NAFCU Compliance Blog

CFPB Bulletin on Mortgage Loan Compensation; NCUA Report - EHL Poster

Written by Steve Van Beek

I've been wondering if and when the CFPB would start issuing guidance to regulated entities on the existing regulatory requirements the CFPB inherited.  It seemed the CFPB's focus - outside of examinations and inquiries - was placed on making sure they met their Dodd-Frank deadlines for adding new regulatory requirements on financial institutions.  

With that lead-up, on April 2nd the CFPB issued Bulletin 2012-02 which seeks to clarify an area of 12 CFR 1026.36 of Reg Z on mortgage loan compensation.  Prior Bulletins from the CFPB can be found here.

Bulletin 2012-02.  The CFPB stepped into an area that had caused quite a bit of confusion since it was enacted (and the Fed's Webinar last March seemed to muddy the waters more).  The rule itself - 12 CFR 1026.36 - prohibits the payment of compensation based on the loan terms or conditions.  The staff commentary takes this prohibition into grayer waters by extending the prohibition to any factor that might be used "as a proxy for a term or condition."  As you can imagine, there has been quite a bit of confusion and the CFPB's Bulletin seeks to provide clarity in one area.

Qualified Plans  The Bulletin includes this description of the questions received:

"The Bureau has received several questions about whether and how the Compensation Rules apply to qualified profit sharing, 401(k), and employee stock ownership plans (collectively, "Qualified Plans"). 

The CFPB answers the Qualified Plan question as follows:

"To provide clarify at this juncture, the Bureau's view is that the Compensation Rules permit employers to contribute to Qualified Plans out of a profit pool derived from loan originations.  That is, financial institutions may make contributions to Qualified Plans for loan originators out of a pool of profits derived from loans originated by employees under the Compensation Rules."

Non-Qualified Plans.  The CFPB declined to comment or provide clarity on other profit-arrangements/plans that are not Qualified Plans.  However, the CFPB indicated they would address this in a future rulemaking required by Dodd-Frank.

Not the Last Word.  While clarity is usually welcomed, this particular clarity might not be long-lived as Section 1403 of Dodd-Frank requires the CFPB to adopt loan originator compensation rules by January 21, 2013.  According to the Bulletin, "the Bureau anticipates issuing a proposed rule for public comment in the near future on the loan origination provisions in the Dodd-Frank Act."  These new rules will also have the potential to change the CFPB's interpretation on Qualified Plans (but credit unions can rely on the Bulletin until then).  

In other words - we'll have continued confusion and lack of clarity as well as another round of proposed and final regulations on mortgage loan compensation.  And people wonder why Dodd-Frank creates regulatory burden?  

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The April 2012 NCUA Report is now available.  I was very glad to see this put in writing by NCUA regarding the timeframe for the Equal Housing Lending poster:

• Updates nondiscrimination requirements for credit union operations (Part 701) to reflect the recent designation of NCUA’s Office of Consumer Protection to hear Fair Housing Act and Equal Credit Opportunity Act complaints. Credit unions engaging in real estate-related lending will have a reasonable amount of time to post updated Equal Housing Lender signs in public areas.

From Page 5.  As usual, the NCUA Report is a useful resource to review to get the latest directly from NCUA.    

Regulatory Burden: Short-Term

Written by Steve Van Beek

There has been quite a bit of talk about regulatory burden in the past years and there are no signs of a slowdown in the near future as Dodd-Frank provisions are implemented.  In fact, the blog has a Regulatory Burden category.

But what is regulatory burden?  Is it simply the weight of new regulations, guidance and best practices piled on top of mountains of existing regulations, guidance and best practices?  Or are we talking about unnecessary regulatory burden - such as what the CFPB's Streamlining Initiative and NCUA's Annual Review of their Regulations strive to remove?  Is it a combination?  Is it in the eye of the beholder?

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I'd like to suggest that regulatory burden exists in many different forms and that one of biggest issues is that credit unions are regulated by numerous regulators, agencies, offices as well as Congress.  Each regulator looks at an issue from their point of view without consideration for what burdens are being placed on credit unions by other parties.  I like to call this regulatory "tunnel vision." 

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In this post, we'll look at a couple of recent issues that cause short-term regulatory burden.  

Short-Term Regulatory Burden.  A good example of this would be NCUA's recent changes to the Equal Housing Lender Poster for FCUs.  NCUA made the change to their poster in 12 C.F.R. 701.31(d)(3) to reflect NCUA's Office of Consumer Protection and their formal announcement indicated the change would become effective immediately.  NCUA staff indicated that credit unions would have a reasonable amount of time to update their signs.  Ok, that is fair.  Would have been nice to have that in writing in the Technical Amendments - but at least it was some flexibility.  

The problem?  As credit unions contacted NCUA for the updated posters they were told the signs would not be available for at least a month.  This begs the question as to why the change was made effective immediately when NCUA wasn't prepared to provide credit unions with the updated posters.     

If you are looking for a non-fuzzy version of the Equal Housing Lending Poster, a blog reader passed along this clean PDF that might be useful.

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Bonus:  Inside of 12 CFR 701.31 is a citation to Regulation B.  Unfortunately, it references 12 CFR 202.2(f) rather than the accurate citations of 12 CFR 1002.2(f).  While this seems minor it does cause confusion and unnecessary headaches and really should have been addressed during NCUA's Technical Amendments to Part 701.31.  

"§ 701.31   Nondiscrimination requirements.

(a) Definitions. As used in this part, the term:

(1) Application carries the meaning of that term as defined in 12 CFR 202.2(f) (Regulation B), which is as follows:

An oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested;"

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Hopefully NCUA's Annual Regulatory Review will include a thorough review of their regulations to ensure the citations accurately reflect the CFPB's authority over the consumer regulations.  

One can hope, can't he?  Have a great weekend!  

Changes to Equal Housing Lender Poster (for FCUs); NCUA Letter on Corporates

Written by Steve Van Beek

Last Thursday, the NCUA Board approved a couple of Technical Corrections at their March Board Meeting.  One of these changes provides clarity for Federal Credit Unions in an area full of confusion since the creation of NCUA's Office of Consumer Protection:  the address required on the Equal Housing Lender poster.

Equal Housing Poster.  NCUA amended Part 701.31(d)(3) of their regulations to update the address that Federal Credit Unions are required to have on their posters.  In the past, the address was the Office of Examination & Insurance but it should now be NCUA's Office of Consumer Protection.  

Updated Language.  This rule change was included in the Federal Register yesterday and the Electronic Code of Federal Regulations for 12 C.F.R. 701.31(d)(3) should be updated in the next couple of days.  The language for the updated poster can be found here.

Federal Credit Unions.  Part 701.31 only applies to federal credit unions.  State-chartered credit unions should look to the HUD's Equal Housing Poster in 24 C.F.R. 110.25.  

Note:  NCUA did not make the distinction in their technical corrections but the existing language of 12 C.F.R. 701.31 indicates NCUA's poster requirement only applies to federal credit unions - here is from Subsection (d)(2):

"(2) Lobby notice of nondiscrimination. Every federal credit union that engages in real estate-related lending must display a notice of nondiscrimination. The notice must be placed in the public lobby of the credit union and in the public area of each office where such loans are made and must be clearly visible to the general public. The notice must incorporate either a facsimile of the logotype and language appearing in paragraph (d)(3) of this section or the logotype and language appearing at 24 CFR 110.25(a). Posters containing the logotype and language appearing in paragraph (d)(3) of this section may be obtained from the regional offices of the National Credit Union Administration."  (emphasis added).

Technically, Federal Credit Unions could use either NCUA's poster of the HUD poster - but it makes much more sense to use the NCUA specific language with the new updated address for the Office of Consumer Protection.

Timing?  The changed rule became effective immediately - March 21, 2012.  However, NCUA staff did indicate at the Board meeting that credit unions would have a reasonable amount of time to update their posters.

While I'm sure a lot of credit unions appreciate the informal implementation time, I'm hoping NCUA has passed this flexible interpretation to their examiners as well.  

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On Tuesday, NCUA issued Letter to Credit Unions 12-CU-03 which indicates that the unlimited share insurance coverage for shares invested with Corporate Credit Unions will end - as scheduled - on December 31, 2012.  The program is formally known as the Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) - See Letter 09-CU-01 for more information on the program.

If your credit union has funds with a corporate, make sure your credit union is aware of Letter 12-CU-03 as it does a very good job of explaining how the expiration of the unlimited share insurance could impact credit unions.

Note:  This does not impact share insurance coverage for funds held at natural person credit unions.  Similarly, it does not alter the timeframe for the unlimited share insurance for noninterest-bearing transaction accounts (which is also slated to expire on December 31, 2012 according to Dodd-Frank).

Streamlining Tool; Maturity Limits & Regulatory Review; March Madness

Written by Steve Van Beek

The CFPB's overdraft inquiry (more on this tomorrow) pushed back a couple of items I wanted to discuss.

CFPB's Streamlining Tool.  A couple of weeks ago, the CFPB announced their web-based streamlining tool.  If your credit union has one or two issues you'd like to raise - this is a good format as you wouldn't need to send a formal comment letter.  The web-based streamlining tool is here.

NCUA Opinion Letter.  In mid-February, NCUA made public an Opinion Letter on maturity limits for modified mortgage loans.  The letter is very detailed and includes examples.  The letter is also hard to summarize.  The best approach is to review the complete letter - 11-0903.

NCUA's Reg Review.  The letter interprets 12 C.F.R. 701.21(g) which is one of the sections under NCUA's current regulatory review.  This looks like a perfect place for NCUA to provide clarity in the regulation rather than requiring credit unions to:

• Know the existence of this legal opinion letter;
• Be able to find this opinion letter;
• Properly understand the complicated letter; and 
• Ensure the legal opinion letter has not been superseded by another interpretation by NCUA.

By incorporating this letter into NCUA's regulations, NCUA would help credit unions and those working with credit unions find NCUA's interpretation for the maturity limits for modified mortgage loans.  It may seem counterintuitive, but incorporating the letter into the regulation eases the regulatory burden on credit unions.  

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The language of the letter indicates NCUA has received multiple requests on the same issue.  There are undoubtedly numerous other credit unions who have had the same questions and concerns who may not have taken the formal approach of reaching out to NCUA.  

One of the things about guidance is that it exists somewhere on the internet.  With NCUA's recent approach to look at rules that are "outmoded, ineffective, insufficient or excessively burdensome", this opportunity is served up on a silver platter as NCUA could ensure its opinion was clear and easy for credit unions to find and understand by amending 12 C.F.R. 701.21(g) to reflect their interpretation on maturity limits for loan modifications.  

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March Madness - D3 Edition.  March Madness usually starts a bit early in the Van Beek household as both my wife and I went to Division 3 schools.  She went to the College of Wooster in Ohio and I went to Hope College in Michigan.  Well, the Division 3 brackets were just announced and there is a possibility our alma maters could be facing off next Friday.  Each team would need to win two games but both teams are hosting their games this weekend.  And, both teams have a pretty good pedigree as Wooster finished runner-up for the championship last year and Hope is currently ranked #1 (you can find Wooster way down at #15).

Blog Readers:  If your teams are in - let's hear about your rooting interests in the blog comments (click the title of the blog post to go to the blog itself).  The full bracket can be found here.      

NCUA's Annual Review of Regulations; CFPB's Streamlining

Written by Steve Van Beek

Last week, NCUA issued their listing of their annual review.  The listing includes Parts 700 through 710 of NCUA's regulations - including all the subparts of Part 701.

In the press release, NCUA Chairman Debbie Matz indicated NCUA would focus on reducing the regulatory burden on credit unions:

"Each year we take a fresh look at a different one-third of NCUA regulations to ensure that our standards are up to date,” said NCUA Board Chairman Debbie Matz. “This year, in the spirit of President Obama’s Executive Order 13579 on Regulations and Independent Regulatory Agencies, we are particularly seeking comments on rules that may be ‘outmoded, ineffective, insufficient, or excessively burdensome.’ We are committed to ‘modify, streamline, expand, or repeal’ rules that are not required by statute and would not jeopardize safety and soundness.”    

Comments.  NCUA will be taking comments until August 3, 2012.  NAFCU's Regulatory Affairs team will be preparing a Regulatory Alert and soliciting comments from NAFCU member credit unions.  Keep an eye out for the alert and consider sharing your comments on which areas could be updated (or removed) to ease the regulatory burden.  A "top three" wish list might be a good way to handle this issue.      

Below are links to the regulations being reviewed by NCUA:

• Part 700 - Definitions
• Part 701 - Organization and Operation of Federal Credit Unions [Parts 701.1 through 701.39]
• Appendix A to Part 701 - Model Federal Credit Union Bylaws
• Appendix B to Part 701 - Chartering and Field of Membership Manual
• Part 702 - Prompt Corrective Action
• Part 703 - Investment and Deposit Activities
• Part 704 - Corporate Credit Unions
• Part 705 - Community Development Revolving Loan Fund Access for Credit Unions
• Part 706 - Unfair or Deceptive Acts or Practices
• Part 707 - Truth in Savings
• Part 708a - Bank Conversions and Mergers
• Part 708b - Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status
• Part 709 - Involuntary Liquidation of Federal Credit Unions and Adjudication of Creditor Claims Involving Federally Insured Credit Unions in Liquidation
• Part 710 - Voluntary Liquidation 

Obviously, each regulation listed above has a different impact on credit unions and, specifically, on compliance officers.  Over the next couple of months, it might be a good idea to keep track of areas that are "excessively burdensome" and provide comments to NCUA on ways they could make the lives of credit union compliance officers easier.  

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CFPB Streamlining.  Today is NAFCU's internal deadline for submitting your comments on the CFPB's efforts to streamline the consumer regulations it inherited.  NAFCU Regulatory Alert 11-EA-32 contains the details.  If you haven't gotten your comments to NAFCU on which actions the CFPB should take to streamline their new regulations - now is your chance.  If you have comments, send them to Dillon Shea - dshea@nafcu.org - and we'll pass your concerns along to the CFPB in NAFCU's comment letter.  Comments are due to the CFPB by March 5, 2012.      

When It Rains, It Pours............Regulations

Written by Steve Van Beek

The DC area has had some unseasonably warm weather the past couple of weeks - but the flood of regulations coming from the regulators make it seem like we need to have our galoshes with us at all times.  The past couple of weeks have been a good example of regulatory onslaught from multiple angles - making the lives of compliance officers everywhere very difficult.

Given the fast-paced nature of the recent proposals and finalized regulations, I thought a quick blog post highlighting where to find the new rules was a good start up this mountain I like to call "regulatory change."  As an aside, I'm very interested to see Chairman Matz discuss NCUA's efforts to ease the regulatory burden on credit unions during NCUA's February 8th webinar (which also features CFPB Director Richard Cordray).

Interest Rate Risk Policy - Final Rule.  Recently NCUA issued a final rule on interest rate risk policies.  That rule will be published in the Federal Register this morning.  This final rule becomes effective September 30, 2012.    

Loan Workouts, Nonaccrual Policy & TDRs - Proposed Rule.  At its January Board meeting, NCUA also proposed a new rule that would require all federally-insured credit unions to have a written loan workout/modification policy.  The proposal also contains an Interpretive Ruling & Policy Statement discussing nonaccrual status and troubled debt restructuring reporting.  This proposal was published in the Federal Register yesterday and includes a short, 30-day comment period.

Derivatives - Advanced Notice of Proposed Rulemaking (ANPR).  NCUA also issued a ANPR on derivatives that would provide opportunities for credit unions to use derivatives to manage interest rate risk.  This proposal has not been published yet, but it will have a 60-day comment period (from the date it is published in the Federal Register).

Regulation E (Remittances) - Final Rule.  We discussed this final rule yesterday and I'm fairly certain we'll all become good friends with this rule over the next year.  The final rule will become effective February 7, 2013.

Regulation E (Remittances) - Proposed Rule.  Quite possibly a new record - proposing a rule to amend a final rule that was published on the same day.  Bravo!  The CFPB issue a proposed rule that would tweak the recent final rule.  Rest assured (warning - you may need to adjust your snark meter), the CFPB has indicated they will finalize this proposed rule before the finalized rule that it amends becomes effective.

Junior Lien Loan Loss Allowances - Guidance.  On Tuesday, NCUA along with the other regulators who make up the Federal Financial Institutions Examination Council (FFIEC) announced new guidance for junior lien loan loss allowances.  The Interagency Guidance is here and NCUA also issued Accounting Bulletin 12-1.

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On a happier note, all this talk about raining, pouring and galoshes got me thinking about a wonderful trip with my (now) wife in Seattle.  Good times!  

NCUA Report; Reg Alerts on Loan Participation & Reg Flex Proposals

Written by Steve Van Beek

Below are a couple of items for your Wednesday.  

NCUA Report - January 2012.  The latest version of the NCUA Report is available.  The following two articles definitely caught my eye:

• A Frequently Asked Questions section on the FFIEC Online Authentication Guidance
• A discussion on What is a Minority Credit Union?

The FFIEC discussion indicates that credit unions should keep an eye out for upcoming FAQs from the Agencies as well as updated examination guidance:

"NCUA and other FFIEC agencies are now developing a set of frequently asked questions and will issue the document when completed. In addition, NCUA will issue a Letter to Credit Unions with updated examination questionnaires covering NCUA’s expectations by customer authentication, layered security, or other controls in early 2012." 

In the discussion on Minority Credit Unions (MCU), NCUA indicates their collection of information via the call report is an interim process until an Interpretive Ruling and Policy Statement (IRPS) is issued and approved:

"NCUA must develop and approve an Interpretative Policy and Ruling Statement before it can implement the MCU Preservation Program. However, using the Call Report enables NCUA to identify potential MCUs so NCUA can assess the characteristics and/or unique structure to consider program and policy development. NCUA plans to disclose a list of all MCUs on its OMWI webpage. This list will enable organizations to initially identify minority owned institutions that they may wish to partner with or establish business relationships. For example, banks can now obtain Community Reinvestment Act credit for investing in minority-owned institutions."

The full NCUA Report is here.

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NAFCU Members.  Our Regulatory Affairs team has issued Regulatory Alerts on both the Loan Participation Proposal and the Regulatory Flexibility Proposal.  As always, we are eager for your input to help us draft our comments to NCUA.  

NCUA Proposes Changes to Reg Flex Rule; Loan Participations

Written by Steve Van Beek

The NCUA Board had a busy day yesterday with a full agenda.  The results of the Board meeting can be found here.  Additionally, the Board Action Bulletin provides a summary of each item.

The proposed changes to NCUA's Reg Flex rule are summarized in the Board Action Bulletin:

"The proposed rule would eliminate the charitable contributions rule and add relief provisions to rules that apply to eligible obligations, nonmember deposits, fixed assets, and investments. Under the proposed changes, FCUs would no longer have to qualify for a specific “RegFlex” designation. As of June 30, 2011, 60% of FCUs (2,764 of 4,534) were designated as RegFlex FCUs. The proposed changes would extend regulatory relief to the remaining 1,770 FCUs that do not currently have a RegFlex designation.

The RegFlex relief proposed rule has seven components. Specifically, the proposal would allow all FCUs to:

• Make charitable contributions to charities of their choosing;
• Accept non-member deposits, subject to predetermined limits, from local governmental entities or other credit unions;
• Use a six-year time horizon to partially occupy unimproved property they acquire for future expansion;
• Obtain certain exceptions to eligible obligations constraints;
• Enter into borrowing repurchase transactions in which the purchased securities have maturities that exceed the maturity of the borrowing repurchase agreement, provided the investment value does not exceed net worth, and subject to certain mismatch timing constraints;
• Purchase private-label commercial mortgage-related securities, subject to certain net worth constraints and four safety and soundness investment criteria; and
• Invest in zero-coupon securities, subject to certain net worth or investment maturity limits.

The proposal is issued with a 60-day comment period."

The draft version of the proposed rule is here.  It will be published in the Federal Register in the upcoming days.

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NCUA also proposed a rule on loan participations that would extend the rule to all federally insured credit unions.  Additionally, the proposed rule addresses retention requirements, underwriting and concentration limits.  Here is from the Board Action Bulletin:

"Under the proposed rule, originators would be required to retain 10% of the original loan risk. (FCUs are already subject to this requirement.) Underwriting standards for loan participations must meet or exceed the underwriting standards that each purchasing credit union uses for originating their own loans. Credit unions buying participation interests must establish parameters for reviewing loan documentation, and for performing on-going due diligence on purchased loans.

Buyers would also be protected from acquiring undue concentrations. Loan participations purchased from one originating lender could not exceed 25% of net worth. Participation loans to one borrower could not exceed 15% of net worth. Credit unions could apply to NCUA Regional Directors for waivers of these limits."

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NAFCU will be producing Regulatory Alerts on both of these proposals.  

Have a great weekend everyone! 

Trash Talk; 30-Year Fixed Rate Mortgages

Written by Brad Thaler, Vice President of Legislative Affairs

Steve came to me and asked me to fill in while he is out for the big weekend, and I assumed he was talking about ESPN’s College GameDay coming to my old Michigan State stomping grounds of East Lansing on Saturday, but I understand there may be a wedding or something else getting in the way of his GameDay viewing.

Anyway, I am sure many of here have had to put up with Steve’s talk about Michigan football, so I thought I would balance things out and provide the Michigan State perspective, especially after last Saturday’s game where my beloved Spartans handled the school we (not so) affectionately call “Ann Arbor Community College” for the fourth straight year.  In case any of you missed it, you can watch some highlights here.

We all wish Steve and Erin well on their big day, but there is one song that I doubt Steve will let be played at the reception, so you will just have to watch it here.

 ***

On the legislative front, John Fenton of Affinity FCU in New Jersey testified on behalf of NAFCU before the Senate Banking Committee Thursday on the issue of Housing Finance Reform and the future of the 30-year fixed rate mortgage.  Housing Finance Reform is not expected to be enacted before 2013, but there is a lot of debate going on now in both the House and Senate.  I know many of you are following NCUA and what they are doing on interest rate risk, and the hearing and witness testimonies examine the issue of the interest rate risks associated with long term fixed rate mortgages and what the government role should be in the marketplace.  You can access the testimony or watch an archived webcast of the hearing here.  

Fair Lending Webinar; Flood FAQs

Written by Steve Van Beek

It was one of those weekends - Michigan, the Tigers and the Lions lose.    

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The Philadelphia Federal Reserve's Consumer Compliance Outlook Live will host a November 2, 2011 webinar on Fair Lending and Hot Topics.  The webinar will include a discussion by the Non-Discrimination Working Group of the Financial Fraud Enforcement Task Force.  From the invitation:

"The Financial Fraud Enforcement Task Force was created by President Obama in November 2009 and is the largest coalition whose purpose is to confront financial fraud relating to the financial crisis. The Task Force has a five-part mission, one of which is to address discrimination in the lending and financial markets.

The Non-Discrimination Working Group focuses on financial fraud and unfair practices directed at people or neighborhoods based on race, color, religion, national origin, sex, age, disability, or any other basis prohibited by law. The Working Group is chaired by representatives of the Department of Justice, the Department of Housing and Urban Development, the Federal Reserve Board, and the Attorney General of Illinois on behalf of the State Attorneys General."

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On Friday, the Agencies (including NCUA) issued guidance that updates Interagency Q&As for Flood Insurance.  The guidance finalized two Q&As and requested comment on three additional Q&As.  

The full notice can be found here.