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Inside Washington (01/08/2008)

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* WASHINGTON (1/9/08)--Small banks are unhappy about the elimination of the Merit program, a Federal Deposit Insurance Corp. (FDIC) initiative that was designed to reduce examination costs while bettering relationships between examiners and banks. The agency announced last month that the program would be discontinued, and the news worries some financial institutions (American Banker Jan. 8). The program has worked well, said Terry Frydenlund, president/CEO at 1st Bank Yuma, a unit of Western Arizona Bancorp Inc. He also stated that without the program, bank examiners will “overshoot.” Both the FDIC and its examiners argue that the program is not necessary because exams can focus on risk without Merit guidelines. FDIC employees also indicated in a recent survey that they were dissatisfied with Merit ... * WASHINGTON (1/9/08)--In a few weeks, some borrowers in danger of foreclosure will be able to get help fast-tracking their subprime loans, said Treasury Secretary Henry Paulson Monday. The plan could extend to other types of loans, he added (MarketWatch Jan. 7). Hope Now, an alliance of servicers and lenders, will implement the plan to freeze the interest rates on certain subprime hybrid adjustable-rate mortgages ( Jan. 8). About 45,000 of 1.8 million at-risk borrowers have asked for help, Paulson noted. He also encouraged financial institutions to increase their capital ... * WASHINGTON (1/9/08)--The Community Reinvestment Act (CRA) prevented many banks from engaging in risky, high-cost loans that triggered the foreclosure crisis, according to a study by Traiger and Hinckley LLP (BusinessWire Jan. 7) The study analyzed mortgage lending in the nation’s top metropolitan areas. CRA banks were 66% less likely to originate high-cost loans were more than twice as likely compared with other lenders to originate loans from their own portfolios. The study also indicated that foreclosures were lower in areas where the number of bank branches was higher....

Treasury to offer electronic SS fund access to unbanked

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WASHINGTON (1/9/08)—In an ongoing effort to become an “all-electronic Treasury,” that department has announced it will launch the Direct Express card as a means to distribute checkless government aid funds to unbanked consumers. The Direct Express card will be introduced in the spring and is scheduled to be phased into national distribution by the end of the summer. The Treasury estimates that four million Social Security and Supplemental Security Income (SSI) check recipients do not have bank accounts. The department maintains that paper checks place recipients at greater risk of delivery delays due to poor weather or national or local emergencies. Also, that they are subject to other check-related problems, such as lost or stolen checks. American taxpayers would save, the Treasury’s Financial Management Service (FMS) estimates, about $44 million annually if every unbanked federal check recipient signed up to use the new card. "The explosive growth in the prepaid card industry offers an important opportunity for Treasury to give unbanked payment recipients secure, easy access to their funds, at low or no cost to the cardholder,” FMS Commissioner Judy Tillman said in a release. “We ultimately would like to see an all-electronic Treasury - with all the security, efficiency and cost savings that would entail. This card takes us closer to that goal by combining the best in payment innovation with sound public policy,” she added. Under the new program, payments each month will be automatically deposited on the Direct Express card account on the federal beneficiary's designated payment day. The arrangement will provide faster access to the funds than would a paper check that would be sent through the U.S. Postal Service. Also, card holders will be able to access their money at ATMs and financial institutions nationwide. They will be able to use their card to get cash back and make purchases at retail locations, as well as pay bills and make purchases online. In addition, the accounts will be PIN-protected, federally insured, and subject to federal consumer protection regulations, the FMS announcement said. The Treasury in recent years has been promoting direct deposit of SS and SSI funds through its Go Direct campaign, and claims 1.6 million direct deposit conversions through its efforts. The Credit Union National Association is a Go Direct partner.

CUNA urges examiner training on loan workouts

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WASHINGTON (1/9/08)--The Credit Union National Association (CUNA) Tuesday urged federal regulators to ensure that credit union examiners are well-versed in identifying how much latitude credit unions have in helping members restructure or refinance problematic mortgage loans. In a letter sent to each member of the National Credit Union Administration (NCUA) board, CUNA referenced NCUA Letter No. 07-CU-09, which transmitted a joint statement on subprime mortgage lending adopted by the agency and other federal financial regulators last summer. That statement contains a number of important directives, including provisions on “Workout Arrangements.” “These provisions reflect prudence and sound financial management while leaving latitude for institutions to actually help mortgage borrowers in need. Our concern, however, is there has been no guidance to examiners that the agency has shared with credit unions on how this letter is being implemented,” wrote CUNA President/CEO Dan Mica. Mica noted that credit unions, for the most part, have avoided the kinds of adjustable-rate subprime mortgage loans that banks and others initiated “to the detriment of so many consumers, our economy and the global financial marketplace. “ “While credit unions have generally not been involved in making such nontraditional loans, we anticipate that borrowers will increasingly be seeking help from their credit unions to restructure mortgage loans they obtained elsewhere. “They may also be turning to their credit union to refinance traditional mortgages the credit union or other lender originated but which have become problematic due, for example, to the decreasing value of homes in the borrower’s area,” Mica wrote. He said that well-managed credit unions can be an important source of home financing for borrowers caught in the subprime morass, particularly for members with an acceptable payment history who are able to document income that is sufficient to service a new, more favorable loan or handle restructured terms such as payment agreements. “We urge NCUA to ensure examiners are well-versed in the provisions of the Statement regarding workout arrangements and are provided adequate training to recognize reasonable plans and the sufficiency of risk mitigation efforts. Guidelines and training information provided to examiners on this matter should be shared with credit unions as soon as possible,” urged the CUNA leader. A copy of the letter was also sent to House Financial Services Committee Chairman Barney Frank (D-Mass.).

SBA to seek larger disaster role for financials

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WASHINGTON (1/9/08)—If the Small Business Administration (SBA) proceeds with reported plans to give financial institutions a larger role when disaster strikes a community, the Credit Union National Association (CUNA) will press to ensure credit unions are included. The SBA will ask Congress for authority to give financial institutions a more prominent lending role in disaster situations, according to American Banker (Dec. 28). Under one plan, financial institutions would be able to act as agents of the SBA and process disaster loans for a fee. A second initiative would provide an SBA government guarantee to some credit card purchases made by disaster victims. According to the report, both proposals are in early stages of development but at this point the plan to allow financial institutions to act as agents is expected to track a plan passed by the House in April. The House bill did not give direct lending authority, but instead would let banks process, approve, close, and service disaster loans for a fee of 2% of the loan amount. The Senate passed quite a different SBA proposal, one which would give banks the power to make emergency loans with an 85% guarantee, similar to that of an SBA 7(a) loan. Mary Dunn, CUNA SVP and deputy general counsel, said that as the SBA’s plan becomes public, CUNA will be working to ensure that credit unions are included in any new authorities.