NEWS: The effects of the recent U.S. government shutdown are just beginning to be felt, but the NCUA published two articles yesterday to help credit unions understand how the deadlock in Washington may impact their operations and their ability to make loans without access to new flood insurance policies.
NCUA share insurance remains in effect, but CUs should be prepared for other impacts
The first article explains that the NCUA will remain open and individual accounts will remain federally insured during the federal government shutdown.
As an independent federal agency, the NCUA’s operating budget comes from fees charged to federal credit unions and transfers from the National Credit Union Share Insurance Fund, which will continue to insure credit union members’ accounts.
However, the government shutdown could affect credit unions, particularly those with federal employees in their memberships. As such, credit unions should plan to respond to members’ questions and consider other actions, such as:
- Ensuring policies provide flexibility to respond to members’ financial needs.
- Preparing for service interruptions if the shutdown affects access to credit union offices located on federal property.
- Prudently working with affected members, including providing advances to individuals receiving direct deposits from the federal government.
- Developing contingency plans with respect to participation in government programs that may be affected by the federal government shutdown.
- Communicating response plans to members, staff, and volunteers in a timely manner.
“Consistent with safety and soundness, credit unions may want to consider offering special programs to assist impacted members who need short-term loans, create loans with special terms and rates, or offer payment flexibility,” the NCUA said.
Credit unions should review NCUA’s Letter to Credit Unions, 11-CU-05, “Planning and Preparedness for a Potential Government Shutdown,” which provides guidance in the event of a government shutdown.
Flood insurance program has lapsed, but CUs can still make loans
The National Flood Insurance Program (NFIP), which insures nearly 5 million properties across the U.S., officially lapsed as of midnight on Sept. 30, as part of the government shutdown.
According to the Insurance Journal, “With the lapse, the Federal Emergency Management Agency (FEMA), administrator of NFIP, will still make sure valid claims were paid with available funds. However, no new policies will be sold, according to FEMA’s website. Expiring policies will not renewed.”
While the program has been set to expire 33 times in the last eight years, this lapse comes during peak hurricane and flood season, a stalled housing market, and a time of broader uncertainty for FEMA.
The NCUA and other federal financial institution regulatory agencies reminded lenders that they may continue to make loans that are subject to the federal flood insurance statutes when the NFIP is not available. During this period, lenders are allowed to make these loans without requiring federal flood insurance.
As explained in the Interagency Questions and Answers Regarding Flood Insurance, in Q&A Applicability 12, lenders may continue to make loans without flood insurance coverage during this time but must continue to make flood determinations; provide timely, complete, and accurate notices to borrowers; and comply with other applicable parts of the flood insurance regulations. In addition, lenders should evaluate safety and soundness and legal risks and should prudently manage those risks during the lapse period. The guidance also addresses the availability and use of private flood insurance.
Under federal law, credit unions and other lenders must require certain property owners, both residential and commercial, to buy flood insurance as a condition of any mortgage if their property is in a Special Flood Hazard Area and is in a community that participates in the NFIP. See the League’s ii Release No. B003 for more information.