ALEXANDRIA, Va. -
“We are disappointed that CUNA has called for more restrictive requirements concerning the restructuring of certain types of mortgage lending,” said NCUA Chairman JoAnn Johnson. “NCUA does not agree that examiner judgment should be substituted for that of credit union lending professionals, and we reject CUNA’s suggestion to impose explicit prescriptions in this area.
“The strong and rigorous supervisory regime created by NCUA enables credit unions to manage their portfolios while maintaining a very high level of safety and soundness, and we intend to continue with prudent modifications as market conditions dictate,” said Johnson.
The NCUA Chairman was responding to a letter sent Jan. 14 by CUNA to all three NCUA Board members and to Congress urging that NCUA clarify how examiners will respond to credit unions’ efforts to restructure subprime mortgages or to refinance other types of non-traditional home loans.
The CUNA letter, signed by CUNA President Dan Mica, asks that NCUA provide guidance to examiners on July’s Letter to CUs urging regulators to favor work-outs and refinancings for troubled homeowners. “Guidelines and training information provided to examiners on this matter should be shared with credit unions as soon as possible,” said Mica.
NCUA insists that it has issued adequate guidance with letters to credit unions on real estate lending in 2003, 2004, 2005, 2006 and two separate ones in 2007, all with slightly different angles on risk. The main thread going through all of the letters, they said, is that any loans, refinances or work-outs should be guided by the principle of safety and soundness for the credit union, “Credit unions need to be cautious of bailing out a bank or another institution, as a detriment to the credit union,” said one senior executive in NCUA office of examinations and insurance.
But just as important, any successful CU lender needs to consider a member’s ability to repay the loan. This principle, one that has been a focus of credit unions for many years, is one that Congress is working to incorporate into law.
This concept, which one would think would be a guiding principle for lenders, has become the focus of the subprime mortgage meltdown. Critics in Congress and the industry have concluded that many of the subprime loans going bad were made without a care for whether the borrower could afford the payments. Why? Because those loans were destined to be sold off into the secondary market, with the lenders and brokers receiving their fees and commissions whether or not the loans went sour.
The NCUA examiners guide states a credit union must consider a member’s capacity to repay when making a loan, the NCUA official pointed out.
