NCUA board approves coronavirus relief measures on liquidity, appraisals

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The National Credit Union Administration board on Thursday voted in favor of measures to help credit unions mitigate the coronavirus crisis and narrowly approved changes to appraisal rules for residential mortgages.

The meeting, which was live streamed with just audio as board members worked remotely, was the regulator’s first open board meeting since the pandemic overtook the United States and social distancing measures became widespread.

Earlier in the week the board approved an interim final rule related to the agency’s Central Liquidity Facility and Thursday’s meeting included further discussion on those issues. Perhaps most notably, some board members suggested the current Dec. 31 sunset date for that rule may be too soon.

Board member Todd Harper suggested that temporary changes to the CLF are helpful “but may be too short in length, because liquidity needs seem likely to hit their highest point next year.” Congress could help solve that by making CLF funds in the CARES Act permanent or extending the sunset period to the end of 2021, he said.

His colleague Mark McWatters said liquidity and capital shortfalls are likely to be an ongoing concern for credit unions as members utilize loan forbearance options or suffer job losses that make them unable to keep current on loan payments.

“Without appearing needlessly alarmist, we must continue to develop an array of approaches" to tackle liquidity issues related to the crisis, McWatters said. “In my view this should serve as the agency’s top priority.

Part of the regulator’s plan to utilize the CLF in the most effective manner possible, agency officials said, includes redeploying staff from other parts of the agency — including some who would normally be occupied with on-site exams — “who can be shifted to the CLF underwriting team to handle a potential surge in volume if the crisis triggers a more widespread demand for liquidity funding,” said J. Owen Cole Jr., president of the CLF, who was quick to add that while NCUA does not expect that to happen, measures are in place to up its capacity where needed.

The board also took action to make two changes related to how credit unions utilize appraisals.

The first rule, which is temporary and will take effect immediately upon publication in the Federal Register, allows credit unions to close and fund mortgages without an appraisal or written estimate of market value, provided those are conducted within 120 days of the loan closing. With social distancing widespread and sellers possibly skeptical about having new people in their homes — and appraisers perhaps hesitant to enter those homes — the rule is intended to help keep mortgages moving and not gum up the pipeline if the pace of appraisals slows.

The rule is effective through Dec. 31, and any mortgages made during that time would need an appraisal completed no later than April 30, 2021.

Tim Segerson, deputy director of the agency’s Office of Examinations and Insurance, emphasized that the rule does not exempt credit unions from appraisal requirements, but is merely an attempt to avoid delays. Management should also have plans in place to address any issues in the unforeseen event that borrower misrepresentation leads to a collateral shortfall, he said.

The 120-day delay “provides optimum flexibility while maintaining the integrity of the rules,” he added.

Harper said the temporary change could improve credit union members’ financial lives by speeding up the process for home refis at a time when many consumers are facing financial challenges. He cited data from the Mortgage Bankers Association that refinancing activity in mid-March was up 500% year over year, and said, “this interim final rule has the potential to provide credit union members a quicker reduction in monthly payments and access to inexpensive credit.”

At odds on larger appraisal rule

The board on Thursday also finalized a proposal intended to increase flexibility for borrowers while bringing parity with other federal banking regulators by increasing the threshold under which appraisals for first mortgages can be waived from $250,000 to $400,000. The threshold was last increased in 2002. But the board’s vote Thursday was not unanimous.

Since his Senate confirmation hearing last winter, NCUA Chairman Rodney Hood has indicated an interest in finding ways to improve how credit unions serve consumers in rural communities. Appraisals in those areas can cost between $500 and $1,000 and take as long as six weeks to obtain, he said, so the new rule could provide significant time and cost savings to members in those communities.

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Approximately 94% of credit union first mortgages will be exempt from appraisals under this rule, and the estimated increase will affect less than 1% of total industry assets (roughly 18% of first mortgage transactions). Written estimates of market value will still be required for properties valued under $400,000, which has been the case for properties under $250,000 since 2002.

Hood and McWatters voted to approve the rule but Harper did not, pointing out that when the rule was first proposed he noted a lack of quality control standards for automated valuation models, something he said Congress has also raised concerns about.

Rather than rush to loosen standards during a financial downturn, Harper said, this rule should be put on hold until the economy stabilizes since home values may fall as a result of an economic crisis and some credit union members who did not use full appraisals may find themselves underwater.

“The matter before us is the wrong rule at the wrong time,” he said. “It is neither temporary nor targeted. Instead, it is permanent and premature. In these challenging times, the NCUA should apply a laser-like focus in response to the economic impact posed by COVID-19.”

Raising the appraisal threshold, Harper said, does not achieve the industry’s objective of helping consumers going through hard times.

More relief efforts needed

Board members also emphasized that more can be done to help credit unions provide relief for consumers weathering the pandemic and related economic fallout.

Harper recommended the agency seek an additional $10 million in grant funding for credit unions in order to better help low-income-designated institutions adjust operations and preserve capital.

Harper and McWatters also suggested member business loans related to COVID-19 made through the end of the year should be made exempt from the MBL cap, in line with planned legislation announced earlier in the week. With underserved communities hit especially hard by the pandemic, they added, the industry should request that Congress permit community-chartered and single-common bond institutions to add underserved areas to their fields of membership in order to expand access to affordable financial services for consumers of modest means.

The pair also touched on one of the agency’s long-running requests: third-party vendor oversight.

“In responding ot the COVID-19 crisis, credit unions have less time to conduct due diligence to respond to problems with their vendors,” said Harper, adding: “Now is the time to authorize NCUA to supervise credit union third-party vendors. Doing so will close a regulatory blind spot and better protect the safety and soundness of the credit union system.”

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Law and regulation Compliance Regulatory reform Coronavirus Liquidity Mortgages Appraisals NCUA