CFPB Publishes 2017 Rural and Underserved Counties Lists; 18-Month Exam Cycle is Back
Written by Pamela Yu, Special Counsel for Compliance and Research
Happy Monday! Last week, CFPB published a list of counties determined to be rural and a list of counties determined to be rural or underserved for use in 2017.
CFPB has several rules that refer to its rural or underserved and rural counties lists. Each year, the Bureau publishes new lists for use the following year. As a refresher, the rules that refer to these lists are:
- Escrow requirements under TILA/Regulation Z.
- Ability to repay and qualified mortgage standards (ATR/QM) under TILA/Regulation Z.
- High-cost mortgage and homeownership counseling amendments to TILA/Regulation Z and RESPA/Regulation X.
- Appraisals for higher-priced mortgage loans (HPML).
Why does this matter? Well, the lists can significantly impact mortgage originations for certain entities. Credit unions operating predominantly in rural or underserved counties are exempt from certain regulatory requirements.
For example, as we blogged about back in September 2015, the CFPB's final amendments to its definition of small creditors and rural or underserved areas under Regulation Z provided some credit unions with regulatory relief, specifically with respect to the HPML escrow requirement, which contains an exemption for small creditors; the high-cost mortgage rule, which exempts small creditors from a prohibition against balloon payment features on these kinds of loans; and the ATR/QM rule, which permits small creditors to make certain portfolio and balloon payment QMs.
In amending the rural definition by substituting the word area for counties within the regulation, the September 2015 final rule moved to a more granular approach than the previous standard, thus providing greater relief to certain credit unions.
CFPB's rural counties lists are generally defined by using the United States Department of Agriculture Economic Research Service's urban influence codes, while the underserved counties lists are defined by reference to data collected under the Home Mortgage Disclosure Act (HMDA). The 2017 lists also include, in their entireties, the following U.S. territories as rural areas: Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the U.S. Virgin Islands.
***
NCUA's 18-Month Exam Cycle is Back: Hooray!
Last Thursday, the NCUA Board approved, as part of the agency's 2017-2018 budget, ten recommendations from the agency's Exam Flexibility Initiative working group, including an extended 18-month exam cycle for well-managed, low-risk federal credit unions with assets of less than $1 billion. Since NCUA moved to an annual exam cycle at the height of the financial crisis, credit unions have contended with more frequent exams of increased scope and complexity in the post-Dodd-Frank era. However, as the industry has recovered along with the overall U.S. economy, NAFCU and its member credit unions have called for relief in this area.
In response, in May 2016, NCUA Chairman Metsger established the Exam Flexibility Initiative to review NCUA's examination and supervision program and to consider ways to modernize and improve the agency's examination process. A working group formed under the initiative solicited input from credit union stakeholders and, as a result of that feedback, issued a report in October 2016 making ten recommendations for approval by the NCUA Board. Specifically, in addition to an 18-month exam cycle for certain well-run credit unions, the working group recommended the following:
- An 8- to 12- month examination cycle, timed from the prior exam completion date, for federal credit unions not meeting the criteria for an 18-month exam cycle.
- Enhanced examinations of small federal credit unions.
- Enhanced coordination of exams for federally insured, state-chartered credit unions.
- Establishment of an NCUA and state supervisor working group.
- Establishment of provisions for all federally insured credit unions relative to random sampling examinations, measurement of exam cycles, and NCUA's authority to conduct more frequent examinations.
- Enhanced examination planning and notice procedures.
- An optional post-exam credit union survey.
- Reduction of NCUA's onsite exam presence.
- Improved consistency of examiner training.
The working group's full report is available here.
While the NCUA Board's approval of these recommendations is mostly welcome news for credit unions, NAFCU continues to call for an extended exam cycle for all well-run, healthy credit unions regardless of asset size, as well as an independent appeals process for disputing exam results.
The extended exam cycle will become effective January 1, 2017. Other improvements, including the post-exam credit union survey, will begin in July of next year.
***
Upcoming NAFCU Webcast: CFPB Mortgage Servicing Rules: 2016 Final Changes
Live Webcast Wednesday, November 30, 2016 | 2:00-3:30 p.m. ET
Although most of the new requirements are not effective until October 19, 2017, our experiences with the CFPB have taught us that it's best to begin implementing reviews and processes early rather than wait to implement changes within tight timeframes. Attend this strategic webcast to explore the details of the new final rule and the potential impact on your credit union's servicing processes and procedures.