From the Archives: September 2012

NCUA Shifts Focus to Largest CUs, Flood Hazard Form Revised, IRS Responds to Exemption Revocation Issues, 

NCUA to Shift Exam Focus to Largest CUs
Noting that one-size-fits-all supervision is "no longer appropriate in a credit union industry with nearly 100 million members and more than $1 trillion in assets," NCUA Chair Debbie Matz on July 26 announced a new office that will focus on regulating corporate and high-asset credit unions.

The new Office of National Examinations and Supervision, which is scheduled to be up and running by Jan. 1, 2013, will allow the agency to concentrate more hours and more attention where more of the industry's risk is held. Oversight and examination of corporate credit unions and credit unions with more than $10 billion in assets will be the main priorities for the new office.

Nearly half of all NCUA examination hours are spent on credit unions that hold less than $50 million in assets, while credit unions with more than $1 billion in assets receive only 10% of NCUA examination hours, the agency noted in a release. The NCUA will spend less time examining well-performing small credit unions once the new office is established, the release added.

The agency also announced a new Small Credit Union Examination Program, directed toward credit unions with less than $10 million in assets, which is intended to streamline the examination process for small credit unions that have a solid record of performance, meaning, in part, a CAMEL rating of 1, 2 or 3.

Permissible Interest Rate Ceiling
The NCUA has issued Letter to Credit Unions 12-FCU-04 to highlight the NCUA board’s decision to continue the current 18 percent interest rate ceiling for loans made by federal credit unions. NCUA approved the 18 percent rate at the July 24 open meeting. The letter explains why the NCUA renewed the interest rate ceiling, and the effect this decision will have on NCUA’s Short-Term Small Loan Program. Credit unions are advised to direct their questions to their NCUA regional office.

SCRA Disclosure Form Expiration Date Extended
Credit unions and other mortgage lenders should note that the U.S. Department of Housing and Urban Development (HUD) has updated the expiration date on its HUD-92070, the form that spells out the legal rights and protections under the Servicemembers Civil Relief Act (SCRA). The expiration date was pushed back by more than two years—to Nov. 30, 2014, from July 31 of this year.

HUD requires mortgage lenders to notify delinquent homeowners of the availability of homeownership counseling offered through the lender, if applicable, and through HUD-approved counseling organizations. In addition, lenders must notify homeowners in default of the mortgage and foreclosure rights of servicemembers and their dependents under the SCRA, in case those rights apply to the borrower. This additional notice requirement became effective in late 2006.
The SCRA form can be downloaded here.

Standard Flood Hazard Determination Form Revised
The Standard Flood Hazard Determination Form, used to comply with Section 303 (a) of Title V of the National Flood Insurance Reform Act of 1994, has been revised. The revised form expires on May 30, 2015. The agency will allow users a three-year transition period ending on the expiration date so user systems can be changed before final adoption of the form is required. The previous form can be used until that time. Users may choose to update their systems at any time to the new format.
The SFHDF is used by federally regulated lending institutions when making, increasing, extending, renewing or purchasing a loan for the purpose of determining whether flood insurance is required and available. The form may also be used by insurance agents, property owner, realtors and community officials for flood insurance related activities and flood zone documentation.
The revised form can be reviewed here. It can also be found on the Flood Insurance page in the Loans and Leasing channel of InfoSight.

IRS Responds to Exemption Revocation Issues
In a letter from its national headquarters to CUNA and other system players, the U.S. Internal Revenue Service has spelled out the steps that state- and federally chartered credit unions whose tax exemptions have erroneously been revoked should take to reassert their exempt status.

The letter addresses three separate groups of credit unions: state-chartered credit unions that previously had group Form 990 returns filed on their behalf, federal credit unions that recently converted from state charters, and federal credit unions that file Forms 990-T to claim health insurance premium tax credits.

In the letter, Lois Lerner, the IRS’ director of exempt organizations, said the agency was wrong to revoke the beneficial tax status of some state-chartered credit unions it had contacted because their group filings had ceased. "Individual state credit unions in each state may continue to hold themselves out as a tax exempt under section 501(c)(14), as long as they continue to file required Form 990 and otherwise comply with the applicable requirements for tax exemption under the Internal Revenue Code," Lerner said.
These credit unions will not need to apply for recognition of their exemptions with the IRS, but may "choose to do so," Lerner added.

Lerner in the letter said the tax exemptions of some federal credit unions may have also been wrongly revoked due to IRS recordkeeping discrepancies. While some credit unions have moved to a federal charter, they are still listed on IRS records as state credit unions, and, thus, are being penalized for failing to file their Form 990.
These federal credit unions should notify the IRS of their changed status by sending a request detailing:

Correspondence should be faxed to the IRS at (513) 263-4330 or mailed to IRS – TE/GE, Attn: Correspondence Unit, P.O. Box 2508, Cincinnati, OH 45021.
Also, federal credit unions that wish to claim health insurance premium tax credits are required to file Form 990-T, but federal credit unions are exempt from filing Form 990. In some cases, the 990-T filings have resulted in an automated search for past Form 990. When the IRS did not find previous Form 990 filings in their records, the credit union filing the Form 990-T was contacted and informed that its tax exempt status was in danger of being revoked.

Impacted credit unions should contact the agency directly by using the address and other contact information listed above. Credit unions in this situation should supply their name, employer identification number, and a letter detailing the problem.

The IRS letter can be found here.

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