ALEXANDRIA, Va. (7/16/10)--National Credit Union Administration Chairman Debbie Matz on Thursday encouraged credit union lenders to “understand the implications” of Property Assessed Clean Energy (PACE) loan programs which could potentially “usurp a lender’s senior lien position on a mortgage, undermine the underwriting decisions made by the lender at the time of mortgage origination, and bypass consumer protections required prior to the extension of credit.” Matz recommended that credit union executives make “appropriate adjustments” to their credit union’s underwriting criteria and collateral monitoring practices in the event that the PACE loans available in their service areas present potential safety and soundness concerns. Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco also released a statement on Thursday, saying that the FHFA would “defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac.” “Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections. Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage,” he added in a statement. The FHFA last week said that some energy retrofit lending programs, including those that are presented as PACE programs, represented “significant safety and soundness concerns.” As explained in The New York Times on July 1, the program works by having local governments issue bonds or borrow money that can then be used for home loans that cover the upfront costs of solar installations or other energy improvements. Homeowners who take part in these loans can then repay them over time through their property-tax bills. The PACE programs aim to ease the lending process for energy-saving property retrofitting projects, but can, according to the FHFA, "pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors." The FHFA has previously directed Fannie, Freddie and the Federal Home Loan Banks to waive their uniform security instrument prohibitions against senior liens and adjust their loan-to-value ratios, loan covenants, and borrower debt-to-income ratios to adapt to the needs of PACE program loans, and the Obama administration has tagged $150 million in stimulus money for the program. The U.S. Department of Energy is also working to expand the PACE program. The Credit Union National Association (CUNA) is also concerned by these energy loans, which can ultimately result in higher property tax bills and increased payments for borrowers, as well as corresponding risks for credit unions involved in the lending process. For the full NCUA and FHFA releases, use the resource links.
WASHINGTON (7/16/10)—Following the Senate's 60 to 39 vote approval of comprehensive financial regulatory reform legislation, Credit Union National Association President/CEO Bill Cheney said that credit unions would work with regulators to ease the impact that interchange provisions could have on their operations and members. The financial reform legislation includes provisions that will allow the Federal Reserve to intervene in the setting of debit card transaction fees. While the “extraordinary grassroots and lobbying efforts” of credit unions did not result in the removal of the interchange legislation, these efforts did help secure significant improvements to the provisions, Cheney said. One such improvement is a carveout that would exempt financial institutions with under $10 billion in assets from the interchange legislation. The improvements, “while certainly not a panacea,” will give credit unions “a better chance” to ensure that the rate set by the Federal Reserve accurately reflects the true costs of card programs for credit unions, Cheney said. CUNA will continue to address credit union concerns with the proposal in future discussions with the Fed, he added. Cheney noted that while much of the legislation is not aimed at, and does not affect, credit unions, the actions of CUNA, the leagues, and individual credit unions have also helped credit unions with under $10 billion in assets avoid the oversight, examination and enforcement of the Consumer Financial Protection Bureau. Credit unions also will not pay for the the funding of the consumer bureau, and the National Credit Union Administration will maintain a seat on that board. The legislation also addresses thrifts, deposit insurance reforms, hedge funds, credit rating agencies, executive compensation, and investor protections, among other items. CUNA will also work to "ensure that the consumer provisions extend the protections that are intended without limiting the benefit that credit unions already offer to their members," Cheney added. CUNA is currently planning a series of audio conferences to examine the provisions of this legislation that are of greatest concern to credit unions. Those audio conferences are set to take place in August.