ALEXANDRIA, Va. — NCUA examiners appear to be looking more closely than they have been in recent years at how well credit unions comply with federal fair lending regulations, according to attorneys who work with credit unions.

The attorneys met in conjunction with this year's annual meeting of the American Bar Association in San Francisco and reported that NCUA examiners appeared to be putting greater focus on inspecting credit unions' procedures governed by the Fair Lending Act, according to Mary Dunn, CUNA's deputy general counsel who attended the meeting.

Dunn said the association had begun to consider how it could work with credit unions to help them prepare for the fair lending examination emphasis. She declined to comment specifically on what was said at the meeting but reported one of the meeting's presentations addressed the topic and that credit unions' experiences with the fair lending focus in examinations had been a general topic of conversation.

John McKechnie, NCUA's Director of Public and Congressional Affairs, said the agency was not emphasizing fair lending as much as it was seeking to comply with the agenda that the agency's Congressional oversight committees have put into place.

He pointed out that on July 25, Dave Marquis, director of NCUA's Office of Examination and Insurance had testified on behalf of the agency before a hearing of the House Financial Services Committee's subcommittee on Oversight and Investigations about the use of home mortgage data in fair lending enforcement.

“I think there is a stronger Congressional interest in the whole question of consumer protection in the whole financial services area,” McKechnie said.

In his prepared testimony, Marquis detailed credit unions' responsibilities under federal fair lending laws and outlined how the agency examines credit unions for compliance with fair lending regulations and reporting requirements. He also reported how credit unions have been doing meeting fair lending requirements.

Marquis indicated that NCUA is responsible for enforcing the Home Mortgage Disclosure Act in all credit unions and the Equal Credit Opportunity Act in FCUs. NCUA also has a collateral responsibility to report identified violations of the Fair Housing Act to the Department of Justice or Department of Housing and Urban Development, if appropriate, he said.

NCUA selects credit unions for the fair lending examinations based on factors such as member complaints, HMDA data, and the extent or complexity of lending programs, Marquis described, adding that under a risk-based examination system compliance is one of the seven areas which examiners deliberately track.

“In risk focused examinations, examiners assign a level of risk (high, medium, low) for each of the seven risk areas and then develop a scope for each examination or supervision contact based upon a credit union's individual risk factors,” Marquis explained in the testimony, adding that examiners use NCUA's Automated Integrated Regulatory Examination Software (AIRES), which uses questionnaires to guide and document reviews.

When violations are noted, they are documented in NCUA's centralized CRVL database. Additionally, examiners develop and communicate corrective actions to credit union officials as a part of their assessment of management, Marquis testified. If the examiner notes material compliance violations, the examiner may downgrade the credit union's overall CAMEL rating, he added.

Marquis reported that NCUA's supervision efforts with respect to federally insured state-chartered credit unions focus on addressing safety and soundness concerns presenting a risk to the NCUSIF.

“NCUA generally defers to the state regulator with regard to consumer violations,” Marquis said. “However, NCUA would become actively involved with fair lending issues at a federally insured state-chartered credit union if the issue exposes the NCUSIF to risk or upon becoming aware of a violation warranting referral to the Department of Justice or HUD,” he reported.

CUs Performing Well

Marquis testified that particularly when it comes to mortgages that CUs are fulfilling their fair lending requirements well.

According to NCUA's records, credit unions approved an overwhelming majority of the applications processed during the 2005 reporting period, Marquis reported.

They originated approximately 69% of the loans for which their members applied, Marquis reported and denied fewer than 13% of all mortgage applications. In total, approximately 69% of all applications resulted in a loan origination. In total 11.9% percent resulted in a denial of credit and 1.06% resulted in a denial of a request for pre-approval of credit.

Marquis reported that CUs have also been serving underserved areas with mortgages as well.

The agency's analysis of census tract data for 90% of the mortgage applications reported found that 66% of mortgage applications from underserved areas were approved with 18% declined. Mortgage applications from areas not considered underserved were approved 75% of the time with only 10% of the time being declined.

Marquis added that credit unions originated over 72,000 mortgages in 2005

During 2005, reporting credit unions originated over 72,000 mortgages, with 13.5% of those originations coming from underserved areas. The median family income reported by the applicants who received mortgages in underserved areas was $55,000, Marquis wrote in the prepared testimony. In contrast, the median family income for applicants who received mortgages in areas that did not qualify as underserved was much higher at $72,000, he added.

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