Monday 10 December 2018

Credit unions 'failing to carry out proper checks when issuing mortgages'

'Credit unions are anxious to expand more into mortgage lending as demand for small consumer loans is weak'
'Credit unions are anxious to expand more into mortgage lending as demand for small consumer loans is weak'
Charlie Weston

Charlie Weston

Concerns have been expressed about how credit unions go about issuing mortgages following a probe by the Central Bank.

The investigation found that some credit unions did not properly check out if members were able to service home loans, and there was a lack of supporting documentation in some cases.

In a stark summary of its findings, the Central Bank referred to "inadequate oversight" by credit union boards of directors and their internal control functions.

Credit unions are anxious to expand more into mortgage lending as demand for small consumer loans is weak.

Small numbers of credit unions already offer mortgages but they are limited in what they can lend by regulations. They want the regulations eased.

In what is called a thematic review of 16 unnamed credit unions, the Central Bank found some of them are already issuing mortgages without putting a properly developed business plan in place.

A business plan sets out how an entity operates, its goals, reasons they are attainable, and plans for reaching them.

The report says some credit unions have issued mortgages without implementing a business plan for this type of loan.

"Additionally, during the review, we found weaknesses in underwriting practices, risk oversight and compliance systems."

Some credit unions had failed to get proof of income and other documents needed to support a decision to grant a loan. Evidence was also found that borrowers were not stress-tested - this is where their ability to pay a higher interest rate is assessed.

The processes around mortgages for self-build homes were not up to standard, the Central Bank said.

Some files did not have a property valuation. But not all of them displayed weaknesses, with some credit unions seen to have robust practices for mortgage lending.

The probe comes as the Irish League of Credit Unions is about to launch a pilot study for mortgage lending in a bid to bring a more professional and standardised approach to it.

Global loan-servicing firm Link ASI has been signed up by the league to provide administrative services for the loan offering.

Under the mortgage plan being hatched by the League of Credit Unions, a standardised mortgage product would be offered by each credit union that takes part in the initiative.

The other representative body, the Credit Union Development Association, is behind a bid by a group of 32 credit unions aiming to get the rules eased by showing they are capable of handling the complexities of home-loan lending.

Read more: Revealed: Half of credit unions heading for collapse

Irish Independent

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