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News Now: December 29, 2014

NCUA sues Wells Fargo as trustee of mortgage-backed securities

ALEXANDRIA, Va. (12/29/14)--The National Credit Union Administration has filed a lawsuit suit in federal court against Wells Fargo Bank, National Association, alleging the bank has failed to fulfill its duties as trustee for 27 residential mortgage-backed securities trusts.

The agency is suing in its capacity as liquidating agent for five failed corporate credit unions.

"Like other trustees against whom NCUA is pursuing claims, Wells Fargo neglected its statutory and contractual obligations to certificate holders, including the five corporate credit unions," said NCUA Chair Debbie Matz. "This litigation is intended to hold Wells Fargo accountable for losses caused by that neglect."

The NCUA's complaint states the value of the securities depended on the quality of the pooled mortgage loans the trusts contained, and the bank, as trustee, had contractual and statutory duties to protect the interests of certificate holders.

The complaint states that, despite knowing about defects in the mortgage loans, Wells Fargo failed to provide required notices to certificate holders and other parties. It also failed to take timely action to force the repurchase, substitution or cure of defective mortgage loans or otherwise preserve trust remedies.

"We are gratified the agency continues to take efforts to lessen losses to credit unions. We have been encouraging NCUA to take all reasonable actions necessary to maximize recoveries from the institutions that were responsible for the events that contributed to the corporate failures," said Eric Richard, Credit Union National Association general counsel. "Ultimately, we are hopeful that credit unions will share in the fruits of these efforts when the liquidations of the corporates is complete and all funds owing to the Treasury have been repaid."

Five corporate credit unions--U.S Central, WesCorp, Members United, Southwest and Constitution--purchased approximately $2.4 billion in residential mortgage-backed securities issued from the trusts between 2004 and 2007.

Those securities were faulty and lost substantial value, contributing to the failure of all five corporates.

The NCUA's complaint seeks damages to be determined at trial.

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Supervisory letter from NCUA provides MSB guidance

ALEXANDRIA, Va. (12/29/14)--The National Credit Union Administration has sent a supervisory letter to federally insured credit unions that provides guidance on dealing with money services businesses (MSBs).

The letter is intended to provide field staff with guidance on evaluating credit unions that provide services to such businesses.

MSBs are defined by the U.S Treasury's Financial Crimes Enforcement Network (FinCEN) as: dealers in foreign exchange; check cashers; issuers and sellers of traveler's checks or money orders; providers of prepaid access; money transmitters; or sellers of prepaid access. The U.S. Postal Service is also considered an MSB.

"MSBs can provide necessary and valued services to a community, and a credit union may consider providing services to MSBs that operate within its field of membership," the letter reads. "However, like any third party, MSBs can expose credit unions to certain risks, and NCUA expects credit unions to consider, monitor and mitigate those risks."

According to the agency, the risk posed by an MSB depends on the nature and scope of the operation. An MSB can be a large international money transmitter or a small business that offers financial services as a complementary business component.

"In general, larger MSBs may present off-balance-sheet risks by generating significant transaction volumes that could overwhelm smaller credit unions. Credit unions with only a few million dollars of assets could end up processing billions of dollars' worth of money services transactions," the letter reads. "Some MSBs even raise heightened risks of money laundering for drug cartels and terrorist groups."

The NCUA expects credit unions, as part of their due diligence process, to:
  • Perform the required customer identification program procedures;
  • Confirm that member MSBs register with FinCEN;
  • Confirm that member MSBs comply with state or local licensing requirements;
  • Confirm the member MSBs' agent status; and
  • Conduct a Bank Secrecy Act (BSA)/Anti-Money Laundering risk assessment to document the level of risk associated with the account and whether greater due diligence is necessary.
"To ensure compliance with the BSA regulations, credit unions are expected to assess the risks posed by each individual MSB account on a case-by-case basis, monitor and report any unusual activities and implement appropriate controls to manage any risk exposure," the letter reads.

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Lutheran FCU in Mo. chartered by NCUA, 3rd new FCU of 2014

ALEXANDRIA, Va. (12/29/14)--Missouri-based Lutheran FCU has become the third new federally chartered credit union of 2014, the National Credit Union Administration announced last week.

Headquartered in St. Louis, Lutheran FCU is the first new federal charter in Missouri since 2005.

The charter was granted by the NCUA's Office of Consumer Protection to serve employees, active members and volunteers of the Lutheran Church--Missouri Synod and its affiliated districts, member congregations, seminaries and other closely aligned entities.

"All consumers need access to affordable financial products and services, and Lutheran Federal will help make those available to its members," said NCUA Chair Debbie Matz. "I want to commend everyone involved for their commitment to establishing this credit union."

The credit union is being supported by the Lutheran Church Extension Fund, a $1.8 billion entity providing investments and loans to Lutheran Church-Missouri Synod ministries globally.

The Lutheran Church-Missouri Synod consists of more than 6,000 congregations that operate approximately 850 elementary schools. It also operates two seminaries and is active in world missions in 90 countries.

Lutheran FCU expects to open in the second quarter of 2015, according to the NCUA.

During its first year of operations, the credit union plans to offer regular shares, share drafts, share certificates, credit cards, mortgage loans, auto loans, student loans, unsecured loans, online banking, mobile banking, ATM access, shared branching and bill payment.

According to the NCUA, its Office of Small Credit Union Initiatives, which provided guidance to the charter group throughout the chartering process, will continue to assist the new credit union.

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Maine Harvest aims to help small farmers, CUs

CU System
BANGOR, Maine (12/29/14)--A credit union may soon be established in Maine for the first time in a quarter-century and, should it come to fruition, not only will it provide financing to small farmers and the local food economy, it may help other Maine credit unions do so as well.

The prospective credit union, called the Maine Harvest Credit Project--as it has yet to receive the necessary go-ahead from state regulators to call itself a credit union--is spearheaded by two gentlemen steeped in the world of finance and who are greatly interested in supporting the local organic food movement.

Several years back, that common interest propelled Scott Budde, formerly a manager of social and community investment strategies for TIAA-CREF, and Sam May, who comes from an extensive background in investment banking and equity research, to begin investigating how they could provide this specialized financing to small farmers.

A little more than a year ago, the two joined forces and set out to form a credit union that focused on the relocalization of agriculture in Maine. 

The new team carried out extensive research on the small farming industry in the state, and they learned that despite the rapid growth Maine was seeing in small farming--agricultural sales in Maine climbed 24% between 2007 and 2012, and the number of young farmers in the state continues to rise--there was still an apparent lack of financing options available to farmers and business owners.

Some farmers told Budde and May that they were nearly laughed out of banks when they approached them for financing for their farming operations. Others said government programs had too many restrictions.

"If you're in this sector or you want to get into this sector and be part of that growth, which is crucial, you don't have that many financing options as you would if you were doing another type of small business," Budde told News Now .

Ultimately, both Budde and May felt that a credit union was the most well-equipped financial institution to serve the industry.

"(I thought) a credit union structure or organization really could play a significant role," May told News Now . "If we're relocalizing agriculture, we're going to have to relocalize the infrastructure for agriculture, and that's going to require finance."

Added Budde: "What seemed to be necessary was a need for some larger-scale and longer-term financing than loan funds were capable of doing, and that's what kind of confirmed that a credit union structure would work--because we could tap longer-term deposits."

With the help of credit unions in Maine, which Budde and May say have been very encouraging as they develop the cooperative financial institution, the initiative's leaders are nearing the point at which they can formally apply for a state charter ( The Bangor Daily News Dec. 15).

Should they gain approval, which also will require them to secure grant funding to support the application, the organization's two leaders hope to provide small farmers with products such as mortgages that range between $100,000 and $500,000, equipment loans between $5,000 and $50,000, and seasonal loans of the same amounts.

This would open opportunities for small farmers and small food businesses to apply for loans to acquire land, or to acquire used equipment that's almost nearly impossible to finance right now.

Budde says that they've received much interest from the industry in Maine Harvest and they hope to be up and running in roughly two years.

But there's more to Budde and May's mission than simply running a successful credit union and supporting the local small farm industry in Maine.

It's the duo's goal, after the credit union industry has helped lift them off the ground, to return the favor and become a resource to credit unions throughout the state that are interested in providing this type of financing to members.

Many credit unions in Maine simply don't have the capability to provide this type of financing to farmers in their communities, and Budde and May believe they can bridge that gap.

"If you have a community field of membership and you draw a circle around your branches and you see who's in that food economy sector, and you find a couple of food businesses and a half-dozen farms, even if they're growing rapidly, it's still not enough to justify developing the expertise to do smart lending in the sector," Budde said. "It's hard for them to find enough scale within their footprint to develop the expertise to make it worth it."

John Murphy, president/CEO of the Maine Credit Union League--to which Budde and May recently gave a presentation about their operation--says the idea for the credit union in general, and this idea of becoming a resource to other credit unions that want to get involved in financing this industry, is certainly something the league supports.

"What they're saying, if you have a credit union that doesn't have the experience maybe in that kind of lending, then they would want to be a resource because it would help the organic farmers across the state," Murphy told News Now . "I think that's a great opportunity for credit unions to help each other and to work together to serve a need."

"They're very thorough, they're serious about this, they've put a lot of work into this and they continue to do so," Murphy added. "We support any group that does their homework, and that is looking to expand credit union service to consumers."

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NCUA issues cease-and-desist order to New Bethel FCU

ALEXANDRIA, Va. (12/29/14)--A cease-and-desist order has been issued to New Bethel FCU, Portsmouth, Va., by the National Credit Union Administration, the agency announced last week.

Officials at the $85,000-asset credit union have agreed to a consent order from the NCUA.

The order requires New Bethel FCU to:
  • Produce source documents demonstrating a certificate of deposit with a local bank is properly titled in the credit union's name;
  • Provide the agency with complete and accurate financial statements and up-to-date member share and loan transactions;
  • Obtain a member account verification and independent audit through 2014;
  • Charge off all non-performing loans;
  • Cease granting any new loans;
  • Comply with the Bank Secrecy Act and the USA Patriot Act; and
  • Ensure internal control reviews by the credit union's supervisory committee.
Accounts of New Bethel members remain insured by the National Credit Union Share Insurance Fund, according to the NCUA.

New Bethel FCU was chartered in 1978 and serves 176 members, according to the credit union's most recent call report.

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Signature debit highest cause of FI fraud losses: Minn. Fed

CU System
MINNEAPOLIS (12/29/14)--The amount of payments fraud and the losses incurred continue to concern financial institutions and non-financial firms alike, according to the recently released 2014 Payments Fraud Survey from the Federal Reserve Bank of Minneapolis.
Of the top three payment types, signature debit was the top when it came to fraud attempts, with 87% of financial services firms ranking it as the most common target of fraud attempts. Checks and PIN debit were significantly lower at 57% and 54% respectively.
The biennial survey tracks fraud trends for payment types such as checks, cash, debit and credit cards, automated clearinghouse transactions and wire transfers.
Financial services firms also identified signature debit as having the highest loss rate in value and volume compared with other payments. Signature debit had the highest loss rate based on volume at 67%, and at 78% it had the highest loss rate based on value of the fraudulent transaction.
Seventy percent of financial services respondents experienced fraud losses in 2013, while only a quarter of non-financial companies reported losses.
Non-financial companies cite checks as the highest contributor to payments fraud losses.

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Real GDP jumps unexpected 5% in 3Q

WASHINGTON (12/29/14)--U.S. GDP growth surged by 5% in the third quarter, according to the third and final estimate by the Bureau of Economic Analysis.

The initial reading for 3Q came in at 3.5%, but revisions to service spending, investments and inventories helped drive the final number higher.

GDP's third-quarter performance marks the first time since 2003 that the economy has seen GDP increase by more than 4% in consecutive quarters. In 2Q, GDP advanced by 4.6%.

"Third-quarter growth was the best for GDP since 2003 and is even more impressive coming on the heels of a strong second quarter," said Scott Hoyt, Moody's analyst ( ). "Trend growth has accelerated to at least 3%, with the economy growing at that pace or better in four of the past five quarters."

Consumer spending added 2.2% to growth, fixed investment contributed 1.2%, net exports added 0.8% and the federal government added 0.7%, according to Moody's.

"Further boosting both consumer spirits and the economy's prospects is the surprising slide in oil prices," Hoyt said. "At near $60 per barrel, crude prices have fallen about 40% since summer. There will be some offset to growth from weaker energy exploration and development, but this should be modest."

Final sales, which exclude inventories' impact on GDP, also climbed 5% for the quarter, up from 3.2% in the second quarter. The increase marks the biggest jump in final sales since 2006.

The personal consumption expenditures index showed inflation slowed in the quarter, meanwhile, rising only 1.2% after a 2.3% gain in the second quarter. Excluding food and energy prices, inflation rose 1.4% after a 2% climb in the second quarter.

Real disposable income increased 2% after a 3.1% jump in 2Q. Savings in the third quarter rose 4.7%, a small step back from the second quarter, and gross domestic income rose 4.7% after a 4% rise in the second quarter.

Additional U.S. economic data released last week:
  • The U.S. monthly purchase-only price index tracked by the Federal Housing Finance Agency climbed 0.6% in October, and sits 4.5% higher than October of last year. In September, the index remained flat;
  • New-home sales came in below expectations for November, declining 1.6% for the month. Nationally, the number of homes for sale increased, and new-home prices fell to $280,900 in November from $290,100 in October; and
  • Personal income and spending growth picked up in November. Income climbed 0.4% for the month after a 0.2% gain in October, and spending gains quickened to 0.6% from 0.3% the prior month. Further, wage income growth improved to 0.5%.

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CU Direct's 20 for 20 brings $60K to 6 CMN Hospitals

CU System
ONTARIO, Calif. (12/29/14)--The votes are in and two Children's Miracle Network (CMN) Hospitals will receive $20,000 from CU Direct as part of its 20 for 20 campaign to celebrate 20 years of serving the credit union industry.

The winners, which received the most votes from credit unions and their members throughout December, are Salt Lake City's Primary Children's Hospital and Hurley Children's Hospital in Flint, Mich.

Each hospital will receive $20,000 from CU Direct, which decided to double the amount it would donate for the campaign because of the overwhelming response to the event. At the midway point of the campaign, CU Direct had received 80,000 votes for various CMN Hospitals across the country.

Hurley Children's Hospital also received a second $20,000 prize from a local dentist, Dr. Alan Klein, who pledged to donate a matching $20,000 if Hurley won the 20 for 20 competition ( Dec. 22).

The credit unions whose membership bases voted the most for the winning hospitals will be invited to present the $20,000 checks sometime early next year.

Four runner-up CMN Hospitals will receive $5,000 donations from CU Direct as well, including Riley Hospital for Children in Indianapolis; OHSU Doernbecher Children's Hospital in Portland, Ore.; McLane Children's Scott & White Hospital in Waco, Texas; and Connecticut Children's Medical Center in Hartford, Conn.

Overall, CU Direct will donate $60,000 to CMN Hospitals nationwide, "and that's all because of your help and commitment to voting and getting the word out," CU Direct said on its website.

CU Direct operates a lending network comprised of 1,100 credit unions and 11,400 dealers. It has facilitated more than 7.4 million auto loans totaling roughly $157 billion since 1994.

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