Tracy Ashfield, president of the Madison, Wis.-based consultingand training firm Ashfield and Associates, provided CUNA MutualGroup's Online Discovery Conference attendees on Oct.9 with a list of five ways to prepare for an examination ofreal estate lending.

Ashfield works with credit unions as well as trains and educatesexaminers at the NCUA and state regulatory agencies on residentialmortgage lending.

1. Staffcommunication

Everyone in the credit union should know when examiners will beon site, Ashfield said. Additionally, staff should be trainedregarding who should speak with examiners, and where to directinquiries 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, Ashfieldsaid: requests made in advance, and those that come up while theexaminer is onsite. She advises that credit unions take advancerequests seriously.

The consultant said in her experience, about half of creditunions provide advance request data far in advance of the onsiteexam, while the other half presents it to the examiner when he orshe arrives at the credit union for the exam. Ashfield said shedoesn't have a preference either way, leaving the timing up to thecredit union and its examiner.

However, she advised credit unions to “go the extra mile” whenan examiner requests information in advance, and spend timedeveloping a short, two-minute narrative that explains how oftenthe requested information is reviewed by management and volunteers,and who in the credit union is using and evaluating it.

3. Real estatelending policies

Failure to adhere to lending policies will prompt examiners todig deeper into real estate lending operations, Ashfield said.

“Make sure you follow your policies regardless of how great theloan is,” she said. She used making a real estate loan in astate not included in the loan policy as an example, saying, “Ifyou don't think you'll get caught on that, you're foolingyourself.”

Ashfield advised that credit unions not only keep policies up todate with current regulations, but also give copies of the policiesto “your people in the trenches” to ensure policies are consistentwith daily business practices.

4. Thirdparty due diligence

Anyone who doubts that third party due diligence isn't importantneed 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 bythe actions of a third party.” And, she added, nowhere is the needfor third party due diligence more evident than in real estate.

“You're going to hear from your regulator, asking who are yourbusiness partners in real estate and what are you doing to keep upwith due diligence. This one is big,” she said.

Not only must credit unions perform background checks on vendorswhen establishing the partnership, they must also perform ongoingdue diligence.

“At one time, that partner who brought down the credit union wasa good partner,” she said, “but sometimes, there are changes.”

5. Newproducts

Ashfield said credit unions that have introduced new products orservices in the last year should be prepared to explain toexaminers the ins and outs of the new offering, what risks it presents for the institution, and how the credit unionwill manage those risks.

“For example, how will you monitor the product'sperformance? How will you adjust your reserves?” shesaid.