Relief Related to COVID-19

In response to COVID-19 and its unprecedented impact, a number of relief efforts were granted for credit unions and their members. Examiners should not criticize credit unions for taking advantage of these relief efforts or other good faith efforts made in the interest of the credit union and its members.

Appraisals

In September 2020, the NCUA approved a final rule that defers the requirement to obtain an appraisal or written estimate of market value for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions, excluding transactions for acquisition, development, and construction of real estate. Loans made after December 31, 2020 are not eligible for the deferment. The final rule and the previously issued Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus outline temporary relief intended to assist credit unions during this national emergency.

Mortgage Foreclosures

The CARES Act § 4022, Foreclosure Moratorium and Consumer Right to Request Forbearance, prohibits foreclosure for federally-backed mortgage loans. With the exception of vacant land or abandoned property, the following activities are prohibited for the 60-day period between March 18, 2020 and May 17, 2020:

  • Initiate any foreclosure process
  • Move for a foreclosure judgment or order of sale
  • Execute a foreclosure-related eviction or foreclosure sale

The foreclosure moratorium provides up to 180 days of forbearance for borrowers of a federally-backed mortgage who experienced a financial hardship due to the COVID-19 pandemic.

Aside from notifying the credit union of a COVID-19 hardship, borrowers are not required to provide supporting documentation. Examiners will not take exception to these federally-backed loans or the notification documentation associated with them.

Acquired and Abandoned Premises

Under NCUA regulation § 701.36(c), Premises not currently used to transact credit union business, FCUs cannot retain premises that are not being used to conduct credit union business unless they apply for, and are granted, a waiver. The NCUA Board amended the timeframe for calculating the need for such waivers. Any days that fall within April 21, 2020 (the date the temporary final rule was published in the Federal Register) and December 31, 2020, will not be counted for purposes of determining an FCU’s compliance with the required time periods described in the regulations.

Eligible Obligations

The NCUA Board amended NCUA regulation §  701.23(b), Purchase, sale, and pledge of eligible obligations – Purchase, to suspend limitations on the eligible obligations that an FCU may purchase and hold. Specifically, § 701.23(b) temporarily permits an FCU to purchase, in whole or in part, and within the limitations of its board of directors’ written purchase policies, eligible obligations pursuant to §§ 701.23(b)(1)(i) or 701.23(b)(2)(i) without regard to whether the purchasing credit union is empowered to grant such loans. Loans purchased under this authority will therefore not count against the five percent limit of unimpaired capital and surplus of the purchaser as outlined in § 701.23(b)(4).

In addition, the NCUA Board amended NCUA regulation § 701.23(b)(2). This amendment temporarily permits well-capitalized credit unions that have a composite CAMELS rating of 1, 2, or 3 to purchase eligible obligations of nonmembers from a FICU and from a liquidating credit union. Before the amendment, only those credit unions with a composite CAMELS rating of 1 or 2 were permitted to make these purchases.

This temporary authority for eligible obligations will expire on December 31, 2020, and all purchases made under this authority will be grandfathered. Subject to safety and soundness considerations, an FCU may hold any loans purchased under this temporary authority.

Loan Participations

The NCUA Board temporarily increased the aggregate amount of loan participations a FICU may purchase from any one originating lender under NCUA regulation § 701.22(b)(5). Until December 31, 2020, a credit union may purchase the greater of $5 million or 200 percent of the credit union’s net worth. A waiver from the RD is not required for the increased limit.

This relief will remain in effect until December 31, 2020. If a credit union exceeds the greater of $5 million or 100 percent of its net worth on January 1, 2021, it may not purchase additional loan participations from that originating lender until it reduces its concentration below the greater of $5 million or 100 percent of net worth, or obtains a waiver from the NCUA Regional Director.

Central Liquidity Facility

The CARES Act provides several temporary changes to FCUA Title III, Central Liquidity Facility. These Enhancements to Central Liquidity Facility Membership and Borrowing Authority provide significant liquidity support for the credit union industry. Credit unions are encouraged to join the CLF, but are not required to do so. Examiners will not take exception to CLF membership or termination of CLF membership. Independent of a credit union’s decision about CLF membership, examiners will assess whether a credit union is compliant with NCUA regulation § 741.12, Liquidity and contingency funding plans.

Earnings Retention and Net Worth Restoration Plans

In May 2020, the NCUA Board approved an interim final rule that provides relief to credit unions that temporarily become subject to PCA requirements due to efforts to help their members or because they experienced a rapid increase in shares due to economic assistance payments or a flight to safety. The interim final rule makes two temporary changes to NCUA regulation part 702, Capital Adequacy.

  • In accordance with the Order issued by the NCUA Board, the earnings retention requirement in NCUA regulation § 702.201, Prompt corrective action for “adequately capitalized” credit unions, for adequately capitalized credit unions is reduced to zero through December 31, 2020. Adequately capitalized credit unions will not need to submit the earnings transfer waiver request normally required 14 days prior to quarter-end. RDs reserve the right to require an earnings transfer waiver request from credit unions that present an undue risk to the NCUSIF or exhibit material safety and soundness concerns.
  • The NWRP contents (NCUA regulation § 702.206(c), Contents of NWRP) are temporarily minimized to permit an undercapitalized credit union to submit a streamlined NWRP. The streamlined NWRP must attest that the reduction in the credit union’s net worth ratio was predominantly caused by share growth and that such share growth is a temporary condition due to the pandemic.
    • Credit unions classified lower than undercapitalized, regardless of the reason, must continue to submit a comprehensive NWRP in accordance with NCUA regulation § 702.206, Net worth restoration plans.
    • If a credit union becomes less than adequately capitalized for reasons other than share growth, the credit union must submit an NWRP in accordance with the current requirements in NCUA regulation § 702.206(c), Contents of NWRP.

Regions will analyze all streamlined NWRPs to verify that the credit union’s net worth ratio decline resulted from an increase in total assets (not from a decrease in net worth dollars), and that the increase in total assets is a direct result of an increase in shares—not borrowings or other sources of funds.

If there is no change, or an increase in the numerator and an increase in the denominator, this would indicate that the decrease in the net worth ratio was due to share growth. If the numerator decreases as a result of negative income and the denominator did not increase predominantly due to share growth, the credit union would not be eligible to submit a streamlined NWRP.

The NCUA will consult with the applicable SSA when considering whether to approve an NWRP and state-chartered credit unions will comply with their respective state’s requirements when submitting NWRPs for SSA approval.

Board Meetings

The FCUA § 1761b, Board of directors; meetings; powers and duties; executive committee; membership officers; membership application, requires FCUs to hold monthly board meetings. The FCU Bylaws, Article VI, § 5, require only one face-to-face board meeting per year. All other meetings may be conducted by video or teleconference. The one in-person meeting requires the actual presence of only a quorum of directors. Absent directors may participate by video- or tele-conference.

FCUs have the flexibility to postpone annual meetings. While there is no law or regulation that prohibits an FCU from postponing its annual meeting, the credit union should provide member notice of the rescheduled meeting as required in the FCU Bylaws.

Refer to NCUA Letter to FCUs 20-FCU-04, Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic, for additional board meeting guidance.

Policies

Safe and sound credit union operations depend on written, board-approved policies and other governance activities, such as periodic reviews and approvals. Examiners should not take exception to credit union policy changes that are made in the long-term best interests of the credit union and its members. Additionally, credit unions may need to make exceptions to their policies to assist members affected by the COVID-19 pandemic. The credit union’s board of directors should approve all policy exceptions. Generally, examiners will not criticize these exceptions provided they are reasonable and do not violate the FCUA.

Audit Reports

The FCUA states that FCUs must obtain an annual audit, and that the NCUA Board must require all FICUs to obtain a satisfactory audit (§ 1761d, Supervisory committee; powers and duties; suspension of members; passbook, and 1782(a)(6), Reports of condition – Audit requirement). In September 2019, the NCUA Board provided flexibility to credit unions and accounting professionals by eliminating the 120-day time frame to deliver an audit report (NCUA regulation § 715.9(c)(6)). This flexibility removed the waiver requirement and applies to audits conducted on or after December 31, 2019.

Therefore, credit unions and accounting professionals can agree on a reasonable time frame for delivering an audit report, taking into consideration the impact of the COVID-19 pandemic. Examiners should not take exception to an audit report that is delivered later than the agreed upon date in the engagement letter, provided the credit union has made a good faith effort to comply with the requirement.

Additionally, examiners should not take exception to audit scope changes due to social distancing requirements as long as all audit requirements are completed by December 31, 2020. To comply with the annual audit requirement, credit unions may execute a second engagement letter for audit of any items omitted during the initial engagement. Examiners should confirm the second audit is completed by December 31, 2020.

Last updated on December 09, 2022