Thematic Review of House Loans in Credit Unions Published

• Sample of credit unions offering house loans inspected;
• Inspections show some credit unions have commenced such lending without a well-developed business plan; and
• House loan lending must be prudently undertaken, well-managed and in line with credit union strategy and capabilities.

The Central Bank of Ireland today released the outcome of a review of house loan lending by credit unions (PDF 761.89KB). The review assessed the standards of governance and the procedures relating to the issuance of such loans.

Onsite inspections were conducted on a sample of credit unions during 2017. While good practices were evident in some cases, and some credit unions had well-developed business plans, issues of concern were noted in relation to governance practices and credit underwriting of house loans, as well as some deficiencies in risk management and compliance frameworks.

It was concerning that in some instances credit unions had commenced house loan lending without fully assessing and implementing a well-developed business plan. 

Other findings include:

• There was inadequate supporting rationale for providing house loans as part of the business plan. Credit union boards must consider this prior to engaging in house loan lending;
• There was evidence of poor underwriting, including inadequate assessment of member repayment capacity; and
• There was often a lack supporting documentation to evidence compliance with applicable legislation and regulations.

Commenting on the publication of the report, Registrar of Credit Unions Patrick Casey said:

“The Registry of Credit Unions is supportive of credit union business model development, including the provision of longer term lending, as part of a balanced and sustainable loan portfolio.

The publication of this review is timely, as credit unions consider the strategic advantages of this type of lending, particularly in light of the detailed guidance we recently released on Long Term Lending[1].  The provision of house loans can be a worthwhile part of the business model for some credit unions but it requires detailed and critical assessment of both the costs and benefits involved.  

The Registry will work closely with credit unions to remediate the risks identified as part of this review and will continue to ensure that credit unions have robust governance, risk management and operational capabilities to underpin the business model development needs for the future.

We expect all credit unions to review the findings and recommendations set out in the report and consider how these can inform decision-making when considering the provision of house loans to members, including ensuring the appropriate systems and controls required are in place to offer such loans.”

Notes:

• For credit unions, a ‘house loan’ means a loan made to a member secured by property for the purpose of enabling the member to:

a)      have a house constructed on the property as their principal residence;

b)      improve or renovate a house on the property that is already used as their principal residence;

c)       buy a house that is already constructed on the property for use as their principal residence; or

d)      refinance a loan previously provided for one of the purposes specified in (a), (b) or (c) for the same purpose.