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

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

Dunn said the association had begun to consider how it couldwork with credit unions to help them prepare for the fair lendingexamination emphasis. She declined to comment specifically on whatwas said at the meeting but reported one of the meeting'spresentations addressed the topic and that credit unions'experiences with the fair lending focus in examinations had been ageneral topic of conversation.

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

He pointed out that on July 25, Dave Marquis, director of NCUA'sOffice of Examination and Insurance had testified on behalf of theagency before a hearing of the House Financial Services Committee'ssubcommittee on Oversight and Investigations about the use of homemortgage data in fair lending enforcement.

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

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

Marquis indicated that NCUA is responsible for enforcing theHome Mortgage Disclosure Act in all credit unions and the EqualCredit Opportunity Act in FCUs. NCUA also has a collateralresponsibility to report identified violations of the Fair HousingAct to the Department of Justice or Department of Housing and UrbanDevelopment, if appropriate, he said.

NCUA selects credit unions for the fair lending examinationsbased on factors such as member complaints, HMDA data, and theextent or complexity of lending programs, Marquis described, addingthat under a risk-based examination system compliance is one of theseven 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 thendevelop a scope for each examination or supervision contact basedupon a credit union's individual risk factors,” Marquis explainedin the testimony, adding that examiners use NCUA's AutomatedIntegrated Regulatory Examination Software (AIRES), which usesquestionnaires to guide and document reviews.

When violations are noted, they are documented in NCUA'scentralized CRVL database. Additionally, examiners develop andcommunicate corrective actions to credit union officials as a partof their assessment of management, Marquis testified. If theexaminer notes material compliance violations, the examiner maydowngrade the credit union's overall CAMEL rating, he added.

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

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

CUs Performing Well

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

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

They originated approximately 69% of the loans for which theirmembers applied, Marquis reported and denied fewer than 13% of allmortgage applications. In total, approximately 69% of allapplications resulted in a loan origination. In total 11.9% percentresulted in a denial of credit and 1.06% resulted in a denial of arequest for pre-approval of credit.

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

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

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

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

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