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NCUA hikes small CU asset threshold to $50M, consistent with CUNA recommendation

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ALEXANDRIA, Va. (1/11/13)--The National Credit Union Administration (NCUA) Thursday increased the asset-level test that defines a small credit union. The threshold was raised to $50 million as
Click to view larger image In the NCUA boardroom Thursday, just moments after the regulators took action to increase the threshold that defines a "small" credit unions, NCUA Chairman Debbie Matz talks to Paul Gentile, CUNA's new EVP of strategic communications and engagement, about that and other credit union topics. (CUNA Photo)
recommended by the Credit Union National Association (CUNA), up from $10 million.

CUNA President/CEO Bill Cheney said, "Raising the threshold for the definition of 'small entity' is a step in the right direction, and we look forward to monitoring the effectiveness of this approach for credit unions."

He added, "In our comments to the agency, we suggested a threshold of $50 million for agency assistance and access--and a higher level for purposes of regulatory relief. We commend the agency for taking the action today, which will benefit many more small credit unions. CUNA continually looks for ways to assist small credit unions and we anticipate working with NCUA as it implements this new threshold."

The NCUA's change will make assistance from the NCUA's Office of Small Credit Union Initiatives (OSCUI) available to more than 4,600 credit unions--an increase of 2,270. The agency made it clear that the OSCUI will make changes to its procedures to handle the increased workload without adding additional staff.

Under the new rule, the NCUA will consider periodic changes to the asset-level test, initially every two years, and eventually every three years.

NCUA Chairman Debbie Matz said, "We will not be in a situation again where the definition lags reality."

Click to view larger image CUNA EVP of Strategic Communications and Engagement Paul Gentile (right), who came on board with CUNA Jan. 2, attended his first NCUA meeting in his new capacity yesterday. Gentile is shown here with NCUA board member Michael Fryzel to his right and NAFCU Executive Vice President of Government Affairs Dan Berger to Fryzel's right. Just this week, Berger was named to succeed retiring Fred Becker as head of NAFCU. That change takes effect July 31. (CUNA Photo)
The regulatory changes will go into effect in 30 days after publication in the Federal Register, which generally occurs within a week or two of an agency's adoption of a new rule. Credit unions that meet the regulatory definition for "small" have some additional flexibility when it comes to NCUA rules. The current $10 million small credit union asset threshold was set by the agency in 2003.

In CUNA's comment letter, CUNA demonstrated that using the "complexity index" as a method for determining small entity thresholds can or will be used in a variety of ways that could, ultimately, lead to negative or unintended results for credit unions. "Those include reductions in credit union flexibility, increases in risk profiles and reductions in member service provision," the letter stated.

The agenda for today's NCUA open board meeting also included: 
  • A board briefing on an interagency final rule addressing higher-priced mortgage loans;
  • The agency's 2013 annual performance plan;
  • A final rule to extend credit union low-income designation response time to 90 days, up from 30 days; and
  • Some technical amendments.

Inside Washington (01/11/2013)

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  • WASHINGTON (1/11/13)--President Obama yesterday nominated White House Chief of Staff Jack Lew as the next Secretary of Treasury.  Last May, Lew was a surprise speaker at a White House meeting organized by the National Cooperative Business Association (NCBA) to highlight the International Year of Cooperatives. The NCBA delegation included members of the Credit Union National Association's Cooperative Alliances Committee.  In a question-and-answer session, Lew was asked if he'd ever been in a co-op.  At first he shook his head 'no,' until the group reminded him credit unions are cooperatives.  He said he has been a member of several credit unions
  • WASHINGTON (1/11/13)--The Federal Reserve Board on Thursday announced preliminary unaudited results indicating that its reserve banks provided for payments of about $88.9 billion of their estimated 2012 net income to the U.S. Treasury. Under the board's policy, the residual earnings of each Federal Reserve Bank are distributed to the U.S. Treasury, after providing for the costs of operations, payment of dividends, and the amount equal to surplus with capital paid-in. The federal 2012 estimated net income of $91 billion was derived primarily from $80.5 billion in interest income on U.S. Treasury securities, federal agency and government-sponsored enterprise (GSE) mortgage-backed securities, and GSE debt securities …

CFPB QM, ability-to-repay rules are out, CUNA provides summary

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WASHINGTON (1/11/13)--It's official. The Consumer Financial Protection Bureau (CFPB) standards to define a "qualified mortgage (QM)" under the agency's "ability to repay" rules are posted to the bureau's website and now may be considered "issued."

As indicated to Credit Union National Association (CUNA) President/CEO Bill Cheney in a Wednesday phone call from CFPB Director Richard Cordray, the CFPB has taken steps to address various CUNA concerns, including legal protection from challenges for noncompliance with qualified mortgage standards.

"We support the agency's steps to minimize disruptions in the availability of mortgage credit for consumers," said CUNA's Cheney Thursday. "CUNA strongly supported a 'safe harbor' approach for QM loans that would provide the maximum legal protection to credit unions under the 'ability-to-repay' rule."

Cheney added that the approach taken by the bureau "should provide legal certainty to lenders such as credit unions."

CUNA has created a summary of the final rules with credit union perspective. (Use the resource link below.)

Congress directed that the ability-to-repay rules include provisions that would help shield lenders whose loans meet QM standards if challenged in court by a borrower alleging the loan is not in compliance. The new CFPB rules take a dual approach to higher-priced loans and lower-priced ones regarding legal protection.

For lower-priced loans, the CFPB rule creates a "safe harbor" status for lenders. These prime loans generally are made to consumers who are considered to be lower-risk borrowers.

It is anticipated that most credit union mortgage loans would qualify for the safe harbor status, an outcome that CUNA has aggressively pursued. Consumers may challenge their loan under the new rule if they feel the loan does not meet the definition of a QM, but the safe harbor is intended to provide lenders with legal protection that QM standards have been met.

For higher-priced loans, sometimes given to consumers with insufficient or weak credit histories, the CFPB rules would allow a "rebuttable presumption" in legal challenges. A borrower seeking to challenge such a loan will have to prove he or she did not have sufficient income to pay the mortgage and other living expenses.

Additionally, the CFPB also posted final rules to its website for Home Ownership and Equity Protection Act (HOEPA) "high cost" mortgages and mortgage escrows, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. See today's News Now  for more information on these two rules.

Use the resource link to read the CUNA summary of the rule.

2013 plan is one of many issues in busy NCUA meeting

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ALEXANDRIA, Va. (1/11/13)--In addition to Thursday's small credit union and troubled condition definition actions, the National Credit Union Administration (NCUA) released its 2013 performance plan and addressed three other items.

The performance plan identified two new agency priority goals for 2013:
  • Monitoring and controlling risk in consumer credit unions, and reducing losses to the National Credit Union Share Insurance Fund; and
  • Dedicating resources to staff and train the new Office of National Examination and Supervision that will examine and supervise the largest consumer credit unions in 2014.
The agency also maintained the same four strategic goals it set in 2012: ensuring a safe, sound and healthy credit union system; promoting credit union access to all eligible persons; developing further a regulatory environment that is transparent and effective, with clearly articulated and easily understood regulations; and cultivating an environment that fosters a diverse, well-trained and motivated staff.

Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said CUNA will continue to press the NCUA on these goals, "particularly compliance with the goal of a transparent and effective regulatory environment."

Other items approved by the NCUA on Thursday include:
  • A final rule that extends the time qualified credit unions have to accept a low-income credit union (LICU) designation offered by the NCUA from 30 days to 90 days, and makes minor technical amendments to NCUA's insurance regulation to reflect current agency practices; and
  • A final rule that makes technical amendments to NCUA regulations regarding share insurance on various kinds of Treasury accounts.
The LICU deadline extension will give credit unions more time to respond to NCUA LICU eligibility notifications. The agency in August informed 1,003 federal credit unions of their LICU designation eligibility. NCUA Chairman Debbie Matz noted that more than 800 credit unions have accepted the designation. However, she said some asked for more time to "evaluate the benefits of having the designation, determine if the designation would be consistent with their strategic plans, and obtain approval from their boards."

The technical amendments will increase the standard maximum share insurance amount for various kinds of Treasury accounts to $250,000. The previous insurance cap was $100,000. The increase is mandated by the Dodd-Frank Wall Street Reform Act.

NCUA staff also briefed Matz and board member Michael Fryzel on the status of an interagency final rule that will amend Regulation Z to require appraisals for "higher-priced" mortgage loans. The final rule is expected to be released by Jan. 21, 2013, and NCUA staff said the effective date would likely be one year after the rule is issued.

CUNA will monitor 'troubled condition' change

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ALEXANDRIA, Va. (1/11/13)--The National Credit Union Administration's (NCUA) Thursday amended its definition of "troubled condition" and the Credit Union National Association (CUNA) is concerned that the change could have an adverse impact on the dual charter system.

"The dual chartering is significant and worthy of being preserved because it facilitates credit union growth and member service by allowing a credit union to determine which regulators, state or federal, facilitate its operations better," said CUNA President/CEO Bill Cheney Thursday.

"With this new NCUA rule, the federal agency could overrule a state regulator regarding a fundamental authority, the power to determine a credit union's CAMEL safety and soundness rating, even though limited to CAMEL 4 or 5 ratings," Cheney said.

The final rule amends the definition to allow either the NCUA or state regulators to declare a federally insured state-chartered credit union (FISCU) with a CAMEL 4 or 5 rating to be  in "troubled condition."

Under the previous definition, only a state supervisory authority could make that determination for a FISCU.

At the Thursday open meeting, the NCUA said it will not make a "troubled condition" declaration without first making an on-site visit to the credit union in question. Agency staff noted that the amended rule expands the NCUA's ability to act preemptively to ensure that the officials who take control of a FISCU in "troubled condition" are qualified to address its troubles, thus providing the National Credit Union Share Insurance Fund a further measure of protection against the risk of loss.

All 48 of the comment letters NCUA received on the proposed rule, including CUNA's, were opposed to it. Many said the rule represented "excessive federalism" and destabilized the dual charter system.

NCUA Chairman Debbie Matz countered that burdening the dual charter system is not the NCUA's intent. "The dual charter system works well, has worked well, and will continue to do so into the future," she said.

The rule goes into effect 30 days after its publication in the Federal Register.

For more on the NCUA meeting, use the resource link.

SECU's Staatz to CFPB: Contain CU reg burden

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BALTIMORE, Md. (1/11/13)--SECU of Maryland President/CEO Rod Staatz noted Credit Union National Association (CUNA) concerns regarding regulatory burden in a Thursday Consumer Financial Protection Bureau (CFPB) mortgage policy field hearing.

"Credit unions remain very concerned that they will be subject to a barrage of requirements even though they did not cause the financial crisis," Staatz told the gathering.

Click to view larger image Credit Union National Association Senior Assistant General Counsel Jared Ihrig, left, and SECU of Maryland President/CEO Rod Staatz, right, pose with CFPB Director Richard Cordray at the agency's mortgage policy field hearing. The CFPB released regulations addressing qualified mortgage definitions, escrow accounts and high-cost mortgages on Thursday. (CUNA Photo) 
The field hearing was held just before the CFPB released a slate of new mortgage regulations later in the day. One of those regulations addressed the standards to define a "qualified mortgage (QM)" under the agency's "ability to repay" rules.

Staatz said at the hearing that the CFPB's safe harbor approach in the QM standards should be workable for consumers and lenders. (See related story: CFPB QM, ability-to-repay rules are out; CUNA provides summary.) Staatz thanked the CFPB for reaching out to credit unions as it developed the QM definition.

Credit unions also appreciate that the CFPB has expanded its coverage for "rural" and "underserved" areas, which will be beneficial to more consumers across the nation, he added.

Overall, CUNA and credit unions commend the CFPB's efforts and the agency's general appreciation of the work of credit unions, Staatz said, but drove home the CUNA warning about regulatory burden. "Credit unions provide affordable loans and competitive savings rates, and, as the only member-owned financial cooperatives in this country, want to ensure their members have access to reasonable information about their accounts." Regulatory burden impedes their ability to serve members, he noted.

The SECU president also said that his credit union's use of traditional member relationship lending practices has helped both members and SECU.

"It is critical that we maintain an excellent reputation in the community for serving members and that our lending practices are considered sound. If our members have marginal ability to repay, we work with them to help them improve their financial standing, not try and sell them a loan they can't afford," he said.

A second CFPB field hearing on mortgage policy is scheduled for Jan. 17 in Atlanta.

HOEPA, escrow rule changes issued by CFPB

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WASHINGTON (1/11/13)--The Consumer Financial Protection Bureau (CFPB) on Thursday unveiled final rules addressing high-cost mortgages and escrow accounts.

The high-cost mortgage rule expands the universe of loans potentially covered by the Home Ownership and Equity Protection Act, or HOWEPA, to include most types of mortgage loans secured by the borrower's principal dwelling. The list of covered loans now includes first-lien home purchase mortgage loans, subordinate-lien loans including closed-end home equity loans, and home equity lines of credit. 

The regulations will require lenders offering mortgage loans that exceed certain annual percentage rate and fee thresholds to disclose the terms, costs, and fees associated with a high-cost loan early in the homebuying process. Lenders also will need to certify that these borrowers have received homeowner counseling regarding the high-cost loan.

The CFPB in a release said the high-cost mortgage regulations will also:

  • Ban potentially risky mortgage features such as balloon payments and prepayment penalties for qualifying mortgages, with some exceptions;
  • Ban loan modification fees;
  • Set a late-fee cap of 4% of the amount of payment that is past due;
  • Prohibit lenders from rolling closing costs into the loan amount; and
  • Prevent lenders from charging fees when consumers request payoff statements.
The protections will not apply to reverse mortgage loans, certain government-sponsored loans, and construction loans that are taken out for the initial construction of a new home.

The escrow account changes will, in general, extend the required duration of a mortgage loan escrow account to five years. The current minimum duration is one year. Lenders that work in rural or underserved areas will be exempt from the escrow changes, provided they meet certain other criteria, the CFPB said.

Both of the final rules are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The high-cost mortgage rules are scheduled to go into effect on Jan. 10, 2014. The escrow account rules are scheduled to go into effect on June 1, 2013.

The Credit Union National Association has created an outline of key points of the rules. (Use the resource link below.)

Also, see the resource links to read CUNA's comment letters on the HOEPA changes when they were proposed.