Greater Non-Member Deposit Flexibility Comes with a Catch

December 3, 2019 at 9:30 am Leave a comment

Greetings, folks.

Hope you enjoyed your Thanksgiving holiday. I spent part of the time taking a closer look at two regulations, one proposed and one finalized that could have interesting impacts on your credit union operations.

The first regulation, which takes effect 90 days after its publication in the Federal Register, follows both state and federal credit unions to take in more public unit and non-member shares. Specifically, under 12 CFR 701.32 (b), credit unions could have up to 20 percent of total shares, or $3 million, whichever is greater, comprised of public units and non-member shares. Public units refer to public deposits, such as municipal funds. Non-member funds refer to uninsured funds from third parties, more generally referred to as secondary capital.

Under the rule which NCUA finalized recently, the limit on non-member and public shares is increased to 50 percent of paid-in capital and surplus less any public unit and non-member shares. The change in terminology is important because, as explained by NCUA, the change from total shares provides credit unions with greater flexibility to accept these deposits while at the same time effectively placing a cap on the amount of such shares that can be taken in by credit unions. The importance of this change will vary depending on how much net worth your credit union has. Its importance was underscored to me by a credit union recently, which pointed out that as New York hopefully authorizes credit unions to participate in Banking Development Districts, participating credit unions will have to be mindful of this subtle change in calculation. It also means that the higher your credit union’s net worth, the greater flexibility it will have to utilize this expanded authority.

A second proposed regulation underscores just how much and how quickly the mortgage lending industry is changing. The NCUA has proposed increasing the threshold below which appraisals would not be required for residential real estate transactions from $250,000 to $400,000. Similar steps have already been taken by the banking regulators after receiving a green light from the CFPB.

I love this proposal. It recognizes that, given the amount of information that lenders now have at their fingertips, as well as the desire on part of consumers to speed up the mortgage lending process, there are often better ways of assessing the value of property than having somebody walk around a home and make subjective judgments about how much it is actually worth.

WSJ Slams CUs

As I’ve said before, whenever there is news about credit unions in the Wall Street Journal, you can bet it isn’t good news. This article is certainly no exception. Read it for what it’s worth, but the reality is that if you’ve read banking industry talking points before, you’ve already read this article. The Wall Street Journal is arguably the best paper in the country, but this is a lousy piece of journalism.

Entry filed under: Compliance, General, Mortgage Lending, Regulatory. Tags: , , , , .

Happy Thanksgiving Important Guidance on Issues Ranging from Data Underwriting to Hemp

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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