NCUA's Sale of Taxi Medallion Loans; other Board Meeting Discussions

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On Feb. 19, the National Credit Union Administration (NCUA) announced the sale of the majority of its taxi-medallion loan portfolio. The NCUA stated the sale was the most appropriate action to meet its statutory obligation under the Federal Credit Union Act to achieve the least long-term cost to the National Credit Union Share Insurance Fund (NCUSIF).

The agency also asserts that they took all appropriate steps during the sales process to make sure multiple bidders were involved to ensure a competitive price and maximize any potential recoveries to the Share Insurance Fund.

At last week’s NCUA Board meeting, Board Member Mark McWatters stated that the agency was adamant that the winning bidder be someone who will “act in good faith and fairness, and with the utmost respect and compliance with consumer protection laws, and with respect to the taxi medallion borrowers and medallion owners.” The board said the agency will monitor consumer complaints to ensure those affected are treated fairly.

Click here for more information regarding the NCUA’ response to the collapse of the New York City taxi medallion market.

NCUA Board Meeting
At the NCUA Board meeting on Feb. 20, the board issued a proposed rule regarding corporate credit unions, approved an Interagency Policy Statement on measuring credit losses under the current expected credit loss (CECL) methodology and on changes in accounting standards, and received a briefing on credit union mortgage interest rates.

Proposed Rule: Corporate Credit Unions
The board issued a proposed rule to update, clarify, and simplify provisions of the corporate credit union regulation. The changes the proposed rule would make include:

  • Permitting a corporate credit union to make a minimal investment in a credit union service organization without that organization being classified as a corporate CUSO and subject to heightened NCUA oversight.
  • Expanding the categories of senior staff positions at member credit unions who would be eligible to serve on the corporate credit union’s board.
  • Amending the prescriptive experience and independence requirements for a corporate credit union’s enterprise risk management expert.
  • Clarifying the treatment of an investment in a subordinated debt instrument of a natural-person credit union.

Board Chairman Rodney Hood called the proposal evolutionary and responsible, stating it will allow more flexibility and reduce unnecessary burdens without removing the guard rails made to the corporate system in response to the most recent financial crisis.

McWatters referenced the constraints placed on corporate credit unions in 2008 and 2009, calling them appropriate at the time. Now, in 2020, he said, “the corporate credit union system is in good shape.”

Comments will be due 60 days after publication in the Federal Register.

Interagency Policy Statement on Allowances for Credit Losses (ACLs)
The NCUA joined the other federal financial institution regulators in issuing a final Interagency Policy Statement on Allowances for Credit Losses (ACLs). The statement provides guidance on complying with the Financial Accounting Standards Board's (FASB) current expected credit losses (CECL) Accounting Standards Update.

The Policy Statement describes the measurement of expected credit losses under the CECL methodology and the accounting for impairment on available-for-sale (AFS) debt securities; supervisory expectations for designing, documenting, and validating expected credit loss estimation processes, including the internal controls over these processes; maintaining appropriate ACLs; the responsibilities of boards of directors and management; and examiner reviews of ACLs.

In supporting the Policy Statement, Hood also recognized that additional work is needed to do to educate credit unions on CECL implementation and compliance. To that end, the NCUA expects to launch a CECL webpage with additional resources before the end of the first quarter 2020. In addition, the agency noted the American Institute of CPAs (AICPA) recently issued an audit practice aid for CECL. Hood also reiterated the agency’s plans to finalize a rule in 2020 that will allow credit unions to phase in over a three-year period the day-one adverse effects of CECL.

Board Briefing: Credit Union Mortgage Rates
The board received a staff briefing on credit union mortgage rates. According to a study conducted by the NCUA, mortgage loans originated by credit unions generally carried lower interest rates than mortgage loans originated by other lenders. This results in credit union members saving thousands of dollars on their mortgages when compared to borrowers at other financial institutions.

The study showed that credit unions hold more than 4 percent of outstanding mortgage debt in the United States; originate more than $190 million in real estate loans each year, and more than $125 million of that is fixed-rate mortgages.

McWatters noted that credit unions generally pay higher secondary market pricing, since it is based both on volume pricing and risk-based pricing. However, the paper that credit unions sell to Fannie Mae and Freddie Mac is lower risk, higher quality paper. He recommended the NCUA have discussions with the Federal Housing Finance Agency (FHFA) and bring this to their attention.

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