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NCUA Chairman Todd M. Harper Remarks at the Women in Housing and Finance Luncheon

December 2021
NCUA Chairman Todd M. Harper Remarks at the Women in Housing and Finance Luncheon
Chairman Todd M. Harper

NCUA Chairman Todd M. Harper at the agency's headquarters in Alexandria, Virginia.

As Prepared for Delivery on December 9, 2021

Thank you, Mary Martha, for that generous introduction, and good afternoon, everyone! After participating in countless virtual events throughout what has been a truly extraordinary and unprecedented 21 months, I am delighted to join you for a second time.

By maintaining its position as a recognized and respected forum for policy development and dialogue, Women in Housing and Finance has truly been the industry’s standard for more than 40 years. So, I am grateful to Kate Rock, Mary Martha, as well as WHF Programming Committee co-chairs, Tiffani Moore, and Kara Ward, for inviting me to discuss the priorities and challenges of regulating financial institutions.

U.S. Economic Situation and Near-Term Outlook

Let me begin my remarks today by discussing the economic outlook. Since experiencing a sizable economic contraction at the start of the pandemic, the economy has generally continued its recovery. And, it has surpassed its pre-pandemic peak in size. More than 18 million jobs have been added back to non-farm payrolls, and the unemployment rate fell to 4.2 percent in November. 

That said, the labor force is still short about 3 million workers, compared with its February 2020 peak, and the labor force participation rate has hovered near a four-decade low for more than a year. Nevertheless, the economic outlook is still relatively positive, though the Federal Reserve notes that supply chain disruptions will continue to affect business and consumers in the coming months.

Additionally, there are other challenges on the horizon. For example, Federal Reserve Chairman Jerome Powell has noted “the recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation.” Chairman Powell also said, “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Such economic uncertainty, along with the potential for an increase in number of COVID-19 cases, financial institutions and regulators will need to carefully monitor pandemic trends and economic developments in the first half of 2022.

Inflation and Interest Rate Risk

Another area that financial institutions and regulators should monitor carefully is inflation and the potential for interest rate risk. It has been almost 40 years since most Americans had to worry about inflation. Yet, inflation remains elevated at 6.2 percent, according to the consumer price index. Consumer inflation expectations are at a 13-year high, but consumer optimism about future income growth has improved. 

Overall, inflation is widely expected to ease, especially after supply chain disruptions end. However, the Federal Reserve acknowledged that it now appears that factors pushing inflation upward, such as difficult to predict supply disruptions, will linger well into next year. In addition, the Federal Reserve notes with the rapid improvement in the labor market, slack is diminishing, and wages are rising at a brisk pace. All of these conditions add additional inflationary pressure. Persistently high inflation could lead the Federal Reserve’s Federal Open Market Committee to remove its monetary policy accommodation earlier and more aggressively than expected, boosting short-term interest rates.

Tighter credit conditions typically constrain consumer and business borrowing and spending and cause economic growth to slow, which in turn has downstream effects across the economy. If short-term rates rise more than long-term rates, the yield curve will flatten, putting downward pressure on net interest margins at many credit unions and banks. Although economic forecasts point to a near-term steepening of the yield curve, the overall interest rate environment will remain challenging, especially for credit unions and other financial institutions that rely primarily on investment income.

The ability to manage interest rate risk will remain a crucial determinant of a financial institution’s performance going forward. To remain on a sound footing, all financial institutions will need to continue to pay careful attention to the fundamentals of capital, asset quality, earnings, and liquidity in the months ahead.

Economic Impact on Households

Just as we are paying attention to the health of financial institutions, we also need to look at the health of households. The pandemic-induced recession hit poorest households the hardest, and for these households, the recovery could take much longer. Improving labor market conditions have helped many households to make ends meet once again, but pandemic-relief efforts like forbearance programs, eviction and foreclosure moratoriums, and supplemental unemployment insurance payments also provided critical support. 

The expiration of these support programs, along with increasing prices for critical items like food, energy, transportation, and housing, will lead to financial stress for many households. In fact, earlier this week, The New York Times featured an analysis about how the excess savings rate for the lowest quartile of households is quickly dwindling. The decline in cash reserves for these households “has vast implications for the working class and could dampen consumer spending, a large share of economic activity.” And, that stress could lead to rising delinquencies and charge-offs at credit unions, banks, and other financial institutions in the coming months.

Low-income households and communities of color are especially vulnerable. Research by the Federal Reserve Bank of New York shows that mortgage borrowers lingering in forbearance tend to have lower credit scores and live in lower-income communities. What is more, the share of subprime borrowers in forbearance jumped from one in four in June 2020 to two in five in June 2021. And, mortgages held by borrowers living in the lowest income neighborhoods are more likely to be in forbearance than mortgages in higher income areas.

Additionally, data from the Census Bureau’s Household Pulse Survey showed that one out of three adults surveyed in late September and early October of this year reported that they live in households where eviction or foreclosure is either “very” or “somewhat likely” in the next two months.

Working with Borrowers

With this potential for borrower financial stress, financial institutions of all sizes need to prepare for increased credit risks and greater defaults. All financial institutions must work with customers experiencing financial difficulties. In fact, for borrowers experiencing financial hardship, a prudently underwritten and appropriately managed loan modification, consistent with consumer financial protection laws and safe-and-sound lending practices, is often a win for the borrower, a win for the financial institutions, and a win for communities and our economy.

To support credit union efforts to prevent families from falling between the cracks, the NCUA — like each of the other federal banking agencies — has instructed its examiners to refrain from criticizing a credit union’s efforts to provide prudent relief for members, when conducted in a reasonable manner with proper controls and management oversight.

Climate Financial Risk

Another major financial risk — one that is already impacting the lives and finances of many — is climate financial risk. The data about extreme weather events and climate risk are clear. Climate change is accelerating and the number — and costs — of climate-related natural disasters is rising, often hitting disadvantaged communities the hardest. 

According to the National Oceanic and Atmospheric Administration, we had a record-breaking 22 separate billion-dollar weather and climate disasters across the United States in 2020. These hurricanes, severe storms, drought, and wildfires cost a combined $95 billion in damages. And, the markets are responding to this change. Some of the largest participants within the financial services industry have begun adjusting their business plans and committed to achieving net-zero carbon emissions in their activities.

In my role as Chairman of the NCUA and as voting member of the Financial Stability Oversight Council, I believe it is imperative that regulators address the financial risks related to climate change and manage that risk within appropriate regulatory and supervisory frameworks. For example, by measuring, monitoring, and mitigating such risks, we at the NCUA, can fulfill our core obligations of maintaining the safety and soundness of credit unions, protecting consumers, and safeguarding the National Credit Union Share Insurance Fund. By managing this risk, we will also support U.S. economic growth.

Additionally, regulatory agencies should consider not only the macroeconomic impact of climate change, but also the microeconomic context. Most credit unions, for example, focus on mortgage, auto, and small business lending. But over time, climate financial risks will affect the value of collateral like homes and commercial properties and vehicles, especially in areas affected by extreme weather and as we transition to electric and hybrids.

Additionally, a credit union’s field of membership is often tied to a specific business, like an oil refinery or manufacturing facility, or a community linked closely to farming or centered in specific geographic areas. The movement to renewable energy and changes in weather patterns will affect their operations. To remain resilient, such credit unions should consider adjusting their fields of membership or altering their lending portfolios.

Experience and Priorities

My experience working on financial services policy over more than two decades has informed my regulatory philosophy. In short, I believe that effective financial institutions’ regulators need to be: fair and forward-looking; innovative, inclusive, and independent; risk-focused and ready to act expeditiously when problems are identified; and engaged appropriately with all stakeholders to develop effective regulation and efficient supervision.

This regulatory philosophy aligns with the work of the Federal Financial Institutions Examination Council in promoting uniformity in the regulation, reporting, and supervision of financial institutions. Since I became the FFIEC Chair in April, the Council has continued its work related to ensuring a smooth transition away from LIBOR, strengthening cybersecurity infrastructure, and supporting examiner education. And, in the year ahead, I anticipate that the FFIEC will continue the progress previously made on each of these and many other matters. 

Additionally, I have made two other issues a priority. We have renewed our focus on appraisal system regulatory governance, infrastructure, equity, and quality. And, we are looking into the issue of economic equity and justice.

Combating Appraisal Bias

I have often said in my public remarks that the NCUA must work to advance economic equity and justice, a goal that fully aligns with the credit union system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means. 

According to the U.S. Census Bureau, nearly three out of four non-Hispanic, white households own their homes. In stark contrast, less than one in two Black and Hispanic households have achieved the dream of homeownership. People of color have long been denied equitable access to our housing system, including the appraisal system. Through my work on appraisal policy issues for over two decades, I have found that the presence of bias in home appraisals is a significant obstacle to closing the wealth gap and creating sustainable homeownership.

A recent Freddie Mac study of 12 million appraisals found that homes in Black and Latino neighborhoods are valued lower than similar properties in white communities, and multiple media investigations about this problem have reached the same conclusion, including recent local reports about appraisal bias in Prince George’s County. If we are going to fix this well-documented problem, then financial institutions regulators must engage with stakeholders to explore the reasons for these inequities and develop viable solutions to address this problem.

More than a decade ago, in the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress enacted reforms to address problems in the appraisal industry. Among other things, these reforms strengthened the powers of the FFIEC’s Appraisal Subcommittee, which supervises state regulatory programs. Those reforms addressed appraisal independence and appraisal inflation. However, as the Freddie Mac study and other reports demonstrate, we continue to see stresses in the appraisal system, including bias based on race. 

At the NCUA, we are studying the causes of the disparities in appraisal and valuation services to inform our future policymaking. We are also working with other agencies on joint rules to establish quality control standards for automated valuation models. For example, we need to ensure that algorithms do not produce unintentional bias in their results and violate fair lending laws.

Additionally, as a member of the multi-agency Property Appraisal and Valuation Equity Task Force, the NCUA is committed to combatting any form of discrimination in appraisals by ensuring that government oversight and industry practices advance equity in real estate valuations, tackling valuation bias through consumer education and practitioner training, ensuring equity in valuation by making available high-quality data, and creating a comprehensive approach to combating valuation bias through enforcement and other efforts.

Since joining the NCUA Board in 2019, I have spoken with thousands of industry leaders, state regulators, and consumer and civil rights advocates about the importance of financial inclusion, economic equity, and necessary reforms to the appraisal system. Existing statutes like the Fair Housing Act, the Equal Credit Opportunity Act, and Title 11 of the Financial Institutions Reform, Recovery, and Enforcement Act aim to address this problem.

To achieve lasting change, we must use these laws to regulate, supervise, and enforce against appraisal bias. Addressing bias within the appraisal system is a critical step in addressing the wealth gap and ending centuries of systemic financial and economic discrimination. It is important work, and it is long overdue.

The FFIEC’s Other Work

Without question, the economic fallout of the COVID-19 pandemic has heightened the attention of the FFIEC’s member agencies on matters of safety and soundness, capital, and liquidity, as well as consumer financial protection. As NCUA Chairman, my priority is to ensure that the credit union system and the Share Insurance Fund remain strong and that consumers and credit union members are protected as the clouds of the pandemic are lifting.

As noted earlier in my remarks, however, we are not entirely out of the woods of the pandemic’s financial and economic disruptions just yet. And, the pandemic has exacerbated the inequities experienced by underserved communities. Moreover, the need to address years of inequity was at the forefront of nationwide demonstrations last year, including those after the murder of George Floyd.

My work on the FFIEC, therefore, must seek to advance access to affordable and equitable financial services for all communities. Accordingly, economic equity and justice is one of the FFIEC’s priorities during my time as Chairman. In that regard, the Council is assessing its educational programming related to this issue. The Council has also explored the peer metrics and supervisory standards used to assess the performance of minority depository institutions and other banking entities focused on serving low-income communities.

I have often heard from these financial institutions that we need to approach regulation and supervision differently. For example, they often note that higher expense ratios are needed and justified as they work with borrowers at a higher risk for default, but that this one-on-one work with consumers often results in mitigating charge-offs. Ultimately, we must ensure that all consumers have the same levels of protection and fair and equal access to safe and affordable products and services, regardless of their financial provider of choice.

In sum, I see the need for the FFIEC to stay focused on long-standing projects and priorities like LIBOR, cybersecurity, and examiner education; renew attention on the issues of appraisal regulatory structure and oversight, including rooting out bias; and address matters of economic equity and justice within the financial system.

This is an ambitious agenda, but it is also important and necessary work.

Embracing DEI in the Financial Services System

Finally, I would like to address one final topic in my remarks today, one that I am sure speaks to the vital mission of this organization: the need for greater diversity, equity, inclusion and belonging in the broader financial services sector. 

One month ago, at the start of November, the NCUA hosted its second DEI Summit with more than 1,300 registrants. The summit was an excellent opportunity for participants to share experiences, expertise, successes, and challenges facing the credit union system and broader financial services industry when it comes to promoting greater diversity, equity, inclusion, and belonging. At their core, diversity, equity, inclusion, and belonging are far more than policies and principles. They are fundamental practices — and behaviors — that must be acted upon each day. As I said during the summit, intentions are meaningless without concrete actions and behaviors to support these values and to bring about change. The financial services sector can advance diversity, equity, inclusion and belonging by implementing these principles internally within your organizations, externally with your customers, and even more broadly, with the endeavors it finances and supports.

Diversity, equity, inclusion, belonging — as well as economic equity and justice — are vital to the continued health and success of the financial services sector, especially in terms of strategy, sustainable growth, innovation, talent acquisition, and employee retention. DEI allows you to attract new employees and leaders from a broader talent pool. DEI gives you broader perspectives that lead to better decisions. And, DEI will allow for the creation of fair and innovative products and services to better meet the needs of customers and communities as our country becomes more and more diverse.

Greater diversity, equity, inclusion, and belonging in the broader financial services sector will not happen overnight or by happenstance. It will take a concerted effort by all of us, practitioners, advocates, industry leaders, and regulators, and it will require us to move beyond our own swim lanes and comfort zones. But, these efforts will ensure the financial services sector is more inclusive and representative of the nation as a whole. This, in turn, will lead to greater economic prosperity and a strengthened democracy.


Two years ago, on a trip back to my home state of Indiana, I stopped at the Kurt Vonnegut Museum and Library. Best known for Slaughterhouse Five, Vonnegut was one of the most influential and innovative writers of the 20th Century. In his work, he offered us sound advice on the human experience, including when he once observed: “We have to continually be jumping off cliffs and developing our wings on the way down.” Over the last 21 months with the pandemic, I suspect many of you have had to develop your wings along the way.

COVID-19 has changed almost everything, from how we live, work, and socialize, to how we think about, and plan for, the future. It has also changed the way in which many financial services and products are provided, and it has changed the way in which we, as regulators, conduct examinations and think about risk. But, if the financial services community works together to navigate through the pandemic-induced economic crisis smartly and safely, we will “develop our wings on the way down” and emerge stronger from it.

Thank you for allowing me to speak with you today. I look forward to answering any questions you may have.

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