Posts filed under ‘Regulatory’

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

Developments Over The Weekend You Need To Know About

There have been some important developments over the weekend that you need to know about.

First, state and federal banking regulators, including the NCUA, issued a joint statement yesterday encouraging financial institutions to work with borrowers “who are or may be unable to meet” payment obligations because “of the effects of the COVID-19”. In addition, the regulators conferred with the Financial Accounting Standards Board and confirmed that credit unions can take these steps without automatically characterizing them as Troubled Debt Restructurings (TDRs) for accounting purposes. According to the statement “regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers”. This is a good statement to keep in the files.

Second, common sense has prevailed. In response to an emergency declaration issued by President Trump on March 13th, NCUA issued this guidance allowing credit unions to conduct virtual annual meetings provided that certain conditions are met. It also reiterates that credit unions have the option of postponing the annual meeting. Incidentally, an earlier order issued by New York State also gives corporations and credit unions the explicit authority to conduct virtual, annual and special meetings.

Third, an Executive Order issued by New York’s Governor Cuomo clarified what the DFS expects financial institutions to do in response to the pandemic. The order also makes clear that this mandate only applies to state chartered and state licensed institutions. This means that a federal credit union is not subject to this order but its CUSO is. For those of you subject to New York law, the order stipulates that a financial institution that does not provide a 90-day mortgage forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic where it would be prudent to do so shall be committing an unsafe and unsound business practice. This is not guidance. It is a mandate. When in doubt, grant the forbearance. The order also empowers DFS to regulate and restrict ATM fees, overdraft fees and credit card fees during this emergency. This will be done pursuant to emergency regulations.

Fourth, there are two other orders you may have missed that impact your credit union whether it is state of federally chartered. The first permits electronic notarization. This is a huge potential benefit to your members who are nervous about going into your branch. Secondly, New York State has suspended all statutes of limitations in civil actions. This means that even though the court system is all but shut down it will not prevent you from taking legal action against members from whom debts need to be collected or mortgages foreclosed on once the emergency period has ended.

Finally, my wife assures me that liquor stores are classified as essential services under New York’s stay-at-home-order. I don’t know about anyone else, but a couple of months of cabin fever combined with non-stop regulations is the perfect recipe for a five o’clock drink. Have a good day and stay safe.

March 23, 2020 at 9:41 am 1 comment

Fed Gives Credit Unions Greater Flexibility To Comply With Regulation D

Since the Federal Reserve announced that it was eliminating transaction account reserve requirements, credit unions have been wondering what impact, if any, this has on their compliance requirements under Regulation D.  This is the regulation which sets limits on the number of account transactions that a member can conduct each month while still allowing credit unions to classify the account as a savings account.  In a nutshell, credit unions must still comply with Regulation D but by eliminating the reserve requirements, credit unions give their members greater access to their savings accounts without being subject to increased reserve requirements. 

Section 19 of the Federal Reserve Act gives the Fed the responsibility of imposing reserve requirements on financial institutions.  Regulation D effectuates this goal by imposing reserve requirements on transaction accounts.  For financial institutions, this means that any account which allows a member to make more than six transactions a month is subject to a reserve requirement.  Under Federal regulations, the higher the value of an institution’s net transaction accounts, the higher its reserve requirements become.  Traditionally, institutions that had between 15.2 million to 110 million in net transaction accounts have been subject to a 3% reserve requirement and those above that threshold must set aside 10% in reserves. 
The Fed’s decision to eliminate the reserve requirements has two important implications for credit unions.  First, it means that the money currently being set aside to meet reserve requirements can be reallocated.  Secondly, credit unions and banks can now allow their members to conduct more than six transactions a month without triggering increased reserve requirements.  With the economy taking so many unexpected turns, this could be useful to members with unanticipated expenses who want to access their savings accounts.
However, here is the tricky part.  All institutions still have to report this information to the Fed.  Some credit unions only have to do this once a year while the largest institutions are subject to weekly reporting requirements.  When making these reports, remember that accounts on which more than six transactions can be conducted must be classified as transaction accounts.  As you can see, Regulation D has not been eliminated, but it has been temporarily defanged.

March 19, 2020 at 9:30 am Leave a comment

NCUA Releases Annual Meeting Guidance

NCUA yesterday released much needed guidance to Federal credit unions informing them that they had the right to postpone their annual meetings.  NCUA’s clarification is a welcome relief to many credit unions which have been wondering how to both comply with their annual meeting obligations and  state level orders limiting the number of persons who can gather at one space.  In addition, NCUA explained that board members whose terms expire prior to the annual meeting can continue to serve until the rescheduled meeting is held.

In the guidance NCUA also announced that, effective March 16th to March 30th,“all examination related staff are required to be offsite”.  Information will be transmitted through NCUA’s Secure File Transfer Portal.

FinCEN Releases COVID-19 Guidance

Underscoring just how seriously FinCEN takes the reporting responsibilities of financial institutions, it issued this guidance yesterday telling financial institutions to contact FinCEN “as soon as possible” if they have any concerns about reporting delays as a result of the COVID-19 virus.  FinCEN also said to be on the lookout for an increase in scams related to the COVID-19 pandemic.

White House Issues Voluntary Guidance

The White House issued voluntary guidance yesterday which I would strongly suggest making a good faith effort to comply with.  Among the recommendations that caught my eye are ones to not congregate in groups of 10 people or more and to work from home if you can work from home.

On that note, Happy St. Patrick’s Day.  Fortunately, I was able to get a bottle of Jameson before my neighbors hoarded that as well.  Unfortunately, the same cannot be said for toilet paper.  By the way, unless you want to drink a lot, don’t read about yesterday’s stock market.

March 17, 2020 at 9:08 am Leave a 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

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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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