WASHINGTON (3/8/13)--A trio of pending Consumer Financial Protection Bureau mortgage regulations and new National Credit Union Administration credit rating rules were among the items addressed at the Credit Union National Association's Thursday "Pressing Regulatory and Compliance Issues Audio Conference."
The audio conference was free to affiliated credit unions and was attended by 812 callers.
During the call, CUNA compliance staff reviewed three mortgage lending requirements that will become effective June 1:
- Prohibition on financing credit insurance or debt cancellation products (single premium insurance paid separately from the mortgage loan and monthly insurance payments are permissible);
- Prohibition on mandatory arbitration clauses in mortgage loan and home equity lines of credit agreements; and
- New escrow account rules for "higher-priced" mortgage loans secured by a first lien on the member's principal dwelling.
CUNA staff also discussed the new NCUA rules, required by the Dodd-Frank Act, that remove all references to credit ratings from the agency's regulations and substitute a new standard of creditworthiness of securities. Effective June 11, NCUA is establishing for federal credit unions in Section 703 a new standard of "investment grade," which is an evaluation that "the issuer of a security has an adequate capacity to meet the financial commitments under the security." This, in essence, means the risk of default by the obligor is low, Senior Vice President for Compliance Kathy Thompson explained.
The NCUA regulation lists eight factors that a federal credit union can use for its evaluation, including "external risk assessments." Credit unions should understand that although NCUA can't reference credit ratings in its regulations, there is nothing that prohibits credit unions from using credit ratings as an element of their required analysis, Thompson said.
According to Thompson, the NCUA believes that about 750 federal credit unions will need "to develop or augment" their systems to evaluate creditworthiness of their investments. Although NCUA's Section 703 on investments doesn't apply to state-chartered credit unions, any investment held by a state-chartered credit union that isn't permissible for a federal credit union may require a special reserve, she noted. Any state-chartered credit unions with investments that rely on credit ratings will need to review NCUA's regulation to see if they need to change their analysis standards to avoid special reserving, Thompson added.
She said the NCUA is imposing new concentration limits on three permissible investments because of concerns about possible increased risks. Federal credit unions holding European financial options contracts, mortgage note repurchase transactions, and municipal securities need to review the restrictions, Thompson suggested. For instance, she said under the current investment regulation, a federal credit union can hold municipal securities that have one of four highest credit ratings without limit. Under the new regulation, the NCUA will limit a federal credit union's aggregate holdings of municipals to no more than 75% of its net worth. CUNA is discussing with NCUA what credit unions that have holdings which exceed the new limits are expected to do to comply.
The NCUA has said credit unions can expect additional information this spring, which will further explain the regulatory requirements, such as factors that can be used to evaluate "investment grade" creditworthiness, and what examiners will be looking for regarding compliance, Thompson noted.
CUNA staff during the audio conference urged credit unions to submit their questions about the new regulation to firstname.lastname@example.org. CUNA will pass on these questions to the NCUA, and the questions may be addressed in upcoming NCUA guidance.
An update on the Financial Accounting Standards Board's proposed accounting standards for credit losses on financial instruments was also provided. CUNA has released a comment call on that issue, and comments are due to CUNA by April 8 and to FASB by April 30.
Thursday's session was the first of four related audio conferences CUNA is offering during the year. CUNA recommends that registrants attend all four to ensure a complete first-hand view of the latest regulatory and compliance issues, first-hand. An archived version of the session will be posted.
Other topics addressed by CUNA regulatory, compliance and legislative experts included:
- The latest legislative developments affecting credit unions;
- Consumer Financial Protection Bureau rules, including international remittance transfers, mortgage servicing, ability to repay and originator compensation;
- Other pending NCUA proposals and a summary of the February NCUA board meeting actions; and
- Proposals currently open for comment.
Topics for the spring, summer and fall offerings will be announced as those programs are finalized. Those sessions are scheduled for June 4, Sept. 5 and Dec. 5.
Part 2 of this article, on regulatory advocacy issues and what CUNA is doing to address regulatory relief, will be in Monday's News Now.