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NCUA Eases Regulatory Requirements for Certain Small Credit Unions; Finalizes Rule Regarding Troubled State Credit Unions
On January 18, the NCUA published a final rule to amend the definition of “small entities” from those with less than $10 million in assets to those with less than $50 million in assets. The change will allow more credit unions to be considered for relief from NCUA rules. The Regulatory Flexibility Act requires federal agencies to consider the impact of their rules on small entities and allows federal agencies to determine what constitutes a small entity. The NCUA proposed a $30 million threshold, which it adjusted upward following review of comments received on the proposal. The NCUA declined to adopt the $175 million threshold sought by some commenters and used by the Small Business Association and the CFPB. In addition to requiring the NCUA to assess the impact of future proposed and final rules on more small credit unions, the new threshold has the immediate effect of excluding more credit unions from certain requirements under NCUA’s Prompt Corrective Action rule and the requirement to implement interest rate risk policies. The rule requires the NCUA to review the threshold in two years, and every three years thereafter. The new threshold takes effect on February 19, 2013.
On the same day, the NCUA published a final rule to allow the agency to determine whether a state-chartered credit union is in “troubled condition.” Under current law, only a state supervisory authority is permitted to declare a federally insured, state-chartered credit union to be in troubled condition. The NCUA believes that the change will help protect the National Credit Union Share Insurance Fund by leveraging the federal regulator’s resources to increase the likelihood that problems at covered credit unions are addressed. The rule goes into effect on February 19, 2013.
NCUA Files Another Major MBS Suit
On January 4, the NCUA announced another major mortgage-backed securities lawsuit. Similar to prior suits, the NCUA alleges on behalf of three insolvent corporate credit unions that a mortgage securitizer violated federal and state securities laws in the sale of $2.2 billion in mortgage-backed securities to the credit unions. In this case, the NCUA is suing a securities firm for alleged wrongdoing by companies the defendant later acquired. The NCUA complaint alleges the acquired firms made numerous misrepresentations and omissions of material facts in the offering of the securities sold to the failed corporate credit unions, and that underwriting guidelines in the offering documents were “systematically abandoned.” The NCUA argues that these actions caused the credit unions to believe the risk of loss was low, when, in fact, the opposite was true. When the securities lost value, the NCUA claims, the credit unions were harmed and forced into insolvency.
NCUA Files Its Largest MBS Suit To Date
On December 17, the National Credit Union Administration (NCUA) announced a lawsuit on behalf of four insolvent credit unions against a mortgage securitizer in which the agency alleges violations of federal and state securities laws in the sale of $3.6 billion in mortgage-backed securities. The complaint, which the NCUA filed in the U.S. District Court for the District of Kansas, claims that the securitizer made numerous misrepresentations and omissions in the offering documents regarding adherence to the originators’ underwriting guidelines, which concealed the true risk associated with the securities and routinely overvalued them. When the allegedly risky securities lost value, the NCUA claims, the credit unions were forced into conservatorship and liquidated as a result of the losses sustained. The NCUA has eight similar suits pending, and it has previously settled similar claims for more than $170 million with three other mortgage securities firms.
Federal Banking Regulators Issue Supplemental Statement Regarding Borrower and Institution Relief Following Hurricane Sandy
On November 14, the Federal Reserve Board, the OCC, the National Credit Union Administration, and the FDIC supplemented a prior statement on the impact of Hurricane Sandy on customers and the operations of financial institutions. The supplemental guidance identifies activities that could be considered “reasonable and prudent” steps to assist affected customers, including, for example (i) waiving certain fees and penalties, including ATM and overdraft fees, (ii) easing credit limits and terms for new loans, and (iii) offering payment accommodations. The regulators also provide post-storm guidance regarding loan modifications, the Community Reinvestment Act, and customer identification. The guidance largely mirrors guidance issued by the FDIC on November 9, 2012 in Financial Institution Letter FIL-47-2012.
NCUA Releases New National Supervision Policy Manual
On November 2, the NCUA released a public version of its new National Supervision Policy Manual, which describes the agency’s internal operations and procedures for supervisory staff. Certain sensitive portions of the Manual remain confidential. The release completes a two-year process to create uniform national procedures for NCUA’s supervisory staff that are expected to improve examination consistency.
Independent Financial Regulators Express Opposition to Senate Regulatory Analysis Bill
On October 26, the leaders of the Federal Reserve Board, the OCC, the FDIC, the CFPB, the NCUA, and the SEC sent a letter to Senators Lieberman (I-CT) and Collins (R-ME) opposing S. 3468, which would authorize the President to require that regulations promulgated by the independent regulatory agencies be subject to regulatory review in the same manner as other federal agencies, including central review of certain rules by the Office of Information and Regulatory Affairs. The regulators note that the bill, which was introduced by Senator Portman (R-OH) with the support of Senator Warner (D-VA) in August 2012, may be considered soon for markup by the Committee on Homeland Security and Governmental Affairs led by Mr. Lieberman and Ms. Collins. The letter argues that by giving the President unprecedented authority to influence policy and rulemaking functions of independent regulatory agencies through review of regulations, the bill would undermine congressional intent to create certain agencies that could exercise policymaking functions independent of any Administration.
NCUA Names New Consumer Protection Director
On October 26, NCUA announced the selection of Gail Laster as Director of the Office of Consumer Protection. Ms. Laster most recently served as Deputy Chief Counsel for the House Financial Services Committee where she participated in drafting the Dodd-Frank Act. Prior to her work in the House, Ms. Laster served as General Counsel to HUD, as Director of Government Relations for the Legal Services Corporation, and as Counsel to two Senate committees. Ms. Laster succeeds Ken Buckham, who will retire at year-end 2012.
NCUA Names New Executive Director
On October 18, the NCUA announced Mark A. Treichel as its new Executive Director, the agency's most senior career position. Mr. Treichel joined the NCUA as an examiner in 1986 and has served in numerous positions. He most recently served as the Regional Director of NCUA's Region I office in Albany, NY.
Majority of NCUA MBS Claims Survive Motion to Dismiss
On July 25, the U.S. District Court for the District of Kansas denied a motion to dismiss that sought to dispose of allegations that the defendant financial institutions misled investors in connection with the sale of certain mortgage-backed securities (MBS). Nat. Credit Union Admin. Bd. v. RBS Secs., Inc., No. 11-2340, 2012 WL 3028803 (D. Kan. Jul. 25, 2012). The NCUA brought the suit against several MBS-issuers on behalf of a failed credit union for which it had been appointed conservator, arguing that the MBS issuers’ documents used in offering the MBS contained material misstatements and omissions that led to substantial losses to the investor credit union and the NCUA Stabilization Fund. The facts and arguments are similar to those NCUA has presented in several cases around the country in an effort to recover MBS-related losses for failed institutions. Here, the MBS issuers argued that the NCUA complaint exceeded the statute of limitations, having been filed more than three years from the issuance of the securities. The issuers maintained that the failed institution should have been able to identify the issues within the statutory limit. The court disagreed and held that the federal extender statute applied, allowing NCUA to bring the case beyond the three year limit. Because the government could not have known the details of the offerings until after it became conservator, and given that ambiguous statutes of limitations should be construed in favor of the government, the court determined the NCUA claims were timely. The court also held that the NCUA presented evidence sufficient to maintain a plausible claim of misrepresentation, except with regard to certain credit enhancement language that the NCUA charged was untrue and material.
NCUA Seeks Role in Declaring State Credit Unions "Troubled"
On July 31, the NCUA proposed a rule that would give it a role in determining whether a state-chartered credit union is in “troubled condition.” Under current law, only a state supervisory authority is permitted to declare a federally insured, state-chartered credit union to be in troubled condition. The NCUA believes that the change would help protect the National Credit Union Share Insurance Fund by leveraging the federal regulator’s resources to increase the likelihood that problems at covered credit unions are identified. The NCUA is accepting comments on the proposal through October 1, 2012.