Credit Union Regulatory Alert  

Published by Howard & Howard Attorneys PLLC

Welcome to 2014! 


As we all know, the compliance issues facing credit unions do not take time off and the first few days of 2014 bring with them the compliance dates for the Consumer Financial Protection Bureau's mortgage regulations. 


We at Howard & Howard are confident in credit unions' ability to handle the continuing challenges and look forward to helping credit unions meet their business goals - while limiting regulatory and legal risks - in the new year and beyond. 


If you have any questions on this Alert or any other issue, please feel free to contact Steve Van Beek or Michael Bell 

NCUA Issues Supervisory Letter on Risks for QMs and Non-QMs

As the January 10, 2014 compliance date approaches, the National Credit Union Administration ("NCUA") issued Letter to Credit Unions 14-CU-01, which indicates credit union examiners will "take into account a credit union's good-faith efforts to comply with the [ability-to-repay/qualified mortgage rule]."


The Letter also emphasizes that credit unions may originate qualified mortgages ("QMs") and non-qualified mortgages ("non-QMs"); but, examiners will be carefully evaluating each credit union's risk analysis.


Additionally, NCUA shared Supervisory Letter 14-01 which was sent to all credit union examiners. All credit unions originating mortgage loans should review the Supervisory Letter - especially the Risks and Exam Procedures sections. 


The Supervisory Letter walks through the following risks for QMs and non-QMs:


  • Credit Risk;
  • Liquidity Risk;
  • Concentration Risk; and
  • Legal Risk.


The Exam Procedures emphasize specific steps credit unions should take to verify and document their business decisions, including:


  • Establishing concentration limits for the overall real estate portfolio as well as concentration limits for any non-QM mortgages; 
  • Pricing any non-QM mortgages adequately to address the additional risk; 
  • Retaining knowledgeable and experienced personnel who understand the risks related to non-QM lending; 
  • Determining how providing non-QMs will fit into the credit union's strategic plan and benefit its members; 
  • Identifying and tracking non-QMs in the loan portfolio to provide for adequate monitoring regarding loan performance, loss ratio, and ALLL funding pools; and  
  • Addressing legal risks, including having qualified legal counsel review non-QM mortgage loan programs. 


Throughout the Letter to Credit Unions and the Supervisory Letter, NCUA reiterates that credit unions may originate non-QM loans. However, it is clear NCUA expects credit unions to review - and document - the various risks involved in originating non-QM loans. 


Additionally, while NCUA has reiterated its "good-faith efforts" review standard for compliance, the heightened legal risks associated with the new ability-to-repay and qualified mortgage regulations will be present for all loan applications received on or after January 10, 2014. 


If you have any questions or need assistance, please feel free to contact Steve Van Beek or Michael Bell




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In This Issue
NCUA Issues Supervisory Letter on Risks for QMs and Non-QMs
About Howard & Howard


Attorney Spotlight

 concentrates his practice in the area of financial regulations. His intimate knowledge of the operational issues facing credit unions provides the perfect platform to recommend best practices to reduce compliance, strategic and reputation risks.
Attorney Spotlight

  is a Member of Howard & Howard Attorneys PLLC and concentrates his practice in credit union mergers and acquisitions, loan documentation review and strategic planning.

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This Advisory is intended for informational purposes only, and is not offered as legal advice.  Please call a qualified attorney for counsel related to your particular situation.