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Washington Archive

Washington

Inside Washington (10/30/2008)

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* WASHINGTON (10/31/08)--The Federal Deposit Insurance Corp. Chairman Sheila Bair said Wednesday the agency had worked out a standardized loan modification program--one step closer to implementing a plan that would guarantee up to three million at-risk mortgages for lenders if they agree to modify loans (American Banker Oct. 30). The plan could cost the government up to $50 billion, and the money would be taken out of the $700 billion Congress gave the Treasury Department for the rescue plan. Last week, Bair said that 400,000 IndyMac borrowers are eligible for modifications. Policymakers need to use temporary measures deployed during the credit crisis and tighten lending rules. Until foreclosures are stemmed, the housing crisis will continue, she added ... * WASHINGTON (10/31/08)--The Financial Crimes Enforcement Network (FinCEN) withdrew its proposed anti-money laundering (AML) program rules for unregistered investment companies, commodity trading advisers and investment advisers in an effort to increase its efficiency and effectiveness in administering the Bank Secrecy Act (BSA). FinCEN will not proceed with BSA requirements for those entities without publishing new proposals and allowing for industry comments. It will consider whether it should impose requirements under the BSA on those entities. FinCEN also announced a new section of its website called “Pending Rules” ...

SBA loan guarantees drop in 2008

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WASHINGTON (10/31/08)—The volume of loan guarantees issued by the U.S. Small Business Administration (SBA) has been pummeled from three directions causing a nearly 30% drop in 2008. The SBA said it was caught in a “perfect storm” of tightened credit by commercial lenders, declining creditworthiness, and reduced demand for loans from small business borrowers uncertain about the future. SBA Acting Administrator Sandy K. Baruah said in a release Thursday that in addition to loan volume dropping almost by a third since 2007’s record year with nearly 100,000 loans approved, the dollar value has also declined. 2008 witnessed a 13% drop to $17.96 billion from $20.6 billion in 2007. The program declines began not long after the fiscal year started in October 2007, and accelerated throughout the fiscal year, the SBA reported. They represent loans made under SBA’s two primary loan programs, the 7(a) guaranteed loan program and the Certified Development Company, or 504, loan program. Baruah said he “feels strongly” that the steps taken by the Bush administration and U.S. Congress will have a positive effect on the credit situation and the economy. The SBA is conducting meetings across the country to study how better to understand how the agency can work with both lenders and small businesses during “these difficult economic times.” For more information on how SBA loans, use the resource link below.

Exam chartering initiative unveiled by NCUA

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ALEXANDRIA, Va. (10/31/08)—Two regulatory initiatives were unveiled Thursday by the National Credit Union Administration (NCUA): one intended to beef up risk-based exams and the other to centralize the process for chartering new financial cooperatives. NCUA Chairman Michael Fryzel used the occasion of his agency’s eighth annual public budget review to announce the changes.
Click to view larger imageDuring yesterday's Eighth Annual NCUA Budget Briefing, CUNA represenative Tom Gaines presents to the NCUA Board. From left: NCUA Board Vice Chairman Rodney Hood, NCUA Chairman Michael Fryzel and NCUA Board Member Gigi Hyland. (Photo provided by CUNA)
The increased frequency of exams, Fryzel said, is in response to the “complexities and volatility of the financial marketplace.” The NCUA’s chartering function would be consolidated from its regional offices and centralized at its headquarters in Alexandria, Va. as of Jan. 1, 2009, under the chairman’s proposal. “It is anticipated that the centralized evaluation will be more streamlined, and will also enable the Regions to devote additional time and resources to the examination process. The proposal will be placed on the agenda for board consideration at its November meeting,” Fryzel said. He added, “I will continue to review every facet of the agency in order to make us more efficient and effective in fulfilling our public policy function.”

Coastal gets adverse bankruptcy decision

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WASHINGTON (10/31/08)—A U.S. District Court has upheld a bankruptcy court's adverse decision against Coastal FCU in a North Carolina bankruptcy case that involves reaffirmation agreements. The case, brought by Coastal, in Raleigh, involves a member’s automobile loan made in February 2005. The borrowers subsequently filed a Chapter 7 bankruptcy and signed a reaffirmation agreement with the credit union in order to retain the automobile. The borrowers were not represented by an attorney; therefore the bankruptcy court was required to hold a hearing to determine if the agreement imposed an undue hardship on the debtors. The court declined to approve the reaffirmation agreement and stated that the debtors could retain the automobile as long as the loan was not delinquent and they continued making payments. On Oct. 28, the U.S. District Court for the Eastern District of North Carolina Western Division upheld the bankruptcy court decision that declined to approve the reaffirmation agreement and permitted the debtors a "ride-through." Coastal FCU, backed by the Credit Union National Association (CUNA) and the North Carolina CU League, argued that through the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the U.S. Congress intended to eliminate the ‘ride-through' option. The term refers to an interpretation of former bankruptcy laws that permits a debtor to keep the loan collateral, such as an automobile, without either reaffirming the debt or redeeming the loan as long as timely payments continue. According to Mike McLain, CUNA Assistant General Counsel and Senior Compliance Counsel, "Some areas of the BAPCPA are poorly drafted and a literal application of the bankruptcy law can result in a decision that is clearly at odds with Congressional intent. That is what has happened in this case." U.S. District Court Judge James C. Dever III ruled that Coastal failed to show that an “intent exception” applies to this case that would permit the court to consider Congress' intent rather than the plain language of relevant sections of the Bankruptcy Code. McLain said, "We are obviously disappointed by the district court decision. We had hoped that the court would have recognized and upheld the changes made by the 2005 bankruptcy revisions.” Coastal will now consider whether to appeal the district court ruling to the U.S. Fourth Circuit of Appeals, McLain stated.

NCUA Board holds unscheduled closed meeting today

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ALEXANDRIA, Va. (10/31/08)--The National Credit Union Administration (NCUA) Board will convene at 8 a.m. ET this morning for a closed board meeting to consider “supervisory activities.” The agency announced the meeting in a press statement yesterday. No other information was available. CUNA News Now will provide any available details. Follow News Now LiveWire for instantaneous alerts to your desktop or mobile device.

CUNA pushes for CU asset relief plan

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WASHINGTON (10/31/08)—Although the need may be modest, credit unions should have their own credit union-funded troubled-asset relief program through their federal regulator, the Credit Union National Association (CUNA) proposed Thursday. Testifying at the National Credit Union Administration’s (NCUA’s) eighth annual public budget briefing, CUNA reported that credit unions, despite the current economic upheavals, are generally in good shape with overall net worth around 10.5% of assets.
Click to view larger imageTom Gaines, chairman of the CUNA Examination and Supervision Subcommittee, and president/CEO of the Tennessee Credit Union League, tells the three-member NCUA Board that CUNA believes any potential capital deficiency among credit unions due to the financial meltdown is likely modest--given that overall credit union net worth is about 10.5%. (Photo provided by CUNA)
Still, a small number of credit unions have become “collateral damage to the collapse of housing prices in some markets.” Those cooperatives should be able to seek assistance either through the U.S. Treasury Department’s Troubled Asset Relief Program (TARP) or a similar plan administered by the NCUA just for credit unions. Those cooperatives are able to seek assistance through the U.S. Treasury Department's Troubled Asset Relief Program (TARP); however CUNA supports the development of a similar plan, administered by the NCUA, just for credit unions. Tom Gaines, chairman of the CUNA Examination and Supervision Subcommittee, testified on CUNA’s behalf. Gaines is president/CEO of the Tennessee CU League. Gaines also made the following points at the briefing:
* CUNA continues to support full insurance coverage for noninterest bearing transaction accounts; * Credit unions are concerned about an insurance premium. The NCUA board should closely monitor this issue and provide credit unions as much advance notice as possible if a premium assessment is likely; * The NCUA may need additional staff to handle problems. CUNA does not oppose additional staffing, but requests the agency make no unnecessary additions; and * The NCUA has improved its handling of the overhead transfer rate issue, but CUNA maintains it is still unclear how insurance-related costs are distinguished from supervisory ones.
Click to view larger imageTom Gaines (left), chairman of the CUNA Examination and Supervision Subcommittee, and president/CEO of the Tennessee Credit Union League, chats with NCUA Board Member Gigi Hyland during a break in yesterday's NCUA Budget Briefing. (Photo provided by CUNA)
Gaines also noted that CUNA is currently completing a survey on regulatory examinations and share the results with the NCUA and the National Association of State CU Supervisors. “We already know that credit unions are raising concerns about examiner pressure regarding return on assets (ROAs),” Gaines said Thursday. “NCUA should continue to provide training to examiners on communications and ensure board members’ views are reflected in examiner actions.” He added that credit unions continue to seek more regulatory guidance on Bank Secrecy Act issues. In concluding, Gaines acknowledged that the country’s economic woes will make the coming year will difficult for credit unions and he said CUNA appreciates the regulators’ efforts to “contain cost and reduce regulatory burden.”

Revised 2009 meeting schedule for NCUA

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ALEXANDRIA, Va. (10/31/08)—The National Credit Union Administration (NCUA) Thursday announced changes to the 2009 board meeting schedule it had posted to its website last month. The NCUA board is scheduled to convene each month on a Thursday at 10 a.m. on the following dates:
* January 22 * February 26 * March 19 * April 16 * May 21 * June 18 * July 16 * September 24 * October 22 * November 19 * December 17
The NCUA board historically does not meet in open session in August. Further revisioins to the schedule are possible.

NCUA plans increases to 2009 budget staffing

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Click to view larger image During Thursday's Eight Annual Budget Briefing, NCUA Executive Director Len Skiles presents highlights from the agency's proposed 2009 budget. (Photo provided by CUNA)
ALEXANDRIA, Va. (10/31/08)--The National Credit Union Administration’s (NCUA) 2009 budget is expected to increase 15% to $182.9 million and add 85 additional staffers to accommodate program modifications “necessary to address the current turbulent economic environment,” said NCUA Executive Director Len Skiles yesterday. During 2009, the overhead transfer rate is projected to be 55% and the operating fee is expected to increase 10% to oblige increased expenditures, according to Skiles. He spoke during the NCUA’s Eighth Annual Budget Briefing and Public Forum held Thursday in Alexandria, Va. The most significant NCUA program changes under consideration would add additional staff, implement a 12-month examination cycle, develop a national examiner team to conduct high-risk exams, and centralize credit union chartering in 2009.
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NCUA said it believes it is “imperative to expand its examiner staff and develop a cadre of well-trained experts as credit unions are faced with unprecedented liquidity pressures, increased interest rate risk, due diligence efforts, concentration risk, and additional governmental requirements.” NCUA’s proposed budget includes $12.8 million to hire and train:
* 100 additional examiners; * Five problem case officers; * Five risk management officers; and * Additional support staff.
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Pay and benefits for the entire staff are projected to increase $14.5 million or 12.3%. Travel expense is expected to increase $6.9 million or 44.7% to accommodate a 12-month examination cycle and expected inflation pressures, said Skiles. The NCUA Board is scheduled to consider the budget at its Nov. 20 meeting. Use the resource link below to access the NCUA budget briefing PowerPoint presentation.