Corrected-RBC And HMDA Finalized: Now What?

October 16, 2015 at 9:01 am Leave a comment

(I’m blaming it on a lack of coffee.A previous Version of this blog references HAMDA. I Know its HMDA)

Yesterday was the type of day I love, because it means that there will be a need for bank attorneys for years to come. Not only did the NCUA finalize its risk-based capital regulations, but the CFPB finalized regulations that greatly increase the amount of data that credit unions subject to HMDA requirements must collect. In full disclosure, I have not yet gotten through the hundreds of pages of either proposal, and even if I had there is a year’s worth of material worth talking about. Nevertheless, here is my first attempt at highlighting which aspects of these new regulations are most important.

Let’s start with the risk-based capital regulations. It largely tracks the changes that NCUA proposed when it reissued these proposed regulations. Most importantly, it applies to credit unions with $100 million or more in assets. NCUA will be periodically examining this threshold. The regulation takes effect January 1, 2019. NCUA estimates that 16 credit unions will have to make balance sheet adjustments or get more capital to comply with RBC requirements.

Some of the more troubling asset risk weightings were further reduced. For example, credit unions complained that NCUA was unfairly penalizing credit unions for investing in CUSOs. Its initial proposal weighted a CUSO investment at 250%. The final regulation reduced it to 100% for complex credit unions with non-significant equity exposures. Credit union investments in Corporate Perpetual Capital have been similarly reduced.

RBC reform may have its greatest impact on those credit unions heavily involved with mortgage lending. The final regulation imposes higher risk weightings on credit unions for which first lien mortgages represent greater than 35% of their assets or for whom junior lien mortgages represent 20% or more of their assets. In addition, mortgage servicing assets are given a risk weighting of 250%.

All in all, the final product is a great improvement over NCUA’s initial proposal. Fewer credit unions are subjected to its mandates, the industry now has a much better explanation for why assets were given their specific ratings, and the risk ratings are less severe. It remains to be seen how effective this framework will be in mitigating risk. I have my doubts, but now it’s time to start positioning yourself to comply with this regulation.

As for HMDA, the good news is that the CFPB has decided to finalize its proposal to adopt a loan volume threshold under which institutions that originate less than 25 closed-end mortgages or less than 100 open-end mortgages in each of the two preceding calendar years will not be subject to HMDA reporting requirements. In other words, credit unions won’t be subject to HMDA just because of their asset size.

The bad news is that for those credit unions subject to HMDA, the amount of information you have to report is going to increase greatly. In addition, the data collected will be much more granular. For example, institutions will now be required to report a property’s address.

One of the primary goals of the CFPB in finalizing these regulations is to enable both regulators and members of the general public to better monitor and assess fair lending compliance and access to credit. I don’t think it’s an exaggeration to say that you should have lending criteria and credit files that you wouldn’t mind explaining to a stranger.

Have a great weekend.

Entry filed under: Compliance, Legal Watch, Mortgage Lending.

Five Things To Ponder on a Thursday Morning Next Up on the Regulatory Hit List: Supplemental Capital

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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