Tracy Ashfield, president of the Madison, Wis.-based consulting and training firm Ashfield and Associates, provided CUNA Mutual Group’s Online Discovery Conference attendees on Oct. 9 with a list of five ways to prepare for an examination of real estate lending.
Ashfield works with credit unions as well as trains and educates examiners at the NCUA and state regulatory agencies on residential mortgage lending.
1. Staff communication
Everyone in the credit union should know when examiners will be on site, Ashfield said. Additionally, staff should be trained regarding who should speak with examiners, and where to direct inquiries should an examiner approach an employee.
“You don’t want your examiner walking up to a loan processor, asking for information,” she said.
2. Examiner requests
Examiner requests for data fall into two categories, Ashfield said: requests made in advance, and those that come up while the examiner is onsite. She advises that credit unions take advance requests seriously.
The consultant said in her experience, about half of credit unions provide advance request data far in advance of the onsite exam, while the other half presents it to the examiner when he or she arrives at the credit union for the exam. Ashfield said she doesn’t have a preference either way, leaving the timing up to the credit union and its examiner.
However, she advised credit unions to “go the extra mile” when an examiner requests information in advance, and spend time developing a short, two-minute narrative that explains how often the requested information is reviewed by management and volunteers, and who in the credit union is using and evaluating it.
3. Real estate lending policies
Failure to adhere to lending policies will prompt examiners to dig deeper into real estate lending operations, Ashfield said.
“Make sure you follow your policies regardless of how great the loan is,” she said. She used making a real estate loan in a state not included in the loan policy as an example, saying, “If you don’t think you’ll get caught on that, you’re fooling yourself.”
Ashfield advised that credit unions not only keep policies up to date with current regulations, but also give copies of the policies to “your people in the trenches” to ensure policies are consistent with daily business practices.
4. Third party due diligence
Anyone who doubts that third party due diligence isn’t important need only open up the latest copy of Credit Union Times, Ashfield said, and read about the latest credit union that has been “hurt and disadvantaged by the actions of a third party.” And, she added, nowhere is the need for third party due diligence more evident than in real estate.
“You’re going to hear from your regulator, asking who are your business partners in real estate and what are you doing to keep up with due diligence. This one is big,” she said.
Not only must credit unions perform background checks on vendors when establishing the partnership, they must also perform ongoing due diligence.
“At one time, that partner who brought down the credit union was a good partner,” she said, “but sometimes, there are changes.”
5. New products
Ashfield said credit unions that have introduced new products or services in the last year should be prepared to explain to examiners the ins and outs of the new offering, what risks it presents for the institution, and how the credit union will manage those risks.
“For example, how will you monitor the product’s performance? How will you adjust your reserves?” she said.