Posts filed under ‘Mortgage Lending’

When Forbearances Aren’t the Best Option For Your Members

Within hours of New York State’s promulgation of emergency regulations, two grizzled veterans of loss mitigation gave me a call to vent. To set the stage, both of these individuals work with credit unions and understand that most credit unions are committed to going the extra mile when it comes to helping out troubled borrowers. Still, they made a very convincing argument that New York’s forbearance regulations and the national glorification of the forbearance option may actually do more harm than good for many homeowners. Here’s why.

Most importantly, a forbearance is not a loan modification. New York’s regulation does not provide a definition of forbearance. It is a term of art referring to a lender’s agreement to withhold enforcing repayment obligations for a specified period. Under New York’s regulation, that period is 90 days and under both Fannie and Freddie guidelines, the forbearances can go much longer. The key point to keep in mind and explain to the anxious borrowers who are calling both banks and credit unions by the thousands every day is that at the end of the forbearance period, the member owes the same amount he or she would have owed had they simply continued to make payments in the first place. In other words, your financially troubled borrower now immediately owes three months of payments. Do they understand this? Clearly, many of your members will end up having to formally modify their loans to remain in good standing.

This is what is getting my grizzled veterans so frustrated and concerned. Under New York’s regulation, it is now an unsafe and unsound practice to deny a forbearance to a qualified individual, although you can take the individual’s financial resources into account. In other words, there will be many instances in which it makes sense for a family to continue to make payments even if one of the spouses has been laid off. Hopefully, New York State regulators will understand that financial determinations are ultimately as unique as the individuals making the request. This may not be the intent of New York’s regulations, but I hope people like my grizzled veterans are not penalized for encouraging individuals to forgo forbearances that they may technically be eligible for when doing so is not in a member’s medium or long term interest.

This raises one obvious compliance point. Document, document, document. Document what was explained to the member. Document the criteria you use in making forbearance determinations. Also, make it crystal clear to the member that they are still responsible for the payments they skip during the forbearance period.

March 26, 2020 at 8:25 am Leave a comment

New York State Releases Emergency Mortgage Regulations

Good morning folks, with a special shout-out to our sleep deprived federal lobbyists who are eagerly awaiting final passage of the massive stimulus package reportedly agreed on by Senate negotiators early this morning.

While we wait to see what is tucked away in the trillion-dollar stimulus package, New York’s governor continues to impact banking operations on a daily basis.  Late yesterday afternoon, the Department of Financial Services released emergency regulations that lay out the legal obligations of New York State regulated institutions that have members suffering a financial hardship because of the COVID-19 pandemic.  Today’s blog is a high level snapshot with more analysis forthcoming, particularly as the Association fields questions regarding its implementation.

What does the Regulation require?

            It requires financial institutions to provide 90-day mortgage forbearances for New York State residents with New York State property who have a demonstrated financial hardship as a result of the COVID-19 pandemic.  In addition, such institutions must also waive ATM, overdraft and credit card fees for such individuals.  This last requirement applies to ATMs that are owned and operated by the banking organization.

By when do I have to get this program up and running?

            You have up to ten days to provide notice to your members of these options.

How do I determine if someone qualifies?

              You develop the criteria that can include an examination of an individual’s financial resources.  This means that you have to develop an application for individuals seeking to apply.  Denials have to be in writing and members have to be given notice of the opportunity to contact DFS to challenge a negative determination.

Does it apply to my credit union?

            This answer involves some gray area.  What we know for sure is the mortgage regulations do not apply to mortgages owned or being serviced on behalf of the GSEs.  We also know unequivocally that the mortgage regulations only apply to New York State property owned by New York State residents.  In contrast, these regulations apply to:

“…any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.”

The gray area involves an assessment as to whether or not this definition extends to exempt organizations subject to registration requirements under New York Law.

Stay safe. Stay healthy, and remember, if you are reading this blog, you have a roof over your head and a safe place from which to wait out this bizarre period in our history.

March 25, 2020 at 9:37 am Leave a comment

New York State Releases Emergency Mortgage Regulations

Good morning folks, with a special shout-out to our sleep deprived federal lobbyists who are eagerly awaiting final passage of the massive stimulus package reportedly agreed on by Senate negotiators early this morning.

While we wait to see what is tucked away in the trillion-dollar stimulus package, New York’s governor continues to impact banking operations on a daily basis.  Late yesterday afternoon, the Department of Financial Services released emergency regulations that lay out the legal obligations of New York State regulated institutions that have members suffering a financial hardship because of the COVID-19 pandemic.  Today’s blog is a high level snapshot with more analysis forthcoming, particularly as the Association fields questions regarding its implementation.

What does the Regulation require?

            It requires financial institutions to provide 90-day mortgage forbearances for New York State residents with New York State property who have a demonstrated financial hardship as a result of the COVID-19 pandemic.  In addition, such institutions must also waive ATM, overdraft and credit card fees for such individuals.  This last requirement applies to ATMs that are owned and operated by the banking organization.

By when do I have to get this program up and running?

            You have up to ten days to provide notice to your members of these options.

How do I determine if someone qualifies?

              You develop the criteria that can include an examination of an individual’s financial resources.  This means that you have to develop an application for individuals seeking to apply.  Denials have to be in writing and members have to be given notice of the opportunity to contact DFS to challenge a negative determination.

Does it apply to my credit union?

            This answer involves some gray area.  What we know for sure is the mortgage regulations do not apply to mortgages owned or being serviced on behalf of the GSEs.  We also know unequivocally that the mortgage regulations only apply to New York State property owned by New York State residents.  In contrast, these regulations apply to:

“…any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.”

The gray area involves an assessment as to whether or not this definition extends to exempt organizations subject to registration requirements under New York Law.

Stay safe. Stay healthy, and remember, if you are reading this blog, you have a roof over your head and a safe place from which to wait out this bizarre period in our history.

March 25, 2020 at 9:31 am 1 comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

Six Take-Aways From CUNAs GAC

Back from another year at CUNAs GAC. Every year I try to highlight some themes that emerge so here is my list of the six (6) things I learned at this year’s conference:

    1. Get those DORs done. Don’t be surprised to see NCUA taking a tougher approach to your credit union when it comes to following up on Documents Of Resolution. One of the big takeaways from the report of NCUA’s Inspector General about the collapse of the NYC taxi credit unions is that NCUA should have acted more promptly to enforce long standing DORs. Anecdotally I talked to a lot of credit union people and some of them said they are already seeing this trend.
    2. Taxi medallions are an even bigger issue than I thought they were. It would have been impossible to be at the conference the last few days without hearing about taxi medallions. This has not been true over the last few years. Both Chairman Hood and Board Member McWatters defended the agency’s decision to sell the medallions to a private equity firm, just as New York State was beginning to focus on ways to stabilize the medallion market. The big questions that remain are: How much flexibility are the new medallion owners going to extend to troubled borrowers? How much is the sale going to impact the sale price of medallions? And precisely why did NCUA feel that now was the best time to sell off these assets?
    3. Alice Through the Looking Glass and the CFPB. In a presentation to the conference, CFPB director Kathy Kraninger laid out an ambitious agenda on issues ranging from qualified mortgages to payday loans even as her own bureau refuses to defend the constitutionality of its leadership structure in a case pending before the Supreme Court. I’m telling you folks, when it comes to the CFPB, be careful what you ask for. Do you really want to wake up in a world in which the legality of all those mortgage regulations you have been implementing for the last 10 years are in doubt?
    4. I know subordinated debt isn’t the most exciting issue but I continue to believe that it is one of the most important facing the industry. The Association will shortly be coming out with a survey seeking feedback on the pending NCUA proposal which would allow complex credit unions access to secondary capital for purposes of meeting their risk based capital requirements while at the same time codifying guidance making it more difficult for low income credit unions to access subordinated debt. The agency has to see if it can balance these competing concerns in a way that does not exacerbate the differences between big and small credit unions.
    5. The more things change, the more they stay the same. There are so many issues on which there should be a bipartisan consensus but Congress is still unable to get things done. I’m thinking about data security and marijuana banking, in particular. We all know that there is a huge political divide in this country; I wonder how many people realize that this perpetual ideological warfare hurts industries and consumers regardless of what party they belong to.
    6. If there is a better politician in New York than Senator Chuck Schumer, I have not met him.

 

February 27, 2020 at 9:33 am 1 comment

NCUA Committed To Gradual Phase In Of CECL

Greetings from Washington DC where I hope to see many of you at our Association Briefing today in preparation for tomorrow’s Hike The Hill.

Although the legislative stuff is a lot of fun to talk about, with Congress gridlocked the most important developments continue to be on the regulatory and legal front. At last Thursday’s Board meeting, NCUA approved a joint agency guidance explaining baseline examiner expectations for banks, credit unions and thrifts as they prepare to comply with the Current Expected Credit Loss Methodology we lovingly refer to as “Cecil” CECL. The best news I have to report in a while is that NCUA included a footnote in the preamble to the guidance in which it reiterated that it has the authority to phase in CECL Compliance over a three year period. In addition, speaking to a group of small credit unions on Sunday, Chairman Hood noted that phasing in CECL is one of his top priorities.

Why is this so important? Remember that the basic idea of CECL is that financial institutions should record expected credit losses earlier in the lending cycle. There are a number of credit unions for whom a decisive shift to this methodology would have extremely negative consequences. For example, how many credit unions would be harmed if they had to report medallion values under a CECL model? A phasing in of CECL compliance in addition to the already delayed effective date applied to credit unions is one more way that regulators can help smooth the transition.

That being said, the transition is coming and there is a lot of work to be done. Take a look at this guidance and you will see that CECL Compliance impacts much more than accounting. It impacts everything from your board governance to your off balance sheet investments. Now really is the time to get started.

Credit Unions Offer Good Mortgage Value

Here is one more point to raise when you talk to your Congressman tomorrow. Home buyers save thousands of dollars by getting their loans from credit unions. This is the conclusion of a report released by NCUA’s economist at Thursday’s Board meeting. It’s always been interesting to me that when consumers think about credit unions they are much more likely to mention a great rate they received on a car loan than a great mortgage they received. Perhaps this report can help broaden the focus of consumers and policy makers particularly as they consider how to ensure secondary mortgage access if Fannie and Freddie ever go away. On that note, have a nice day.

 

 

 

February 25, 2020 at 8:49 am Leave a comment

More Questions And Answers About NYs Updated Servicing Regs

Although we are on the verge of one of my favorite events of the year, CUNA’s GAC, the most important operational issues impacting NY credit unions are emanating closer to home these days.  In my blog two days ago I reminded you all to begin preparing for changes to New York’s Servicing Regulations and yesterday we had the news that NCUA decided to sell its NY Medallions.

I’ve gotten enough phone calls and emails asking for further clarifications regarding New York State’s amendments to part 419 of its Servicing Regulations that I’m going to summarize some of them on the assumption that at least some of you share similar concerns.  Thanks to those of you who helped me analyze these issues.

Question #1: How was part 419 of New York’s Regulations enacted? 

A lot of the confusion regarding the amendments to 419 stems from New York’s broad use of “Emergency Powers” to promulgate regulations.  I put emergency in quotes because on a practical level, to New York State, an emergency includes any instance in which an agency did not give itself adequate time to promulgate regulations with a traditional comment period.  As you will see with Part 419, these emergencies can last for years with the result that the state lacks the rigorous and systematic regulatory review process we take for granted on the Federal level.  Part 419 was put in place on an emergency basis more than a decade ago to comply with mortgage regulations passed by the Legislature in 2008.  Since it was first promulgated, 419 has periodically been renewed on an emergency basis ever since.  For example, here is the notice of its renewal in 2011.  Last April the state proposed a final amendment to 419.  Some additional changes were made and it is this final regulation which takes effect in March.  For those of you who want to play along at home by updating your policies and procedures, you should have the Emergency copy of 419 (to make sure you are already complying with the baseline requirements), the proposed amendments to these regulations and the final regulations.  For added fun, you should also have a copy of the existing Federal Servicing Requirements so you can see how many changes go beyond existing Federal requirements.

Question #2: Does this apply HELOCs?

Yes, it does.  Unlike the corresponding Federal Regulations, there are no carve-outs for specific types of mortgage products.  This is the part of the regulation that has compliance people tearing their hair out.  In contract to traditional home mortgages where the credit union or bank has standardized days for when mortgages are due and can therefore send out bulk mailings of notices and statements, HELOCs can be due any day of the month, depending on when the line of credit was open.  Furthermore, keep in mind that New York State now mandates delinquency notices be sent out after 17 days.  While my operational gurus explain to me that this is already done as a matter of practice by many lenders, the specific notice requirements may very well have the impact of confusing members, many of whom wait till the 30th day to send in payments.

Question #3: Do these regulations apply to Federal Credit Unions?

Pursuant to New York State Banking law, they do.  New York State Banking law— Section 12-D, provides that mortgage loan originators and servicers who work for state and federally chartered credit unions and banks are exempt from state licensing requirements but they are still required to register with the state.  New York has drafted these regulations to explicitly apply to otherwise exempt organizations.  This is an issue that I would discuss with your attorney if your credit union is federally chartered and does not operate a mortgage CUSO.

As more comes out I will keep you posted.  In the meantime, I will see you in DC.  Peace out!

February 21, 2020 at 9:58 am Leave a comment

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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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