Credit Union Exam Solutions Presents With Flying Colors

Treichel: Hey everyone.

This is Mark with a special archive
episode of With Flying Colors.

I hope you enjoy.

Mark: I'm thrilled today to be
joined by Joe Goldberg, Joe,

how are you doing this morning?

Joe: Doing well, mark,
thank you for having me.

Mark: You got it.

You got it.

Joe, for those people who may have missed
your first episode could you give us

a little bit of of a bio on yourself?

If you will, on what you've
done in the financial.

Joe: Sure.

I retired this past December
31st or mid CUA after eight years

doing consumer compliance work.

And that includes fair lending and
the home mortgage disclosure act,

which we're going to talk about today.

I've been a lawyer for over 40 years.

I've taught consumer law.

Just done a variety of things in the legal
field, including the financial regulation.

Mark: Very good.

I'm thrilled to have you as a guest today.

And as you mentioned, we're going to
talk about a home mortgage disclosure

act, also known as hummed up H M D a.

And to start us off, maybe you can give
us a little bit of a basic background on.

Joe: Sure.

That's my intent is to really cover the
basics and provide an overview of the law.

Honda is a very.

Highly detailed area.

So I'm going to talk about
resources that you can use to

jump into some of those details.

If your credit union is required to
comply with Honda felt it start off.

If I would ask listeners, what is I'm
guessing a lot of them would say

Hyundai is a pain in the rear end, or
it's something that government created

because they think credit unions have
nothing better to do with their time.

But after overseeing the NCUA is hummed
the program at, I get that but Yeah.

Even criteria for are covered by him
to change your changes year to year.

So it's difficult in that respect,
but it does have a noble purpose.

When I talk about consumer laws, I like to
start with why they were created for hum.

The Congress made that very easy
because it put that right in the law.

It's.

Did I hear is what
hummed says about itself.

First is the findings of Congress.

Redis is a quote from the law
itself that Congress finds that

some depository institutions have
sometimes contributed to the decline

of certain geographic areas by their
failure, pursuant to their chartering

responsibilities, to provide adequate
home financing, to qualified applicants

on a reasonable terms and conditions.

The findings of Congress and it goes
on into the actual purpose of Honda.

And that is the purpose of this law
is to provide the citizens and public

officials of the United States.

With sufficient information to enable
them to determine whether depository

institutions are filling their obligations
to serve the housing needs of the

communities and neighborhoods in which
they are located and to assist public

officials in their determination of the
distribution of public sector investments

in a manner designed to improve
the private investment environment.

So that, that tells you.

Y hum.

The was created.

It has to do with the housing issues
that actually still are prevalent in our

country now, but it's to help offset some
of those problems hummed, it goes back

to 1975, which is when it was inactive.

And so as a result of that, we actually
have mortgage data, good mortgage

data going back for over 45 years.

So how does this kind of work
what's it intended to do?

If the NCUA has a fair lending
guide on its website, that's

available to the public and it
has a good description of hunter.

It says that Humberto was
implemented by, which is, excuse

me, implemented by regulations.

C as in cat requires financial
institutions, including credit union.

To compile and disclose data
about home purchase loans, home

improvement, loans, and refinancings
that they originate or purchase or

for which they receive applications.

And the purpose according to the manual
is to provide the public with data

that can be used to help determine
whether credit unions are serving the

housing needs of their communities.

To assist public officials and
distributing public sector investments

to attract private investment
to areas where it's needed.

And.

Maybe most important to assist in
identifying possible discriminatory

lending patterns and enforcing compliance
with anti-discrimination statutes.

So that's the general background
on hump and we should probably

take a look now at what it covers,
who has to collect and file hum.

The data, what data must be
collected and filed how and

when it's supposed to be filed,

Mark: Yeah, there's a lot there.

You've got, you got you a lot there.

And so you mentioned the
NCAA is fair lending guide.

For listeners, we'll have a link to that
in the show notes where you can find that.

And Joe, some of the questions you pose
that we needed to ask so who is it?

Credit union wise.

Must report and collect humbug hum.

To data in 2022.

And maybe if you could also I'll do
it, make it into a two-parter you

said who's covered changes every year.

Who's covered in 2022.

And how do the changes work?

Joe: All right.

Let's start with the criteria for 2022.

And these are four criteria.

All of which a credit union must meet.

In order to be required to file.

So if you do one of the four, three of
the four, you're not required, you have

to meet all four of these requirements.

So the first one is what's
referred to as an asset size

threshold that changes annually.

But for 2022 a credit union
meets the asset size threshold.

If the total assets, as of December
31st, 2021, Exceeded $50 million.

So that's the first thing.

If you're over, if you're under $50
million and close the book know, go

home, you don't have to worry about it.

But if you are over $50 million in assets,
then you'd look to the second criteria,

which is called the location test.

And that is that the credit union.

Also in 2021 or as of the end of
the year 2021 had a home or branch

office in a metropolitan statistical
area that includes a branch office

or any location where accounts are
established, where loans are made.

But ATM's are not included.

Then how do you find that out?

Some of the resources.

But a point you to, and as mark said,
you'll have made available to you after

the after you listened to this they tell
you how to determine if the credit union

is in a metropolitan statistical way.

So again, the credit union
meets these first two criteria.

You move on to the third prong of
this, which is loan activity test.

So if the credit union originated at
least one home purchase loan and that's

excluding temporary financing, like a
construction loan, that doesn't count.

So it's one home purchase
loan or refining.

A home purchase loan secured
by a first lien on a one to

four unit dwelling during 2021.

And then finally, if you meet all
three of those requirements, the last

one is the loan volume threshold.

So if the credit union originated
at least 100 hundred covered,

closed end mortgage loans in each
of the two proceeding calendar year.

And those would be 20 in 20, 20
and 2021, or at least 200 covered

open-end lines of credit that our
home equity line home equity loans

again in each of the two preceding
calendar years, 2020, or 2020 and 2021.

Excuse me.

So if you meet all four of
those criteria, you are required

to collect and submit hum.

The data for 2022.

Mark: So yeah, so let me just make
an observational comment on that.

So I have a relationship with
ACU, so that helps generate loans.

However, the credit union as part
of that gives the QSO, their.

Matrix on how they're going
to decide the credit decision.

And it says it fits the
credit union's policy.

Under that scenario, it would be the
credit union who would submit it because

again, they're making the credit decision.

That's interesting.

I didn't realize that.

Joe: Yeah.

There's some niceties to that
such as if the credit union does

give up its right to refuse.

It may be relying on the cues of the QC.

Nate.

He may be the one.

It's not an easy thing to, to
characterize because again, a lot of

little details that you have to look
at to make sure you're in compliance

Mark: It comes down to that.

If it comes down to that
important legal word.

It depends, right?

Yeah.

So it depends on the
facts of each situation.

Got it.

Okay.

That's helpful too.

Joe: Exactly.

All right.

So you want to know what the, what
is the data that the credit unions

need to collect if they are required?

So it's data that comes from
applications and consummated loans and

it's data that includes demographic
information about applicants and

details about the loans themselves.

Know I'm not going to get into
what they are, but there are 48

data points that must be collected.

And of course, since nothing is easy,
some of those data points have multiple

data fields within them to some of
the things that are covered or the

must be collected our loan type loan,
purpose, loan amount action taken on the

application, property address and rates
spread other items include ethnicity,

race, sex, age, income, and credit score.

Now, some of this demographic data is
collected via the universal residential

loan application, which is widely used
in the mortgage industry, especially by

lenders who sell their mortgage loans
Fannie and Freddie use those applications.

So that generally speaking,
they're used by most lenders.

Mark: Got it.

So Joe, you mentioned all
these different items and data

sets that must be collected.

Are there any exemptions
of that would either.

Those are the items that need to
be collected or any exemptions

that would impact credit unions
in any particular way, other than.

Joe: Yeah, because this
is hunter the answer's.

Yes, there are some exemptions.

It's important to know
there are actually two.

Separate partial exemptions.

And they relieve some hummed the filers
from having to submit all 48 data points.

Generally they're only required to
submit 22 of them if they are subject

to the exempt partial exemption
and not the other 26 data point.

So the first partial exemption is
for closed and transactions only.

So if the credit union originated fewer
than 500 covered, closed end mortgages,

and each of the two preceding calendar
years, it only asked to report the 22

data points for closed end transactions.

Now that doesn't affect reporting
for the open den transactions.

However, there is a second.

Partial exemption for
open den transactions.

So it's basically the same as the partial
exemption for closed end transactions

where the standards are the same.

If the credit union.

Originated less than 500
open den transactions that

are subject to the Humsa.

The reporting for the
open den transactions.

It is only for the 22 data points.

And of course that does not affect the
reporting for the closed end transactions.

So they are, there are separate
exemptions, even though the

standards for each is the same.

Mark: Interesting.

Joe: Now if the credit union that is
required to collect and report on the

data it must record it in what's called
a loan application register or LAR you'll

hear that term in connection with Humsa.

And there is a requirement that the
financial institution subject to hump up.

The lore within 30 days of the
end of each calendar quarter.

So for example, for this year,
we're coming on the what's today.

We're when we're recording this
as close to the end of April.

Very soon the LAR must contain all
the transaction data for January,

February and March of 2020.

Now, except for some very large
institutions, I think there might

be just a couple of credit unions
that fall in that category.

That data is only collected and the
Lara is being updated and it's internal.

It's not being reported until the
end of the there are two the next

year, the reporting date of March
1st, 2023, but there is a requirement

that every quarter of larvae.

And just so you're aware the database
to which the data is submitted.

We'll accept hum.

The Lars if they are kept in a format
that's compatible with the database.

So that actually compiling on a quarterly
basis is a help because it makes it

much easier to re report the annual
data when that annual data is due.

Mark: It's like a reconciling your bank
account once a month or once a year,

Joe: Exactly.

Exactly.

Okay.

So

Mark: you go ahead.

Joe: I just going to say that as
I just want to reiterate that the

actual submission is March 1st, it
in the year following the calendar

year that the data is collected in.

Mark: So this, so March of 20, 22,
they would've collected four 20.

Joe: Correct.

Mark: Got it.

Joe: Exactly.

And the data that's being collected
now in 2022 will be reported in 2020.

So technically the data is submitted
to the financial regulator.

So for all federally insured
credit union, That includes state

charters that are federally insured.

That date is being submitted to NCUA.

However, it is submitted to a database
that is maintained by the CFPB.

And you can actually
submit it through the FFF.

Excuse me, the F I E web.

The FFIC is the federal financial
institutions examination council.

But technically the data is
being submitted to the regulator.

So it's being for credit unions,
being submitted to the NCUA.

The CFPB takes the data and provides
it to each of the federal regulators.

Mark: So once each of the federal
regulator gets it and it's been

reported what do they do with it?

So NCUA has it you said the CFPB has it.

I think they share it with a couple
other agencies, like HUD and DOJ.

Could you explain now that,
that is in the domain of these

federal agencies, what happened.

Joe: Sure.

There's the credit union data includes
all the data that is submitted.

Some of that data has
some identifiers in it.

So that is non-public data to protect
the privacy of the individuals whose

transactions are being reported,
but NCUA will get the data and.

The agency uses it and developing
its fair lending program.

The different ways that we'll look at the
data to look to for compliance for the

industry as a whole, but also then to look
for specific credit unions to see if there

are some sort of outliers in the data
that raise a question, not necessarily

a red flag, but just a question because
sometimes outlier type datas there's.

reasonable explanation for it.

It's not a violation but sometimes it
can become a red flag that there might be

some issue with the quality of the data.

Now the data is available to the public.

Although the data points that
have identifier information in

them are not available to the
public for privacy purposes.

I said,

Mark: So I think they CA they call
that PII personally identifiable

information that's stripped
out in the public versions.

Got it.

Joe: And it's in addition to the
individual regulators, getting the

data for their regulated institutions
other agencies will get it.

HUD gets the, have the data
to use for its programs.

CFPB can look at it for national trends
and actually see a Phoebe every year.

We'll release.

The results of its analysis of all
the data and compare it to previous.

Mark: Excellent.

Interesting.

So how would you, if you were running a
credit union or suggesting to a credit

union on how they could use their home,
the data either as it relates to their

institution and, or in comparison to, for
example, that CFPB report where they're

showing the trends that happened last
year what would you recommend a credit

union do with their own home today?

Joe: Yeah, the data is very useful
for an individual institution.

It can look at it to see how well it is
serving its members and the community.

And there, it can lead to ways to
improve the fair lending program.

The credit union can compare how
it is performing with the similar

similarly sized institutions
and its geographic area, whether

they be credit unions or banks or
non-depository lenders and depending on.

The size of the mortgage
lending operation.

It might even be worthwhile for
the credit unions to consider

getting a software that does more
sophisticated analysis of the data.

There's a number of
different programs out there.

Just for everybody's information.

The NCUA uses a program
called lending patterns.

It's sold by a company
called compliance tech.

I'm not thoroughly recommending that
or advocating for it, but the benefit

of using that is that it's the same
software that your regulator is using.

So in theory, you should be getting
the same results when you do

any kind of analysis using the.

Mark: That's that's good to know.

I think our listeners will appreciate
that you pointed that resource out.

And the.

fact that NCUA utilizes them.

Would have to be viewed, in
my mind as a positive, because

it's almost a running headstart.

And again that's not an endorsement
either, but I think there's

some value to that, obviously.

Joe, if w we just passed April
15th or April 18th, which

was the IRS tax filing date.

And a government loves their
deadlines so that people put

their information in on time.

And if a credit union were
to miss a filing deadline

Joe: First thing is it should
do whatever it can to get the

information filed because late
filing is a violation of Hamida.

But also not filing is
a violation of Conda.

Excuse me.

However, I'm not filing is a far more
serious violation than late filing.

So the best thing to do is file it.

The NCUA will contact those who filed
late each year and recommend that.

They make efforts in subsequent
years not to do that.

Generally speaking, the NCUA
will wait for several violations

before taking any action.

But the bottom line is even
if you're late file the data.

Mark: Got it.

And as you mentioned, NCUA can
assess civil money penalties.

They use that.

Very carefully before they consider
that whether you have to be a multiply

multiple time, late person or late
credit union, it's not it's civil money.

Penalties is not something NCUA throws
around Willy nilly, but it is there to

ensure bad actors do comply with the law.

Re we've mentioned some resources.

Can you are there any other resources
that you want to highlight or any any

that you would like to re highlight here?

As we get closer to the
end of our show today,

Joe: Sure.

The first thing is I direct everybody
to the NCUA is regulatory alerts.

I hope everybody.

It was sent to them as their issue,
but every year, the NCUA issues

to regulatory alerts on Hamida
near the beginning of the year.

I believe this year they went
out the first week of February.

One of reminds credit unions
who are subject to Hamda to

report the previous year's data.

So this year is, would have talked
about 20, 20 ones data and the.

Provides the standards and requirements
for collecting and reporting 20, 22 data.

So they get, they get both ends of the
spectrum with those regulatory alerts.

So they provide.

More detailed information that I've
discussed, and they also have links

to some of the important references,
which I'm going to talk about now.

I did mention the website.

It's FFR.

It's showing well,
excuse me, www.ffiec.gov.

It has a number of hummed references
and it actually has a breakdown by year.

If there's any issues with previous years.

Probably the most important resource
on that website is what's called

the, getting it right guide.

Some people refer to it by its acronym,
which has a girl, which I think is a

awkward word, but the getting it right.

Guide really is almost one stop
shopping because it goes over.

Pretty much every detail and Hyundai,
you can imagine it has charts on who

is required to comply, what data is
being collected, what data is subject

to the partial exemptions we discussed
and doesn't have to be submitted.

It's it really does have a
lot of individual resources.

And then finally the consumer
financial protection bureau website,

which is www.consumerfinance.gov.

If you can find the compliance resources
there, there is one for and it also

has a lot of different resources.

Mark: Very good, Joe.

Before we wrap up here are there
any sanitized examples of situations

that you recall from your time
in charge of this program, where

you saw that a credit union?

Failed to do what it needed to do and how
that might've impacted the credit union

relative to their examination and, or,
the steps that credit union had to take to

get back within the confines of the law.

Anything, jump into your head.

Joe: Well, a couple of things there,
there often are times where the

data in the LAR is not accurate.

So what's gets submitted to
the website is not accurate.

There actually are standards established
by NCUA, so that there's a threshold.

A few minor errors.

Pretty much, nothing happens.

We just requested that the credit unions
ma fix, fix the errors internally.

But if the errors exceed a certain
threshold, the NCUA will require the

credit union to not only correct the
errors, but to resubmit the data.

It's not an area where a civil penalty,
civil money penalties are contemplated.

As long as the credit union does comply
with the requirement to resubmit the data.

On occasion, there are instances
where the data indicates a lack of

compliance with some fair lending laws.

The either that can be the basis for
the NCUA putting a credit union on

the list for a fair lending exam.

Or if it's discovered in, during a
fair lending exam that can require the

credit union to change its policies
and procedures so that it is complying

with the equal credit opportunity
act or some other fair lending.

Mark: Okay.

And in those scenarios the.

Credit union could receive a document
resolution or examiner finding

requiring action on their part.

That would be in, in discussions with
the people who are the fair lending

examiners that you use to supervise.

Do I have that right?

Joe: Yeah, that's correct.

And the fair lending program uses the
same type of standards and the same type

of tools that are used for the exams by
the regional offices, the standard exams.

Mark: Got it.

Very good.

Any Joe, any final thoughts on this
topic before, before we wrap up?

Joe: just think it's important for
credit unions to understand though,

that even though complying with Honda
can be a chore, that there is a valid

reason for collecting the hum to data.

And that is to try and ensure
that mortgage credit is offered

and extended to everybody based
on mortgage related criteria.

Yeah.

To prevent discrimination,
to help prevent red lining.

So it, if you approach complying with
how the, from that angle, I think

you can see why it has to be done.

It's a benefit for the members and it's
a benefit to the economy as a whole.

Mark: Or Joe, that's
a great place to wrap.

I want to draw.

I want to thank you for your
time today and to the audience.

I want to thank you for your
time and for listening hope,

hopefully we'll see you next time.

And until next time, this is
mark Treichel with flying colors.