitalization of loans to members. In particular, the letter pointed out, the financing of fees and commissions continue to be prohibited for federally insured credit unions, despite adoption of the new rule earlier this year allowing capitalization of loan interest. In the letter, the agency said that maintaining the prohibition on capitalization of fees “is an important consumer protection feature of the rule for member borrowers.”
In June, the agency’s board voted unanimously to lift the prohibition of capitalization of interest in connection with loan workouts and modifications; the rule took effect July 30. The change was made, NCUA said, to give borrowers additional access to loan workouts, perhaps caused by the economic disruption caused by the coronavirus crisis.
The second letter (LTCU 21-CU-08) summarized listed the new applications (and their implementation) the agency is employing for assisting in exams and communicating to credit unions. The letter, issued just last week, noted that the agency would begin transitioning to its new Modern Examination and Risk Identification Tool (MERIT) exam tool and other applications meant to modernize and streamline the agency’s operations. The other tools include the Data Exchange Application (DEXA), the Administrative Portal, and the Consumer Access Process and Reporting Information System (CAPRIS) for federal credit unions.
The letter also offers insights about who at credit unions can use the new tools, and how the tools integrate with state supervisory authority (SSA) examination and supervision programs.
The third item summarized by NASCUS and published this week is of a regulatory alert (21-RA-08), which urges review of CFPB mortgage servicing rules. According to the alert, credit unions are urged to review the June 30 rule temporarily amending certain mortgage servicing requirements under the bureau’s Regulation X to assist borrowers affected by the COVID-19 emergency. The alert noted that the CFPB rule — which takes effect Aug. 31 — only applies to servicers that service mortgages secured by a borrower’s principal residence and does not apply to small servicers.
LINKS:
NASCUS summary: LTCU 21-CU-07, Capitalization of Unpaid Interest (members only)
NASCUS summary: LTCU 21-CU-08, Implementation of Modernized Systems (members only)
NASCUS summary: 21-RA-07 Equal Credit Opportunity Act (Regulation B) (members only)
(July 30, 2021) Credit unions should review a June 30 rule temporarily amending certain mortgage servicing requirements under the Consumer Financial Protection Bureau’s (CFPB) Regulation X to assist borrowers affected by the COVID-19 emergency, NCUA said this week in a “regulatory alert.”
The agency’s alert noted that the CFPB rule only applies to servicers that service mortgages secured by a borrower’s principal residence. The rule – which takes effect Aug. 31 — does not apply to small servicers, the agency said.
Key provisions of the rule, NCUA said, are that it:
- Defines a COVID-19 related hardship as “a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic” declared March 13, 2020 (beginning on March 1, 2020) and continued Feb 24 of this year.
- Modifies early intervention requirements of live-contact messages and reasonable diligence obligations to “help ensure that borrowers experiencing a COVID-19 related hardship have timely and accurate information about their loss mitigation options.” That includes that servicers must take additional actions, until Oct. 1, 2022, during live contacts related to a COVID hardship.
- Permits servicers to offer loan modifications to borrowers facing a COVID-19 related hardship based on an evaluation of an incomplete application if specified criteria are met.
- Sets up temporary COVID loss mitigation procedural safeguards to ensure a borrower has a “meaningful opportunity to pursue loss mitigation options.” NCUA said that, from Aug. 31 through Dec. 31 – unless an exception applies – a servicer must meet at least one of the specified safeguards before initiating any judicial or non-judicial foreclosure process where a borrower became more than 120 days delinquent on or after March 1, 2020, and the applicable state statute of limitations regarding foreclosures expires on or after Jan. 1, 2022.
NASCUS will prepare and post a summary of the alert (available to members only).
LINK:
(June 4, 2021) Frequently asked questions (FAQs) about mortgage servicing were updated this week by the CFPB, concerning escrow account compliance under Regulations X and Z (RESPA and TILA, respectively). The new questions added 11 pages to the agency’s mortgage servicing queries list, covering an array of issues related to escrow accounts (including: a basic definition) … Written communication providing specific direction on use of alternative data at financial institutions – including credit unions — is required from regulators, the GAO indicated in reports it issued this week. Additionally, the GAO wrote, regulators should be collaborating on the specifics in that written communication. The GAO detailed an outstanding 2018 recommendation that has not yet been addressed by the Fed and the FDIC, asserting that “continued attention to this issue could improve (the agencies’) ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.” The GAO did note that federal financial regulators (including NCUA) in late 2019 issued an interagency statement highlighting potential benefits and risks of using alternative data and encouraged financial firms to use it. However, GAO noted, that statement does not provide firms or banks with specific direction on the appropriate use of that data, including issues to consider when selecting types of alternative data to use.
LINKS:
Mortgage Servicing FAQs, last updated June 2, 2021.
Priority Open Recommendations: Federal Deposit Insurance Corporation
Priority Open Recommendations: Federal Reserve
(April 9, 2021) Following its proposed rules to prevent “avoidable foreclosures,” the bureau later in the week released a new bulletin detailing its expectations for mortgage servicers’ engagement with borrowers in the closing months of forbearance programs created in the wake of the financial impact of the coronavirus crisis.
Bulletin 2021-02, “Supervision and Enforcement Priorities Regarding Housing Insecurity,” explains the CFPB’s intention to monitor servicers’ engagement with borrowers “at all stages in the process” in coming months and to prioritize mortgage servicing oversight work in carrying out its enforcement and supervision in the coming year.
The bulletin states that, in its oversight work, the CFPB plans to pay particular attention as to whether servicers are:
- Providing clear and readily understandable information to borrowers about their options for payment assistance;
- Complying with the outreach requirements in Regulation X (Real Estate Settlement Procedures Act, or RESPA) to ensure that borrowers are getting needed information about loss mitigation options;
- Complying with the Equal Credit Opportunity Act’s (ECOA’s) prohibition against discriminating against any applicant, with respect to any aspect of a credit transaction, including in their work with limited English proficiency borrowers and those having a range of income types;
- Promptly handle loss mitigation inquiries and avoid unreasonably long hold times on phone lines (for example, the CFPB plans to scrutinize servicer conduct where hold times are significantly longer than industry averages);
- Maintaining policies and procedures that are reasonably designed to achieve the continuity of contact objectives to ensure that delinquent borrowers receive accurate information about their loss mitigation options;
- Evaluating the applications consistent with the Regulation X requirements to promote timely and consistent evaluations (for borrowers who submit complete loss mitigation applications);
- Complying with foreclosure restrictions in Regulation X and other federal or state foreclosure restrictions; and
- Whether servicers are complying with the Fair Credit Reporting Act’s (FCRA) requirements to report the credit obligation or account appropriately.
LINK:
Bulletin 2021-02: Supervision and Enforcement Priorities Regarding Housing Insecurity
(Dec. 18, 2020) In other action at Thursday’s meeting, the NCUA Board issued one final rule and three proposed regulations – with three of those approved on split votes after Board Member Todd Harper (the lone Democrat appointee on the board) voted in opposition all three times.
The board:
- Approved (unanimously), an extension to Dec. 31, 2021 for a temporary final rule that increases the maximum aggregate amount of loan participations that a federally insured credit union (FICU) may purchase from a single originating lender without seeking a waiver from NCUA to the greater of $5 million or 200% of the FICU’s net worth (up from the greater of $500 million or 100% of the FICU’s net worth). The rule had been slated to expire at year’s end. The temporary rule, adopted by the NCUA Board as a relief measure for credit unions in the midst of the coronavirus crisis last spring, took effect April 21.
- Issued a proposed rule (on a 2-1 vote) on field of membership shared facility requirements (under Part 701, Appendix B, of agency rules) that NCUA said is intended to modernize requirements related to service facilities for multiple common bond (MCB) federal credit unions (FCUs). NCUA said the proposal includes any shared branch, shared ATM, or shared electronic facility in the definition of “service facility” for an MCB FCU that participates in a shared branching network. “The FCU need not be an owner of the shared branch network for the shared branch or shared ATM to be a service facility,” the agency said. “These changes would apply to the definition of service facility both for additions of select groups to MCB FCUs and for expansions into underserved areas.” Harper said he questioned the proposal’s ability, without changes, to increase service to underserved areas. The proposal will have a 30-day comment period.
- Released a second proposed rule (on a 2-1 vote), this one on mortgage servicing rights (under Parts 703 and 721 of agency rules), which would amend the agency’s investment regulation to permit FCUs to purchase mortgage servicing rights from other federally insured credit unions subject to certain conditions. Harper called the proposal “half baked,” but said he could find a way to support a final rule if changes were made. The proposal will be issued with a 30-day comment period.
- Advanced yet a third proposed rule – this one on overdraft policy (under Part 701 of NCUA rules) – also on a 2-1 vote. The proposal would remove the requirement that an FCU’s written overdraft policy establish a 45-day time limit for a member to either deposit funds or obtain an approved loan from the FCU to cover each overdraft, and replace it with a requirement that the written policy must establish a specific time limit that is “both reasonable and applicable to all members for a member either to deposit funds or obtain an approved loan from the FCU to cover each overdraft.” In May, the board tabled a proposed interim final rule to let FCUs decide how long members have to resolve account overdrafts. The proposal was tabled after failing to win a second from one of two board members when Chairman Hood asked for it (both members Harper and McWatters expressed opposition to a final rule). Back in May, Harper said the rule would (among other things) allow credit unions to garnish members’ income – including any economic stimulus relief funds – to pay off overdraft debt. Harper reiterated his objections Thursday (“I couldn’t support it then, I can’t now,” he said). Comments are due 30 days after publication in the Federal Register.
The board also set the “normal operating level” for the National Credit Union Share Insurance Fund (NCUSIF) at 1.38 for the coming year, no change from 2020. The NOL represents the target level of reserves in the fund relative to shares insured (referred to as the equity level). Generally, it is the level of reserves the board believes is needed to deal with anticipated losses from credit unions (if any) throughout the year, without lowering the reserving rate below 1.20%, the point at which an insurance premium would be required.
Along those lines, staff told Board Member Harper that it estimates the equity level of the fund at year-end will be 1.32% — well above the level at which a premium would be required. Agreeing with staff that chances of a premium in 2021 now look “next to zero,” Harper said that would be “welcome news to many credit unions.”
LINKS:
Temporary Final Rule, Regulatory Relief in Response to COVID-19
Proposed rule, Field of Membership Shared Facility Requirements
Proposed Rule, Mortgage Servicing Rights
Proposed Rule, Part 701, Overdraft Policy.
Board Briefing, Share Insurance Fund 2021 Normal Operating Level