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IG recommends monitoring DOR improvements at NCUA

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ALEXANDRIA, Va. (10/6/11)--The National Credit Union Administration’s (NCUA) inability to properly monitor or follow up on unresolved Documents of Resolution (DOR) related to troubled credit unions resulted in “missed opportunities to mitigate losses to the National Credit Union Share Insurance Fund (NCUSIF),” the NCUA Office of the Inspector General (OIG) has concluded. The OIG report said 45% of the 74 credit unions that were closed and/or merged between 2008 and 2010 “historically received composite CAMEL 1 or 2 ratings,” and noted that 18 of these credit unions were so troubled that they closed or were merged within one year of their downgrade. A total of 55 unresolved DOR items were found in examinations of 14 of these failed credit unions, and the OIG overall noted that NCUA examiners considered CAMEL Code 1 or 2 credit unions “low risk and therefore did not aggressively pursue timely resolutions for the unresolved DOR items.” The 74 failed credit unions resulted in $649 million in NCUSIF losses, with the 33 failed credit unions that historically received composite CAMEL 1 or 2 ratings accounting for $559 million of these losses, the OIG reported. An OIG examination also identified 26,000 unresolved DOR items as of December 2010. These unresolved issues impacted 63% of all federally insured credit unions. Specifically, the OIG in its review of the NCUA’s DOR follow up process found that “neither NCUA’s Office of Examination and Insurance (E&I) nor the five regional offices effectively monitored or followed up on unresolved DOR items,” adding that “E&I performed limited DOR monitoring and that monitoring in each region varied based on their individual policy.” The OIG also noted that the “establishment of timeframes for DOR completion was left to the examiner's judgment” and was not set by the agency. The NCUA in its response to the OIG report said it did not “believe it is feasible to establish specific time limits for examiners to resolve and close DOR items given the innumerable circumstances examiners must consider when determining the appropriate needed action.” Although it deferred to NCUA management’s in this case, the OIG also urged the NCUA to “continue to look for ways to reduce the time to close DORs” as it revises its examination programs. The OIG also recommended the agency ensure that regional staff take stronger supervisory actions when a credit union fails to correct DOR items, and urged the NCUA to require credit union management to provide a written response for DOR items that are not resolved in a timely fashion. For the full NCUA OIG report, use the resource link.

SBA sets lending record in fiscal 2011

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WASHINGTON (10/6/11)--The Small Business Administration (SBA) backed $30.5 billion in loans to small businesses and start-ups in fiscal 2011, setting a yearly record, the agency reported on Wednesday. Nearly half of 2011’s SBA lending activity took place in the first quarter, when $12 billion in loans were provided, the SBA said in a release. The volume of loans provided in 2011 first quarter was more than four times the dollar volume of the same quarter in 2009 and more than double the volume of any quarter over the past four years, the SBA added. The agency said this unprecedented activity in the first quarter was due to SBA loan enhancements that allowed it to increase guarantees on 7(a) loans to 90% and to waive fees that were previously added to 7(a) and 504 loans. The agency noted that program-related lending returned to pre-recession levels after the first quarter. SBA Administrator Karen Mills said, “due to the Small Business Jobs Act and a return to pre-recession lending levels, over 61,000 small businesses had access to capital.” SBA-approved loans totaled $22.6 billion in 2010 and $17.9 billion in 2009. The previous high mark for approved loans was 2007’s total of $28.5 billion. Eligible credit unions may participate in the SBA’s Small Loan Advantage and Community Advantage programs. Those programs are aimed at increasing the number of lower-dollar SBA 7(a) loans going to small businesses and entrepreneurs in underserved communities. For the full SBA release, use the resource link.

Inside Washington (10/05/2011)

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* WASHINGTON (10/6/11)--Although U.S. banks have limited direct exposure to debt from troubled nations such as Greece, Portugal and Ireland, a default by any country in the Euro zone would damage the U.S. economy, Federal Reserve Board Chairman Ben Bernanke told the Joint Economic Committee. “It is difficult to judge how much these financial strains have affected U.S. economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth,” Bernanke said. European leaders need to address the sources of the fiscal problems that have slowed the process of finding solutions, Bernanke said. He is not only concerned about direct exposure, but about the broader resolution of sovereign debt issues and European banking issues that have created uncertainty and volatility in financial markets … * WASHINGTON (10/6/11)--Federal Reserve Board Governor Sarah Bloom Raskin called for changes in mortgage servicing agreements to allow for more loan modifications. The inadequacies of servicing contracts have contributed to the slow pace of mortgage workouts and repeated breakdowns in the foreclosure process, Raskin told a Maryland State Bar Association conference “The standard servicing contract provides disincentives for servicers to act in the best interests of investors and borrowers,” she said. “This misalignment of incentives has more profound consequences when defaults are high.” She suggested that compensation structure for servicers should include incentives to execute payment processing more efficiently on performing mortgages, and to carry out effective loss mitigation on delinquent loans. Pooling and serving agreements should be amended or renegotiated to facilitate more workouts and to clarify the situations in which loan modifications and other mitigation strategies should be pursued, she said …

Lawmakers boost MBL bills visibility with support

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WASHINGTON (10/6/11)--Noting that one of the few things Congress can agree on is the need to create new jobs, Rep. Rob Woodall (R-Ga.) took to the floor of the U.S. House Wednesday to call for greater support of legislation that would increase the credit union member business lending (MBL) cap.

With so many struggling to cope with layoffs and home foreclosures, helping small business owners should be a priority, Woodall said, adding that “anyone who has talked to small business knows they are having a hard time accessing credit.” H.R. 1418, which was introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) earlier this year, would increase the MBL cap to 27.5% of assets, up from the current 12.25%. The Credit Union National Association (CUNA) has estimated that lifting the cap to 27.5% of assets would inject $13 billion in new funds into the economy and create 140,000 new jobs, at no cost to taxpayers. A similar bill (S. 509) has been introduced in the Senate. If MBL cap increase legislation were approved, “every credit union in America would be able to take part in funding small businesses and helping them succeed,” Woodall said. The legislator noted that H.R. 1418 is co-sponsored by 53 Democrats and 31 Republicans, an increasingly rare situation in what is now a frequently divided D.C. Sen. Mark Udall (D-Colo.), who authored the Senate version of the bill, touted the benefits of increased credit union small business lending this week in a speech before the 2011 Latino Business Summit in Denver. "No matter how successful they are or how good their business plan is, small-business owners still find it difficult to access the capital they need to start or grow their business, and minority-owned businesses often face additional obstacles in accessing this important lifeline," Udall said. He noted that increasing the MBL cap to 27.5% of assets would result in $1 billion in new funding from credit unions in mainly Hispanic areas. CUNA is scheduled to testify on the MBL legislation before an Oct. 12 House Financial Services subcommittee on financial institutions and consumer credit hearing. For Woodall's complete floor statement, use the video link above.