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Regulators reveal hot exam topics for 2010
WASHINGTON (2/24/10)—Staff from the National Credit Union Administration (NCUA) and two state-level financial regulators revealed some of the hottest exam topics that they will focus on this year—including indirect lending and risk concentration, which NCUA will soon provide guidance on in Letters to Credit Unions. The topics were revealed in a Tuesday breakout session at the Credit Union National Association’s Governmental Affairs Conference. The session was moderated by Tom Candon, deputy commissioner of banks for Vermont. Joining him were: Jerrie Jay, North Carolina Credit Union Division administrator; Melinda Love, director of the office of examinations and insurance at NCUA and president of the National Credit Union Share Insurance Fund; Joe Ostrowidzki, NCUA division of insurance director; and Wendy Angus, NCUA director of risk management. Regarding concentration of risk, Angus suggested that the credit unions document their board’s approved policies and concentration risk limits, and risks in totality to net worth. Credit unions also should stress-test their own portfolios. Such documentation could be valuable during an examination process, she told the session. “It doesn’t have to be fancy,” Angus said. Consider economic factors in a certain area of the portfolio and how they could have an impact on your credit union, she advised. For real estate lending, credit unions should get as much data on borrowers as they can, including credit and collateral values. Larger credit unions may want to invest in third-party models to do this, she said. Ostrowidzki noted that real estate loan modifications have increased, and credit unions generally have the greatest chances of success with modifications if they lower monthly payments for borrowers. Ostrowidzki added that for real estate portfolio risk assessment, examiners could focus on areas such as management’s process to project losses, modification policies and procedures, processes to track modified loans, abilities to segregate troubled debts, and their understanding of increased risk for modified loans. For indirect lending, the elements of a comprehensive due diligence plan for credit unions could include a planning process, a review process to assess vendor risk, and a risk management process, Ostrowidzki said. He noted that the number of credit unions participating in indirect lending is on the rise, and indirect lending can expose a credit union to a host of risks. While delinquencies have reduced, charge-offs have increased, he said.


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