Managing regulatory changes across departments requires ongoing communication and coordination; our list of links may help your monitoring efforts.
Two watch phrases guide compliance officers as their credit unions navigate a steady stream of regulatory guidance and changes in serving members during the COVID-19 pandemic:
- Stay tuned.
- Document everything.
Federal and state agencies are rolling out updates at a sometimes-dizzying pace as credit unions work through operational changes to protect the health of employees and members in the wake of the coronavirus; develop temporary loan products, policies and procedures for members in need; and plan alternatives for in-person board and annual meetings. And that’s just a partial to-do list.
“All of this guidance is really helpful to credit unions and their members, but at the same time, you have to be able to process and use it,” says CUES member Bernard G. McLaughlin, president/CEO of Point Breeze Credit Union.
Compliance specialists at $800 million/60,000-member Point Breeze CU, Hunt Valley, Maryland, have been hard at work consulting with executives and managers throughout the organization—all from remote locations. McLaughlin and others in the industry offer these tactics for compliance officers and their colleagues across departments as they study and implement all this guidance.
Keep everyone in the loop.
Business unit managers and compliance officers may be learning about regulatory plans and guidance from differing and sometimes conflicting sources, and some of those plans may still be in development, McLaughlin cautions.
For example, the first pool of Paycheck Protection Program funding from the U.S. Small Business Administration has been used up and a second one round is in the works. As a result, compliance specialists are keeping their colleagues in business services updated and ready to work with business members when that blueprint is announced.
Document the regulatory response and be ready to “circle back.”
Managers need to maintain full records of how their business units are revising policies and procedures to enact federal and state edicts and guidance, both for future audits and examinations and for more immediate evaluations on the impact of those changes.
“It’s one thing to inform managers about regulatory changes and execute initially. In practice, we also need to immediately audit and assess how those changes are working,” McLaughlin says.
Coordinate efforts across the organization.
“A yin in one department may cause a yang in another department,” he notes. “Any time you change processes, you need to coordinate how those changes run through the system, and compliance is riding herd on that.”
Compliance specialists at Point Breeze CU are working with department managers to identify what process modifications are needed and communicating and coordinating those changes before they are implemented.
“No one person knows every other department’s actions and the impact of regulatory changes across the credit union, so our operational processes need constant vetting,” he adds. “These changes are coming fast and furious, and the devil is in the details. Our compliance people bear the brunt of having to coordinate. They’re not in charge, but they share responsibilities with department managers for all of this.”
Provide clear information for staff and members.
Borrowers who are temporarily out of work are likely hearing and reading fragmented news reports about how they might be able to delay consumer and mortgage loan payments. At the same time, lenders are working quickly on guidelines for those member interactions and developing disclosures on the impact on existing loan balances so members have clear and complete information.
As just one example, credit unions need to plan how to deal with property tax and home insurance payments for members who pay into escrow accounts for those annual bills, McLaughlin cautions. If members are granted a moratorium on mortgage payments for three months, six months or a year, how will those tax and insurance bills be covered?
“Members need to be informed that their loans will become more expensive in the long run because those loan payments are not forgiven, just moved to the back of the loan term,” he says.
Point Breeze CU has developed skip-payment options for consumer and real estate loans for members who contact the credit union for assistance, and it extended a one-month, no-payment option to all credit card holders. In addition, a special COVID-19 assistance loan is available for up to $2,000 at 2.75% interest for up to 24 months, with the first payment deferred for up to 60 days.
In adhering to federal guidance on forbearance options for mortgage borrowers, credit union lenders, in concert with compliance specialists, need to decide whether and how to apply the same approach to mortgages they are servicing and those they hold in their portfolio, says Allen Price, SVP, BSI Financial Services, a mortgage servicing firm based in Irving, Texas.
At the same time, mortgage lenders should be kicking their portfolio analytics into high gear, with the aim of forecasting the longer-term impact of the pandemic-triggered economic downturn.
“Some borrowers who will be asking for forbearance were likely already in some stage of delinquency,” Price notes. “Credit unions need to project as accurately as possible and prepare for likely defaults once we’re past this crisis.”
He recommends proactive contacts with members who normally make their mortgage payments on time but now are starting to run late. “It’s an easy conversation to have: ‘Is everyone OK? How’s your family doing?’” he says.
“Be fluid, flexible and patient because this situation is changing by the minute. And it’s going to get worse from a housing finance perspective before it gets better,” Price adds. “Institutions that don’t have a tight handle on their portfolio performance are going to have a worse time when the dust settles.”
Plan how to ‘undo’ any temporary measures.
A case in point is relaxing the limit of six transfers a month from savings and money market accounts under Regulation D. At the best of times, McLaughlin suggests, that restriction is annoying and confusing, especially for low- to middle-income members who may need to tap into their savings regularly and for younger members who expect online and mobile account access without restrictions.
Now that unfettered account access is especially crucial, Point Breeze CU followed advice from the National Association of Federally Insured Credit Unions to reclassify savings accounts to transaction accounts so those restrictions do not apply.
“But we have to drop breadcrumbs in the systems and with people to make sure we can find our way back to what it used to be, and that’s no easy task,” he says.
“And I can’t underscore enough that the powers-that-be ought to eliminate that regulation,” he adds. Toward that end, McLaughlin has been heartened to see trade associations and state leagues working with credit union leaders to continue to advocate for the repeal of Regulation D, which he says dates back to early in the 20th century.
Put someone in charge.
Assigning responsibility to managers and compliance officers for the long list of regulatory and process updates is the best way to ensure that all those tasks will get done, McLaughlin suggests.
Look for opportunities in new regulations.
A provision of the state public health declaration recently signed by Iowa Gov. Kim Reynolds moved up the effective date of legalizing remote online notarization from July 1 to March 20. That action suspends the requirement that members appear in person to have mortgage closing documents notarized.
Iowa is now among more than 20 states where the entire mortgage process can be completed remotely, says Omar Jordan, CEO of LenderClose, Des Moines—at a time when a national emergency has made contactless lending a “mandatory topic.”
“Members have been asking for this true digital experience, but now is the time that it’s become nonnegotiable. We’re frazzled and frantically trying to fix this problem we’ve been talking about for decades—and now it’s here,” Jordan says. “We have to start looking inward and figure out, ‘If this were to happen again, how can we plan for that?’”
Deploying the processes and technology to accept documentation and communicate with members through a secure channel, enact remote online notarization, centralize operations and upgrade lending systems will be a “massive undertaking,” he cautions, but the alternative may be to lose ground to more agile lenders that have made that commitment.
Continued advocacy is needed on the regulatory front as well, he adds, to lift requirements by Fannie Mae and Freddie Mac for wet signatures on closing documents for qualifying loans and for full on-premise property appraisals.
Those latter requirements have been relaxed somewhat in keeping with the current social-distancing guidelines to permit drive-by and exterior appraisals, Jordan notes, but lenders should continue to press for advances in e-valuations.
“Start demanding rules that make sense in this age when technology can deliver,” he says.
Keep calm and carry on.
“Everybody wants to work to help members. Financial institutions are still open for business and have been labeled as essential services. State and federal regulators have communicated very clearly, ‘We want you to work with your members right now,’” McLaughlin says. “When members know we’re there to help, that helps keep everyone calm.”
“I’ve never seen such an outpouring of cooperation in a coordinated fashion as during this crisis,” he adds. “Our trade associations are working together, and the NCUA and our state credit union commissioner are fantastic. The message is, ‘We’re all in this together to fight COVID.’”
Useful links to monitor pandemic-related regulatory changes and guidance
This is not an exhaustive list but a starting point to monitor releases from federal agencies:
- NCUA guidance on credit union operations
- NCUA summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act
- A listing of business and individual support programs in Canada in response to COVID-19
- Federal Financial Institutions Examination Council Interagency Statement on Pandemic Planning
- Federal interagency guidance on working with affected borrowers
- Notice from the Department of Housing and Urban Development on a 60-day moratorium on foreclosures and evictions
- Federal Reserve guidance on working with borrowers
- Federal Reserve’s amendment to Regulation D to lower reserve ratios on transaction accounts maintained at depository institutions to 0%
- Updates from the Federal Housing Finance Agency on measures for mortgage borrowers and renters
- Overview of the U.S. Small Business Administration’s response to the pandemic
- U.S. Treasury statement on financial services employees as essential workers
- Advisory links for members from the Consumer Financial Protection Bureau
- FBI public service announcement on pandemic-related fraud schemes
Karen Bankston is a long-time contributor to Credit Union Management and writes about membership growth, operations, technology and governance. She is the proprietor of Precision Prose, Eugene, Oregon.