The impact on credit unions of recently enacted regulatory relief legislation has been developed as a “frequently asked questions” list by the credit union federal regulator and posted by the agency on its website Tuesday.
The FAQs about the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155), focus on changes made by the law – enacted May 24 upon signature by President Donald Trump – in four areas: business lending to members, appraisals, exemptions from the Home Mortgage Disclosure Act (HMDA), and “other changes applicable to credit unions.”
Credit unions should be aware of the changes, particularly those “major changes in the areas of member business lending, appraisals, and the Home Mortgage Disclosure Act,” NCUA wrote.
The agency said it would update examiner guidance and exam procedures to reflect the changes. Also, NCUA said it would “continue to work cooperatively with state supervisory authorities and the other federal regulators as these changes are implemented.”
For the biggest change for credit unions – on business lending (which amended the statutory member business loan limit to exempt all loans secured by a 1- to 4-family dwelling (residential property) from the definition of a member business loan) — the agency said it had updated its call report instructions for the June 30, 2018, cycle. “Credit unions will only report loans that meet the revised definition of a member business loan in account 400A (see page 77 of the Call Report Instructions),” the agency states.
Because of the change, credit unions should no longer report any loans secured by a 1- to 4-family residential property in account 400A, the agency said. “Credit unions should continue to report allloans secured by residential property in Section 2 of Schedule A. There will also be one related change to a Call Report field scheduled to take effect with the September 30, 2018, Call Report cycle.”
Additionally,NCUA said it is amending the call report instructions related to how non-member business loans are reported for purposes of calculating a credit union’s risk-based net worth requirement. “The changes are reflected in the Call Report Instructions for Account 400 (see pages 78 and 79 of the Call Report Instructions),” NCUA said.
For purposes of calculating a credit union’s risk-based net worth ratio, the FAQs point out that “long-term real estate loans” secured by a 1- to 4-family residential property are now included in the “long-term real estate loans” risk portfolio. “Loans secured by a 1- to 4-family residential property that will contractually refinance, reprice, or mature within the next five years are included in the ‘average-risk assets’ risk portfolio for purposes of calculating a credit union’s risk-based net worth ratio,” the agency stated.
Non-member business loans are no longer included in the “member business loans outstanding” risk portfolio for purposes of calculating a credit union’s risk-based net worth ratio (they are now included in the risk-based net worth risk portfolio, based on the type of loan and underlying collateral.)
The change made to the member business loan definition by the EGRRCPA does not alter the agency’s expectations for managing risk for these loan types, NCUA states. “As with all loans, a credit union’s risk assessment and management should be appropriate for the type of loan and the specific risks associated with the borrowing arrangement,” the agency wrote. “The repayment source should always be identified and evaluated for sufficiency and reliability.”
On appraisals, the FAQs note that the EGRRCPA provides an exemption to the requirements for certain transactions with values of less than $400,000 involving real property or an interest in real property that is located in a rural area. “Credit unions may begin applying this exemption immediately,” the agency wrote, adding that it is in the process of updating Part 722 of its rules and regulations and corresponding examiner guidance to reflect the change.
On the HMDA requirements exemptions, the FAQs note that partial exemptions are generally available for closed-end mortgage loans, if the credit union originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years, and; open-end lines of credit, if the credit union originated fewer than 500 open-end lines of credit in each of the two preceding calendar year.
“For closed-end mortgage loans or open-end lines of credit subject to the partial exemptions, the act states that the ‘requirements of [HMDA section 304(b)(5) and (6)] shall not apply.’ Accordingly, for these transactions, those institutions are exempt from the collection, recording, and reporting requirements for some, but not all, of the data points specified currently in Regulation C.
The agency noted that the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) expects later this summer to provide further guidance on the applicability of EGRRCPA to HMDA data collected in 2018.
For the fourth area, the FAQs round up a variety of miscellaneous changes made by EGRRCPA affecting credit unions, including: Service Members Civil Relief Act (SCRA) foreclosure relief timeframe for military members; safe harbor provisions for qualified residential mortgages; closing disclosure requirements under the TRID rule; protections related to private student loans, and; lender requirements for refinanced Veterans Affairs loans.