Growing Mortgage Loan Portfolios Prompt New Regulations, Increased Scrutiny

By Mark DeBree, CFA, Director of ALM Services for Catalyst Strategic Solutions

For the past 10 years, credit unions have found it increasingly difficult to make the traditional bread-and-butter auto loans that the credit union industry had historically relied upon.

As credit unions adjusted their competencies and found new avenues to achieve loan growth, they ventured into mortgage lending. As a result, mortgages now represent a larger portion of credit union balance sheets. While tapping into this asset class has helped credit union bottom lines, it has also added risk.

As the mortgage trend continues, examiners are becoming increasingly concerned about rising exposure to real estate loans and increased interest rate risk (IRR) exposure. In an attempt to address this, several letters have been distributed and several regulations have been passed, the most recent being 12 CFR Part 741. This new regulation aims to push credit unions to create a sound IRR program and policy.

With the Sept. 30 deadline looming around the corner, credit unions have been working diligently toward compliance. But while credit unions have been focused on adhering to the new regulation, we should also keep in mind what the examiners are really pushing toward.

The primary goal of 12 CFR Part 741 is to nudge credit unions toward understanding their overall IRR measurement process, the resulting exposure, and ultimately to incorporate their IRR results into the daily management process of the credit union. However, not all credit unions will be impacted by the new regulation, as certain credit unions are exempted—including all those below $10 million in assets.

To better understand and fully comply with the new regulations, impacted credit unions are expected to establish a sound IRR program that incorporates strong IRR limitations and compliance measures. The IRR program is a cycle that requires credit unions to: Measure, Monitor, Identify, Report, and Control IRR exposures.

Interested in Learning More?

Mark DeBree is the director of Catalyst Strategic Solutions’ ALM Service. In this role, DeBree is responsible to managing the team of analysts, directing product development, and keeping the group up to date with regulatory and market changes. He also provides IRR exposure assessments and consulting to natural person credit unions. DeBree works with his clients to help ensure an understanding of the balance sheet in terms of risk and return as well as concentration risk, loan quality and liquidity risk.

DeBree will be a featured presenter at the 2012 Northwest Credit Union Association (NWCUA) Convention and Annual Business Meeting, leading an education breakout session on Thursday, Oct. 4, from 2-3:15 p.m.

The session, entitled, “Interest Rate Risk Management: Creating a Sound ALM Program,” will review the requirements of Part 741 and the impact on credit unions, outlining who is impacted and what examiners expect. The session will also lay out the key components of a sound interest rate risk program and the key point of integrating IRR exposure into the decision-making process, which will not only serve to limit a credit union’s IRR exposure but also help its balance sheet structure.

Online registration for Convention, scheduled for Oct. 2-4 in Vancouver, Wash., is available now, with discounted registration options open until Sept. 14, 2012. Visit the Association’s dedicated Convention website for more information.


Questions? Contact Training Programs Coordinator Yuri Jung: 206.340.4817,

Posted in Events, MAXX Annual Convention.