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News Now: January 27, 2015

RBC2 changes, improvements, outlook detailed in CUNA webinar

WASHINGTON (1/27/15)--Well over 600 credit unions tuned into the Credit Union National Association's webinar on the National Credit Union Administration's revised risk-based capital proposal (RBC2) Tuesday, as CUNA President/CEO Jim Nussle highlighted the advocacy strength of the organization's three-tiered system.

CUNA officials and NCUA's Larry Fazio prepare to discuss the agency's revised risk-based capital proposal duirng a CUNA webinar Monday. From left: CUNA's Chief Policy Officer Bill Hampel, Chief Operating Officer Rich Meade, President/CEO Jim Nussle, Fazio and CUNA Deputy General Counsel Mary Dunn. (CUNA Photo)
That system, comprised of CUNA, the state credit union leagues and credit unions, helped spark positive changes in the NCUA's initial risk-based capital proposal, and are present in RBC2, Nussle said.

"Our work has paid off by greatly reducing the impact and reach of NCUA's risk-based capital proposal," Nussle said. "Over the last 10 days, we here at CUNA have had a chance to look very carefully at the RBC2 rule, and while we still believe it may be a solution in search of a problem, there's been some substantial improvements over where we were a year ago, and we're pleased about that."

The proposal is expected to be published in the  Federal Register  today, which marks the start of the 90-day comment period.

NCUA Director of Examination and Insurance Larry Fazio gave a presentation during the webinar and broke down some of the reasoning behind the agency's changes to the proposal.
Fazio said the risk weights were better calibrated in the RBC2 proposal to recognize that credit unions perform better in a financial crisis. The weights were also fine-tuned to better identify only outlier credit unions when it comes to risk.

Based on CUNA's analysis of the proposal using September 2014 data, 14 credit unions would be downgraded in their risk-based capital standard in the RBC2 proposal, a "significant improvement," Nussle noted, over the 163 that would have been downgraded under the first plan. The original proposal would have have increased by $6.4 billion the amount of capital credit unions would need to hold in order to remain well-capitalized.  With RBC2, that amount would fall to $632 million.
"CUNA continues to question the need for a new risk-based capital proposal," said Mary Dunn, CUNA's deputy general counsel, during the webinar, but added,  "Having said that, we are very pleased about the number of changes included in the revised proposal."

A few of the many notable changes include:
  • Removal of interest-rate risk, the entire allowance for loan and lease losses being included in the risk-based capital ratio numerator;
  • Concentration tiers for first liens, junior liens and commercial loans reduced from three to one;
  • Separate risk weights for share secured, secured and unsecured consumer loans; and
  • No separate risk weight for credit union service organization loans or investments.
Although the NCUA did not add a provision on supplemental capital to RBC2 as advocated by CUNA, the agency board has asked stakeholders to comment on whether supplemental capital should be permitted in the context of this rule.
CUNA's Chief Advocacy Officer Ryan Donovan has stated CUNA's strong support for the ability of credit unions to use supplemental capital, both for this proposal and for the purposes of meeting prompt corrective action requirements. "This will be one of the issues we raise in our comment letter," he noted after the webinar.

CUNA flagged its ongoing concerns regarding the RBC2 plan.  They include: whether or not the two-tiered risk-based capital system is permitted under the Federal Credit Union Act; the question of whether the NCUA should consider more factors than asset size when determining a credit union to be "complex;" and the need for complex credit unions to continually assess their overall capital adequacy on an ongoing basis.

Credit union stakeholders are encouraged to submit questions about the proposal to CUNA, and the organization will be posting an updated frequently-asked-questions document with answers as they become available.

For those who missed the webinar, or had trouble calling in, a recording will be available later this afternoon. Follow the Twitter-based @NewsNowLiveWire to get an alert as soon as the webinar is available.

Fed unveils strategies for U.S. payments system improvements

WASHINGTON (1/27/15)--A paper released Monday by the Federal Reserve features the agency's recommendations for improving the payment system in the United States from the perspective of payment system service providers.

"Strategies for Improving the U.S. Payment System" examines ways to create a "safe, efficient and broadly accessible" system, which the Fed says is vital to the American economy.

The Fed previously released a consultation paper on this topic in 2013. The Credit Union National Association filed a comment letter in response to that paper, praising the agency's approach at looking into ways to improve the payment system.

"CUNA appreciates the Fed's willingness to work with CUNA and listen to the concerns of credit unions in developing its paper on the future of the payments system. I have asked my staff to review it in detail and work with our Payments Subcommittee on follow-up," said CUNA President/CEO Jim Nussle. "As the next generation of a payments framework is developed, credit unions need the ability to access the latest technology without undue regulatory restrictions or high implementation costs."

According to the Fed, the payment system in this country is at a "critical juncture in its evolution," with a changing technological landscape that features high-speed data networks, sophisticated mobile devices and increasing real-time information processing. While this is changing the nature of commerce, rapid and evolving threats threaten security of data and the payment system itself.

To achieve these goals, the Fed has identified the following strategies to improve the payments system:
  • Actively engage with stakeholders on initiatives, including establishing and improving mechanisms for stakeholders to provide input and provide additional opportunities for those groups to stay informed about the latest developments;
  •  Identify effective approaches for implementing a safe, faster, ubiquitous payments capability. This will include establishing a faster-payments task force in the coming months and creating a framework for implementing faster payments by 2016;
  •  Work to reduce fraud and advance the safety, security and resiliency of the payment ssystem. This includes establishing a payments security task force to provide advice and determine priorities, as well as explore improvements to the Fed's anti-fraud and risk-management capabilities;
  •  Achieve greater end-to-end efficiency for domestic and cross-border payments, including developing a strategy to accelerate secure electronic business-to-business, person-to-person and person-to-business payments; and
  •  Expand the operating hours and other capabilities of Fed payments, risk-management services and interbank settlement for check payments. This includes same-day automated clearinghouse capabilities.
Nussle said CUNA looks forward to continuing to work with its payments system partners, which includes the Fed, NACHA--The Electronic Payments Association, the National Credit Union Administration and others.

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Leagues, CUs batten down hatches for NE blizzard

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MADISON, Wis. (1/27/15)--State league offices and credit unions in the Northeast prepared for Winter Storm Juno by closing offices and advising members to stay safe.
Forecasters expect blizzard conditions and more than 2 feet of snow in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York and Rhode Island through Wednesday ( Jan. 26).
State officials put travel bans in place, closed schools and warned of widespread power outages. Anticipated high winds will cause coastal flooding as well.
The New Jersey Credit Union League office announced it will be closed today and will be monitoring credit union closures and other weather-related issues.
Many employees of the Maine Credit Union League and Synergent will be working remotely today because of the anticipated blizzard conditions. "We are confident that the safety of our employees will be best served as will our ability to continue to serve our credit unions during what is anticipated to be a dangerous winter storm in many parts of the state," the league noted in a memo to its member credit unions.
The Cooperative Credit Union Association also will operate in a business continuity mode today.
Credit unions again are turning to social media and using their websites for status updates. Merrimack Valley FCU, Lawrence, Mass., with $510 million in assets, will be closed today and expects a late opening of 10 a.m. (ET) Wednesday, according to its website.
Navigant CU, Smithfield, R.I., with $1.4 billion in assets, canceled its annual meeting, which had been scheduled for Monday night.
A winter weather checklist is available from Agility Recovery, a CUNA Strategic Services strategic alliance provider, as well as a downloadable emergency contact card . It also suggested residents charge all electronic devices in case power does go out.

Chicago Tribune column: CU membership worth the switch

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CHICAGO (1/27/15)--Gregory Karp, a Chicago Tribune financial columnist, recently offered simple tasks for consumers to make 2015 more prosperous. Among them: Join a credit union.
As cooperatives, credit unions are among the financial institutions that charge fewer fees and lower loan rates than the megabanks.
"It can be worth the short-term hassle of changing over your accounts," Karp wrote in the Chicago Tribune (Jan. 25).
Among the resources Karp offers readers to find a credit union that is right for them is .
Karp also suggested setting up a separate credit union account "to squirrel away cash" in an emergency fund.

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Data security, breach hearings highlight this week in Congress

WASHINGTON (1/27/15)--Several hearings on data and cybersecurity will take place in both houses of the U.S. Congress this week. The House commerce, manufacturing and trade subcommittee has announced the witness list for its "What are the Elements of Sound Data Breach Legislation?" hearing, scheduled for 10 a.m. (ET) today.

The witnesses are:
  • Elizabeth Hyman, executive vice president of public policy, Tech America, powered by CompTIA;
  • Jennifer Glasgow, chief privacy officer, Acxiom Corp.;
  • Brian Dodge, executive vice president of communications and strategic initiatives, Retail Industry Leaders Association; and
  • Woodrow Hartzog, associate professor, Cumberland School of Law, Birmingham, Ala.
Also starting today at 10 a.m. (ET), the full House Financial Services Committee will hear from Federal Housing Finance Agency (FHFA) Director Mel Watt, who will provide an update on sustainable housing finance.

The Credit Union National Association has written a letter to the committee in advance of the hearing, urging the committee to encourage the FHFA to withdraw or "substantially revise" its proposal involving changes to the Federal Home Loan Bank program (FHLB) membership requirements.

"CUNA questions the need for any change in FHLB membership for depository institutions at this time. We are particularly concerned that the proposal would apply membership eligibility rules on an ongoing basis, creating uncertainty for Federal Home Loan Bank members and establishing different treatment for similarly sized credit unions and banks," reads the letter, signed by CUNA President/CEO Jim Nussle.

The letter also includes a copy of CUNA's comment letter to the FHFA, where it outlined its many concerns with the proposal.

Later today, starting at 2 p.m. (ET), the House subcommittee on research and technology will host a hearing titled "The Expanding Cyber Threat." The hearing will feature private sector and government experts who will address issues of cybersecurity and personal security and security in the face of cyberthreats, attacks and breaches.

On Wednesday, the Senate Homeland Security and Governmental Affairs Committee will host a hearing , titled "Protecting America From Cyberattacks: The Importance of Information Sharing." The hearing will examine cybersecurity threats facing American businesses and other organizations, as well as ways to mitigate those threats.

Also expected this week, the Senate Banking Committee and Senate Small Business and Entrepreneurship Committee will host organizational meetings.

Ill. reg. settlement returns $16M to CUs in fee credits

CU System
NAPERVILLE, Ill. (1/27/15)--For the fifth consecutive year, state-chartered credit unions in Illinois have received a credit in regulatory fees--the result of a settlement negotiated by the Illinois Credit Union League (ICUL) with the state of Illinois.
The latest aggregate credit of $962,384--79% of the total 2014 fourth-quarter regulatory fees--brings the cumulative sum to nearly $16 million.

"There aren't too many examples of an association actually being the cause of a return of money to its members," said league President/CEO Sean Hession. "The real victory is the nearly $16 million in credits that Illinois state-chartered credit unions have received in the aggregate as a result of the settlement reached with the state of Illinois. We will continue to have dialogue with the state about the utilization of the regulatory fees it collects to enhance the exam process."
Illinois state-chartered credit unions receive credit for the overpayment in regulatory fees made under then-Gov. Rod Blagojevich administration's fee escalation and transfer budgetary arrangement. 
Under that arrangement, regulatory fees paid by Illinois-chartered credit unions--as well as banks, savings banks, and savings and loan associations--were escalated far above the actual budgetary cost of operating their respective regulatory agencies. With accompanying amendments to the State Finance Act, surplus monies collected were then transferred to the General Revenue Fund and used for expenses other than supervision.
The regulatory fee credits continue because of legislation initiated by ICUL to implement the court-approved settlement of the regulatory fee case it filed against Blagojevich in 2004. The settlement was signed into law by then-Gov. Patrick Quinn effective April 6, 2009.
The 2009 legislation codified a rate reduction in regulatory fees on a going-forward basis and reduced the Credit Union Fund margin that triggers a credit back to Illinois state-chartered credit unions.

"The most recent credit shows the prosecution and favorable settlement of the regulatory fee case nearly six years ago remains advantageous for our credit unions today and is an excellent example of the value of league affiliation," said Stephen Olson, league executive vice president/general counsel.

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Hybrids 'dominate' ARM offerings: Freddie survey

McLEAN, Va. (1/27/15)--Hybrid adjustable-rate mortgages (ARMs) are the most popular ARM offerings from lenders, according to Freddie Mac's annual Adjustable-Rate Mortgage Survey. This is the 31st year of the survey , which was conducted Jan. 5-8 on prime loan offerings.

Hybrid ARMs combine elements of fixed- and adjustable-rate mortgages. It has an initial fixed-interest rate period (generally three to 10 years), followed by an adjustable-rate period, which is adjusted annually.
Click to view larger image Click for larger view

According to Freddie Mac, the 5/1 hybrid is the most popular ARM. This means the rate is locked in for five years, then it will reset annually. The average 5/1 rate is 2.83% compared with 3.63% for a 30-year fixed. After 5/1 loans, 7/1, 3/1 and 10/1 are the next most common.

Freddie's survey found that the initial interest rate was lower for all ARM products compared with last year. One-year ARMs and 5/1s were down 0.2 percentage points, while 10/1s were down 0.3 percentage points.

In early January, the interest rate savings for a 5/1 with a 30-year term, the most common ARM offered, was 0.75 percentage points better than a 30-year fixed rate loan. For a loan of $250,000, the monthly principal and interest payment for a 5/1 would be about $103 less than the 30-year fixed over the first five years of the loan.

"The average loan size for a conventional ARM for home purchase was more than $400,000 during 2014 and about double the size of an average fixed-rate loan, according to data from the Federal Housing Finance Agency (FHFA)," said Frank Nothaft, Freddie Mac vice president/chief economist. "On a $400,000 loan, a family would save about $9,000 during the first five years of a 5/1 hybrid compared with a 30-year fixed-rate loan, based on interest rates collected in our survey."

During 2014, ARMs comprised about 10% of home purchase loans, according to FHFA data.

Click to view larger image Above is a five-year history of credit union reports on balloon/hybrid first mortgages outstanding and originated year to date. (Source: CUNA)
"If fixed-rate loans become more expensive and home values rise further, we expect more consumers to take another look at ARMs and project the ARM share rising to 12% of the conventional home-purchase market in 2015," Nothaft said.

Credit unions have seen growth year-over-year in balloon/hybrid mortgages. The average such loan has risen to $274,879 from $194,094 in 2010, according to Credit Union National Association data. The value of outstanding loans rose 20.8% from 2010 to 2011, 11.8% from 2011 to 2012, 28.4% from 2012 to 2013 and 12.7% from December 2013 to September 2014.

Times Square billboard thanks CUs for CMN Hospitals support

CU System
WASHINGTON (1/27/15)--A big commitment deserves a big thank you, and that's why Children's Miracle Network (CMN) Hospitals will celebrate Credit Unions for Kids' support with a billboard in Times Square.
On Monday, CMN Hospitals started running an ad on the large digital billboard in Times Square, acknowledging the support of the credit union movement for its charity of choice.
Credit Unions for Kids ( CU4Kids ) is the third-largest corporate contributor to CMN Hospitals, topping $130 million in contributions from credit unions since 1996.
Last year, the one-day Shop for Miracles event--held on International Credit Union Day in October--netted more than $450,000 thanks to the widespread participation from credit unions nationwide.
Credit unions pledged 25 cents, or a different predetermined amount, to their local CMN Hospital for each transaction made by members with their credit union-issued debit or credit cards.
More than 100 credit unions from 33 states participated.
Click to view larger image Children's Miracle Network Hospitals will run a 29-by-56-foot ad in New York's Times Square acknowledging the support from Credit Unions for Kids and CO-OP Financial Services. It will be positioned across from the NASDAQ sign and run through February. (Credit Unions for Kids Photo)
The billboard, located at 1500 Broadway, also recognizes CO-OP Financial Services' contribution of $1 million per year to CMN Hospitals via matching funds for Credit Unions for Kids fundraisers. The 29-by-56-foot ad, which is located across from the NASDAQ sign, will run through February.
Shop for Miracles was only one of the many ways credit unions showed their commitment to CU4Kids. Many take part in Miracle Jeans Day or hold special events of their own.
Times Square is no stranger to the "people helping people" message though. For three months in 2013, the 42nd Street billboard shined with the message that credit unions are "a smarter choice" when the Credit Union National Association ran ads touting the credit union difference and directing people to visit ( News Now April 16).

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