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News Now: August 26, 2014

NEW: J. Mark McWatters sworn in as NCUA board member

DALLAS (8/26/14, UPDATED 11:30 a.m. ET)--J. Mark McWatters was sworn in today as a National Credit Union Administration board member, the agency just announced. Outgoing board member Michael Fryzel performed the swearing in at Rep. Jeb Hensarling's (R-Texas) Dallas office. McWatters will join NCUA chair Debbie Matz and vice chair Rick Metsger to form the three-person board.

"It is my distinct honor and privilege to join the NCUA Board," said McWatters. "I wish to thank President Obama for submitting my nomination to the Senate, Senate Minority Leader [Mitch] McConnell for recommending my nomination to the President and the Senate for confirming my nomination. As a board member, I look forward to addressing the regulatory and administrative law challenges facing the credit union system as it continues to expand and evolve as a critical and fundamental component of the financial services industry."

Credit Union National Association interim President/CEO Bill Hampel said he and CUNA look forward to working with McWatters and meeting with him as soon as he is settled.  Priorities for discussion will include NCUA's risk-based capital proposal, examination concerns, the need for regulatory relief and the agency's budget. CUNA sent a letter to McWatters today welcoming him to the credit union system.

"Congratulations to Mark McWatters on becoming the newest member of the NCUA board today. We look forward to working with him, along with the other board members, on the key regulatory issues facing credit unions today," Hampel said.

Previously, McWatters was the assistant dean for graduate programs at Southern Methodist University's School of Law. He also served as a member of the Troubled Asset Relief Program Congressional Oversight Panel, and prior to that he practiced for over twenty-five years as a domestic and cross-border tax, corporate finance and mergers and acquisitions attorney.

McWatters received his J.D. degree from the University of Texas School of Law, a Master of Laws degree from Columbia University School of Law and an Master of Laws degree in Taxation from New York University School of Law. 

Each board member serves a staggered six-year term, with McWatters scheduled to serve until August 2019.

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Late 2Q Call Reports: 75 CUs could face civil money penalties

ALEXANDRIA, Va. (8/26/14)--The number of late call report filers in the second quarter dropped to 75 credit unions from 104 in the first quarter, but National Credit Union Administration Chair Debbie Matz said the goal still is full compliance.

Click to view larger image A breakdown of the second-quarter call report late filers, per National Credit Union Administration data. (CUNA Graphic)
The agency announced Monday that the late filers of second-quarter 5300 Call Reports now face potential civil money penalties. That number will likely decrease as the agency reviews each individual case and can waive civil money penalties if mitigating factors exist.

Four credit unions that filed late in the second quarter also filed late in the first quarter, and 63 of the late-filing credit unions have assets of less than $50 million. Fifty-five of the late filers are federally chartered credit unions. The NCUA said it will make public the names of late filers at a later date.

 After the agency reviewed the cases of the 104 credit unions that missed the first quarter call report filing deadline, 62 credit unions were ultimately fined, agreeing to civil money penalties totaling $57,750.

The NCUA reviews the cases to determine whether any of the late filers have mitigating circumstances that warrant a waiver of penalties. Those factors can include a credit union's filing history and other circumstances, such as a natural disaster, that prevented timely filing.

According to the agency, late filers should be notified in September of the penalties they face. Penalties are determined by three factors: size of the credit union, lateness in filing the call report and history of violations. All penalties will be sent to the U.S. Treasury, as required by the Federal Credit Union Act.

Starting in the first quarter of 2014, the NCUA announced the civil money penalties for late filers, which according to the agency, are meant "solely to deter late filing."

The NCUA has posted a video to its YouTube channel explaining the call report submission process.

Use the resource link below to access the video, as well as Matz's January letter to credit unions regarding the civil money penalties.

Ruben Gallego heads into Ariz. primary with CU support

WASHINGTON (8/26/14)--Credit union-supported Ruben Gallego will attempt to move closer to a congressional seat in Arizona's 7th Congressional District primary today. The district, which consists of Phoenix and suburbs such as Glendale, is currently represented by Rep. Ed Pastor (D), who announced he will not seek re-election.

Gallego is a former Arizona state representative, who also served in the Marines with a deployment to Iraq in 2003.

He is endorsed by the Mountain West Credit Union Association (MWCUA), and has been the recipient of the maximum $5,000 donation from the Credit Union Legislative Action Council (CULAC). MWCUA joined with five Arizona credit unions, along with CULAC, to send out direct mailers to almost 20,000 households with credit union members.

"Ruben was a strong advocate and supporter of credit union issues while serving in the Arizona House of Representatives," said Austin De Bey, vice president of legislative affairs for MWCUA. "He recognizes the important role credit unions play in the financial marketplace, and we believe he will continue his support of issues that will help credit unions serve their members as a member of Congress."

Trey Hawkins, vice president of political affairs, Credit Union National Association, said the mailers could be a "significant factor" in the election, which has historically been one with low voter turnout.

Gallego is part of a six-person field in today's Democratic primary, and the district leans heavily Democratic. His closest challenger is expected to be ex-Maricopa County Supervisor Mary Rose Wilcox.

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John Magill to leave after 9 strong years at CUNA

WASHINGTON (8/26/14)--Credit Union National Association interim President/CEO Bill Hampel praised John Magill, executive vice president for government affairs and special assistant to the president, who announced Monday he will leave his position at CUNA on Sept. 5.

Click to view larger image John Magill has been "a significant leader" at CUNA and will be "sorely missed," CUNA interim President/CEO Bill Hampel said Monday after Magill announced he would leave CUNA on Sept. 5.  Magill (left) is shown here discussing credit union matters with House Financial Service Committee Chair Jeb Hensarling (R-Texas). (CUNA Photo)
Hampel said of Magill, "He has been a significant leader in CUNA's advocacy team for almost nine years." Hampel added that Magill will be "sorely missed" and "we wish him well."

Magill, a 30-year veteran of Capitol Hill, joined CUNA in May 2006 as senior vice president of legislative affairs. He was promoted to the executive vice president post in July 2011.

During his years as an EVP, CUNA waged a battle to protect the credit union tax status as Washington policymakers considered tax code changes.

That effort was rewarded by the absence of credit union changes in a House Ways and Means Committee draft tax code reforms early this year. CUNA's pro-credit campaign included its groundbreaking "Don't Tax My Credit Union" social media blitz, which generated more than 1.3 million messages of support and garnered a Grassroots Innovation Award from the Public Affairs Council.

Also during Magill's tenure, CUNA has successfully advocated for a long series of credit union regulatory relief bills that have been introduced in the House and the Senate. Most recently, they include such legislation as the Senate's RELIEVE Act, to give credit unions parity to banks in a deposit insurance coverage issue; and, on the House side, such bills as one that orders a federal study the impact of the Federal Reserve Board's monetary reserve requirements, and a bill to ease some property appraisal requirements.

"It's been a fulfilling, rewarding experience and an important part of my life," Magill said of his time at CUNA. He noted that it is expected that a new CUNA president/CEO will be named in the next few weeks.

"So the timing is right for me to step into my next challenge in our nation's capital, where so many of us are fortunate to work and call home," he noted.

Magill said, however, credit unions folks should expect to him around from time to time as he continues to "help out on a few matters."

As executive vice president for government affairs and special assistant to the president, Magill provided strategic counsel on legislative and political issues while overseeing the day-to-day operations of those key advocacy areas. He also handled a number of administrative and other related matters inherent in the daily operations of the CUNA Washington office.

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CUNA: NCUA's securitization rule should allow CUs to securitize own loans

WASHINGTON (8/26/14)--The Credit Union National Association submitted a comment letter to the National Credit Union Administration Monday regarding two proposed rules, one on assets securitization and the other on safe harbors. While CUNA generally supports both proposals, the trade group recommends several changes and clarifications for the asset-securitization proposal, which would allow credit unions to securitize their own loans.

The NCUA's proposal would also allow credit unions to create special purpose vehicles to hold the assets collateralizing the securities, which CUNA also supports.

"Such authority would allow credit unions to create issuing entities, which are necessary to insure investors that the underlying assets are not reachable by creditors should the credit union become insolvent," the letter reads.

However, the proposal as currently constructed limits the authority of a credit union to securitize loans it has originated. CUNA believes this limits the benefits of the proposed rule, and advocates the restriction be removed.

"The ability to purchase loans for securitization will give credit unions without enough originations of a particular loan type increased opportunities to package their own loans," the letter reads. "In addition, credit unions may hold loans that they have purchased for other reasons prior to contemplating sponsoring a securitization. Credit unions should be able to include these loans in a securitization transaction for risk management."

The letter goes on to say that even if the agency does not allow other loans to be purchased for securitization, it should permit a credit union to purchase loans that it re-underwrites to be part of a securitization pool.

CUNA notes that the current proposal does not provide for those circumstances, and at a minimum, it should be clarified to state that such an action is permissible.

In addition, the rule does not address the role of credit union service organizations (CUSOs) in asset securitization. CUNA believes that loans originated by a credit union's CUSO should be included with loans the credit union securitizes through a special purpose vehicle that is not the CUSO.

"[The proposed rule] stated that securitization is not a pre-approved CUSO activity but we think it should be, both in originated loans that could be securitized by a credit union or allowing CUSOs to act as sponsors," the letter reads. "NCUA should also address whether multiple credit unions could utilize a CUSO to securitize loans and whether credit unions can participate with banks to facilitate securitizations."

CUNA's comment letter also addresses the NCUA's proposal safe harbor rule, which would provide a meaningful safe harbor irrespective of the legal characterization of the transfer. CUNA supports the NCUA's safe harbor rule as proposed.

Use the resource link below to access the proposed rule and CUNA's letter.

'Second chance' subprime auto loans necessary: Equifax

CU System
ATLANTA (8/26/14)--A fair and functioning subprime auto lending market is an essential element of a healthy economy, according to a new white paper from Equifax.
Subprime auto lending does have its critics. Some subprime lenders have been criticized for granting loans with terms unfavorable to borrowers, similar to the mortgage issues that precipitated the financial crisis. Others say subprime auto lending could create a bubble similar to the one that precipitated the recent recession.
But "second chance" auto loans help people obtain access to convenient transportation, which makes them more employable and offers them more opportunities for education and community involvement, according to the Equifax white paper, "Not Yesterday's Subprime Auto Loan."
In a well-regulated financial market, rates are typically driven by competitive pressures, and predatory or discriminatory behaviors are prohibited by law, the white paper said. Borrowers who have credit scores in the subprime range have proven over time to have higher incidences of default on future obligations and thus are usually offered credit at higher interest rates than those with prime-grade credit scores.
Regarding a potential subprime auto lending bubble, Equifax studied data aggregated from the credit reports of more than 210 million consumers in its credit repository. The evaluated data indicates that subprime lending in the auto sector has been fairly stable since 2012; that originations have been shifting toward the higher end of the subprime spectrum; and that recent subprime loans have been performing well.
"Furthermore, the lending landscape today is not the same as it was in 2007," the paper said. "Lending in the heyday of the credit boom often greatly underweighted any consideration of credit worthiness outside of a credit score."
The paper explains that lending has returned to the "good old days," both because lenders generally have a reduced appetite for risk and because regulatory scrutiny has increased. In the subprime auto lending area, lenders are much more likely to verify incomes. "Given this, loans originated with a 620 credit score today are likely to perform very differently from loans originated with a 620 credit score in 2007, when the loans were likely granted without full underwriting," the paper said.

Fourteen credit unions located throughout the country participate in Non-Prime Auto Loans, a partnership between the National Credit Union Foundation and the Filene Research Institute that tests the viability of subprime auto lending in credit unions (News Now July 28). Through the program, credit unions make loan decisions that focus on the member's overall relationship with credit union.

CU branches in Napa slightly rattled after 6.0 quake

CU System
NAPA, Calif. (8/26/14)--An early Sunday morning earthquake rattled the California wine country, and local credit union branches escaped relatively unscathed.
The 6.0 magnitude earthquake--the largest to hit the area since the 1989 Bay Area quake that registered 6.9--occurred about 3:20 a.m. Sunday and affected Napa and Sonoma counties. Commercial buildings in downtown Napa suffered damage, closing some buildings (MarketWatch Aug. 24).
One of those buildings was the old location for Santa Rosa-headquartered Community First CU. The $168 million-asset credit union opened its new, relocated branch--as planned--Monday morning.
"We are fully functional, and nothing was harmed," David Williams, vice president of marketing and human resources, told News Now. The credit union's employees were safe, and no one was hurt, he added.
"Living in an earthquake zone, it's always in the back of your mind," Williams said. "What is plan B, plan C, plan D, should it occur."
The credit union's new neighbors weren't so lucky Monday--a pizza parlor was closed because a cooler went out, and the nearby Lucky supermarket was closed for cleanup as well.
The old office is yellow-tagged and off-limits until it is deemed safe, Williams told News Now.
City officials advised people to avoid the downtown area where the Napa branch of Redwood CU, based in Santa Rosa, was located. Although service has been restored to the branch's ATM, the $2.38 billion-asset credit union advised its members to use caution when traveling in the area.
On its Facebook page, Redwood CU also encouraged members to visit its website to find additional Redwood branches and shared branch credit union locations.
The Napa and Vallejo branches of Vacaville-headquartered Travis CU, with $2.2 billion in assets, reported that both of those branches were open. Travis CU's Napa branch did sustain minor damage, according to Tina Ramos-Ingold, public affairs and consumer advocacy specialist at the California and Nevada Credit Union Leagues, but it is open.
Sacramento-based Golden 1 CU, with $8.4 billion in assets, reported that its branch was open for business, and members and staff were not affected.

Maine league adds co-op view to global Acadian Congress

CU System
WESTBROOK, Maine (8/26/14)--Maine Credit Union League President John Murphy participated in a symposium on cooperation and cooperatives organized in conjunction with the World Acadian Congress, held Aug. 8-24.
Click to view larger image Maine Credit Union League President John Murphy shared the benefits of credit union cooperation during a symposium at the World Acadian Congress. (Maine Credit Union League Photo)
The symposium, held in Degelis, Quebec, was also attended by Dave Desjardins, president/CEO of Acadia FCU, Fort Kent, Maine, with $10 million in assets, and league board member Luis Sanclemente, vice president, Acadia FCU (Weekly Update Aug. 22).
The World Acadian Congress took place Aroostook County, Maine; Quebec and New Brunswick, Canada. The league sponsored the event.
The symposium brought together community stakeholders, including member of Canada's Parliament, to share the experiences of organizations that have chosen the cooperative business model.
In his remarks, Murphy discussed how the cooperative structure and principles have enabled the success of Maine's credit unions, beginning when the first credit union was formed in Maine in 1921. Maine credit unions have 641,000 members.
Murphy described how cooperation has helped Maine credit unions serve members through the SURF Network, the largest surcharge-free ATM network in Maine, and the shared branch network, which has nearly three times as many branches than any single bank in Maine.
"Cooperation gives Maine credit unions the strength and ability to compete and grow in the marketplace," Murphy said.
He also noted the strong ties that Maine credit unions have to the French-Canadian and Acadian heritage. "Many immigrants came to Maine from Canada and, because they only spoke French, were often turned away from traditional financial institutions purely for that reason," he explained. "Many credit unions have their roots in those beginnings, especially in communities such as Lewiston, Waterville, Biddeford, Madawaska and Fort Kent."

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