What The End of New York’s State of Emergency Means For Your Credit Union

When you specialize in compliance, even good news can keep you up at night. So it goes with Governor Cuomo’s announcement that he was ending the state of emergency he imposed on March 7th 2020 in response to this thing called COVID-19.

On the one hand, this is of course great news; on the other hand almost immediately, the Association started receiving phone calls about what effect this would have on existing policy and procedures put in place during the pandemic. With the caveat that this is not intended as a definitive list, here is what we know so far:

The executive orders authorized notaries to notarize documents over the internet. This authority has ended. The Department of State issued this memo informing us that effective June 24th, this authority came to an end. Clearly this prohibition is intended to apply prospectively but for those of you who do mortgages don’t be surprised if title insurers raise questions about the validity of your notarizations. They are a nervous a lot. The good news is that the legislature passed a bill to permanently authorize remote notarization.  Perhaps this will spur quicker action on that bill.

An executive order had extended the expiration date of licenses. I know credit unions have relied on this authority when opening up new accounts for members. This authority also came to an end on June 24th 2021. You may want to put a note in your files so that future employees and examiners reviewing account documentation understand that appropriate procedures were used.

Lending was of course another area where the executive orders had a big impact. But many of those early executive orders issued by the Department of Financial Services have been superseded by laws passed by the Legislature. Most importantly § 9-X of the Banking Law which mandates loan forbearance periods for individuals impacted by COVID-19 applies between March 7th 2020 and the latter of December 31st 2021, or the end of the emergency orders. In addition, pursuant to law, New York’s foreclosure moratorium remains in effect until August 31st 2021.

Then there are of course the HR issues. You still have an obligation under both New York law and general OSHA standards to protect your employees against the spread of COVID. This means that you still have to address issues such as mask mandates and vaccination requirements.

All this means that, as my man Winston Churchill would say, “Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

On that note, enjoy your day.

NCUA is doing the right thing when it comes to assessments

As blog followers know, there are occasions when I like to remind everyone that the opinions I express are mine and mine alone. This is one of those times.

The NCUA Board has created a low-level stir within the industry by suggesting at its meeting last week that it may have to seek an assessment from credit unions to make up for shortfalls in the share insurance fund caused by the sudden infusion of deposits triggered by the pandemic. NAFCU even wrote this letter to the Board urging it to hold off on any assessments and instead consider increasing the range of investments that credit unions are allowed to make. 

In fact, the Board did exactly the right thing by publicly discussing the share insurance fund. Credit unions should hope for the best but prepare for the worst, and begin preparing now for an assessment in the coming months. 

First let’s make sure we’re all on the same page. As a matter of federal law, NCUA must impose a restoration plan if the equity ratio falls below 1.20%. Federal law also permits NCUA to establish a Normal Operating Level of between 1.20 and 1.50. 

The facts don’t lie. According to the NCUA, the Share Insurance Fund equity ratio has dropped to 1.22% as of June 2020. The primary reason for this sharp decrease has of course been an almost 13% growth in insured shares. The current ratio is well below the NCUA’s Normal Operating Level of 1.38%. But the numbers aren’t as bleak as they first appear. In October, the fund will receive an infusion of $1.5 billion from insured credit unions as part of their annual contributions. 

Strip away the numbers and what you have is yet another debate over just how long lasting the economic downturn is going to be. If you believe that the indestructible mortgage industry is going to continue to rumble along, that the unemployment numbers will continue to defy conventional wisdom and continue to decrease, and that members will be well positioned to pay back forbearances as a vaccine replaces the new normal with a real normal, then it makes sense for NCUA not to prematurely impose additional assessments. 

In contrast, if you are inclined to believe, as many officials at the Federal Reserve are, that the economy will peter out without further congressional stimulus, that a sizable number of forbearances will never be repaid, and that we may very well see a second wave of COVID economic lockdowns in the coming months, then NCUA would be derelict in it’s duty not to protect the share insurance fund. Incidentally, the FDIC has already had to impose a restoration plan on banks.  

Legislature To Act On COVID-19 Package

The State Legislature heralded the start to the holiday weekend by announcing that it would be going into virtual session today and tomorrow to act on a series of bills related to COVID-19.  Many of the proposals address the areas which have been subject to executive orders and have taken effect since emergency measures were adopted on March 7^th.

The bill that will probably have the most direct impact on financial institutions is S8243-C Kavanagh/A 10351-B Rozic.  This bill provides for up to six months of forbearance for individuals impacted by COVID-19 and also addresses how the amount subject to forbearance will be repaid.  Specifically, it provides borrowers with the option to:

1. have the arrears accumulated during the forbearance payable on a monthly basis for the remaining term of the loan (without any penalties or late fees due to the forbearance), or
2. extend the term of the loan for the length of the forbearance (with interest waived for the term of the forbearance and any late fees due to the forbearance waived), or
3. defer the arrears accumulated during the forbearance as a non-interest bearing balloon payment payable at the maturity of the loan or when the loan is satisfied (with any late fees accumulated as a result of the forbearance waived), subject to the safety and soundness of the lender.

Like the Governor’s previous executive orders on the subject.  It does not apply to mortgages sold to Government Sponsored Enterprises (GSEs).

Here is a link where you can find the entire agenda.

Governor Announces Small Business Loan Program

The Governor announced the creation of a $100 million private loan fund that will emphasize providing loans to small minority and women owned businesses impacted by COVID-19, called the New York Forward Loan Fund.  The funds for the program will be provided by a handful of large banks with CDFIs involved in determining which businesses will get funding.  As we find out more about the program, I will pass it on.

The Most Important Mortgage Guidance

Good morning! I hope everyone enjoyed their Easter weekend. By the way, you know you have been working from home a bit too long when your dog stares at you with a look that says “What are you still doing here?”

Anyway, I spent some of the weekend looking over the avalanche of mortgage guidance that has been churned out on both the state and federal level. I’ve decided that the single best sources of information in dealing with mortgages are this joint statement issued by Federal and State financial regulators and this FAQs issued by the CFPB. Taken together, they encapsulate the major considerations your compliance team should be considering as it seeks to balance the need for compliance against the need to help your credit union members deal with the realities of the pandemic.

Most importantly, the regulators recognize that many of the timelines you are expected to adhere to in normal times cannot realistically be complied with given the onslaught of business. For example, delays in sending loss mitigation related mortgage disclosures will be tolerated so long as your credit union is making a “good faith effort” to comply with its obligations.

The one thing that the regulators stress in both of these documents is the obligation to comply with COVID-19 forbearance requests. The regulators emphasize that:

Servicers must provide a CARES Act forbearance if the borrower makes this request and affirms that the borrower is experiencing a financial hardship during the COVID-19 emergency. Servicers may not require any additional information from the borrower before granting a CARES Act forbearance.

(By the way, the bold emphasis was provided by the regulators, not me.)

Does this mean you are not going to document the forbearance? Of course not. It simply means that you grant the forbearance based on the conversation. You will follow-up by sending the member documentation indicating what has been agreed to including an attestation that the member has requested a forbearance because of COVID-19 related hardship. This approach would also comply with New York’s emergency regulation Part 119.

HERE COMES THE MONEY!

If all goes according to plan, this is the week your members will begin having emergency payments from the government put into their accounts. Here is a good article in the CU Today outlining some best practices credit unions may want to consider in talking to their members about their cash.

 

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.