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Inside Washington (11/13/2008)

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* WASHINGTON (11/14/08)--The Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision Wednesday released guidance to banks and thrifts lending to creditworthy borrowers. The guidance focuses on strengthening capital, working with mortgage borrowers and structuring compensation ... * WASHINGTON (11/14/08)—The U.S. Treasury official in charge of overseeing the agency’s evolving $700 billion financial rescue fund, Neel Kashkari, will appear Friday before the House Oversight and Reform subcommittee on domestic policy. Kashkari, Treasury interim assistant secretary for financial stability and assistant secretary for international economics and development, is the sole first panel witness at a hearing titled, “Is Treasury Using Bailout Funds to Increase Foreclosure Prevention, as Congress Intended?” A second panel of witnesses will include Michael Barr, former deputy assistant secretary for community development, Treasury Department; Anthony B. Sanders, W.P. Carey School of Business, Arizona State University; and Alys Cohen, National Consumer Law Center. The hearing is scheduled to take place just two days after Treasury Secretary Henry Paulson announced a major shift in the agency’s Troubled Asset Relief Program … * WASHINGTON (11/14/08)—The Credit Union National Association (CUNA) this week issued a final rule analysis of the Federal Reserve Board’s changes to Regulation C, which implements Home Mortgage Disclosure Act provisions. The Fed’s revisions make the rule’s definition of “higher-priced mortgage loan” identical to Regulation Z. Before the change, Regulation C required lenders to report the spread between the annual percentage rate (APR) on a loan and the yield on comparable Treasury securities if the spread was at least three percentage points for first-lien loans or five percentage points for subordinate-lien loans. Under this final rule, a lender will report the spread if the loan APR exceeds an average of comparable prime mortgage rates by at least 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate lien loans … * WASHINGTON (11/14/08)--House Financial Services Chairman Barney Frank (D-Mass.) has scheduled a hearing Nov. 19 on a plan to provide $25 billion in loans for the Big Three automakers (CongressDaily Nov. 13). The heads of Chrysler, General Motors and Ford are expected to testify. The bill is being drafted. Frank has said the funding would come out of the $350 billion portion of the $700 billion financial rescue fund that has not yet been designated by the Treasury. According to the article, Frank’s staff is studying the 1970s bailout of Chrysler as a starting point to drafting the bill … * WASHINGTON (11/14/08)--The Federal Deposit Insurance Corp. board of directors approved the new general counsel’s opinion on the insurability of funds underlying stored value cards and other nontraditional access mechanisms. The opinion, Opinion No. 8, replaces the previous Opinion No. 8, which was published in 1996 ...

NCUA has full Nov. 20 agenda

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ALEXANDRIA, Va. (11/14/08)—The National Credit Union Administration (NCUA) released the agenda for its open board meeting next Thursday and among the items for consideration, as expected, is the agency’s 2009-2010 operating budget, overhead transfer rate, and operating fee schedule, as well as issues regarding its examination program. At its annual budget briefing last month, the agency projected a 15% budget increase to $182.9 million and an additional 85 staffers to accommodate program modifications the NCUA said were "necessary to address the current turbulent economic environment." The agency also said the overhead transfer rate is projected to be 55% and the operating fee is expected to increase 10% to oblige increased expenditures. The most significant NCUA program changes noted at the briefing 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. Also on the NCUA agenda:
* A final rule addressing Part 702 of NCUA’s Rules and Regulations, Prompt Corrective Action, expectd to be an amended definition of post-merger net worth; * A final rule addressing Parts 701 and 705, Low Income Definition; * A final rule addressing Part 701, Interpretive Ruling and Policy Statement (IRPS) 08-2, Criteria to approve service to underserved areas; and * The quarterly insurance fund report.
To see the agenda, use the resource link below.

CUNA and NAFCU recommend capital strategy

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WASHINGTON (11/14/08)--Out of agreement that the current system of capital standards for credit unions needs reform--compounded by the current economic crisis--the Credit Union National Association (CUNA) and the National Association of Federal Credit Unions (NAFCU) have issued a joint statement declaring they will work together "for change in capital standards applicable to credit unions." NCUA Board Chairman Michael E. Fryzel asked both trade groups to determine between them one method to pursue in addressing credit union capital--risk-based (PCA reform), or supplemental capital. The joint statement, in response to Fryzel's request, was sent to him yesterday. In the statement, the two trade associations acknowledge they have different areas of emphasis on the issue of capital standards. However, they note two objectives they share:
* A system based primarily on risk-based capital standards; and * Support for a system giving credit unions access to supplemental capital--in addition to retained earnings, now the only source of capital for most credit unions.
Use the link below to download the complete text of the CUNA/NAFCU statement.

Dodd Lack of foreclosure help may spark more legislation

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WASHINGTON (11/14/08)—Growing frustration with the pace of voluntary mortgage foreclosure mitigations may spark more legislation, according to the remarks of two key lawmakers this week. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said Thursday that he was speaking for himself and others in relating that more progress is needed “from our friends in the financial sector” in foreclosure mitigation, affordable lending, and curbing “excessive compensation.” He added that if such progress was not soon apparent, his panel stood ready to prepare legislation to address the gap. Dodd made his remarks at his committee’s hearing titled “Oversight of the EESA: Examining Financial Institution Use of Funding Under the Capital Purchase Program” On the House side, the chairman of the Financial Services Committee, Rep. Barney Frank (D-Mass.) has cited his perception of a lack of cooperation from mortgage providers in working out troubled loans. He also suggested Congress should consider legislation that could make renegotiating troubled loans easier.

Fryzel urges Paulson to reconsider TARP change

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ALEXANDRIA, Va. (11/14/08)—The chief federal credit union regulator called upon Treasury Secretary Henry Paulson Thursday to reconsider his announced reversal of the asset purchase function of the Troubled Assets Relief Program (TARP). National Credit Union Administration (NCUA) Chairman Michael Fryzel asked Paulson to immediately make a portion of the TARP funds available for the purchase of troubled assets from credit unions and others. The NCUA chairman’s urging was in response to yesterday’s Treasury announcement that the TARP Program would abandon its orginial strategy and would no longer seek to buy distressed mortgage-backed assets. Fryzel wrote to Paulson: “As a regulator and insurer of 8,000 financial institutions, I must be proactive rather than reactive. The financial climate demands that I have all the tools I need to protect the savings of the 90 million people who use credit unions.” “Although I can understand the initial actions that Treasury has taken to help the large banks, insurance companies, and other major financial institutions that have faltered or failed, I am concerned about the second-place status into which credit unions and other smaller financial institutions have been placed,” the NCUA chairman said. Fryzel also noted that “the federal government is expected to be undertaking firm and coherent steps to improve the situation,” and said that “if mitigating steps are not made available through TARP, some credit unions experiencing difficulties could face a considerably worsened financial environment.” The NCUA chairman reiterated his assessment that the majority of credit unions are performing well, despite the overall market conditions. However, he acknowledged there are some that may require the TARP assistance “that was originally set forth in the Emergency Economic Stabilization Act enacted last month.” Prior to Paulson’s announcement, the Credit Union National Association sought credit union access to the TARP Program, as well as urged the NCUA to set up a similar credit union-funded program under the National Credit Union Share Insurance Fund.

Waived MBL fees dont equal prepayment penalties says NCUA

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ALEXANDRIA, Va. (11/14/08)—Federal credit unions may recoup waived settlement costs and fees associated with a member business loan (MBL) without it being considered a prohibited prepayment penalty, according to a recent legal opinion issued by the National Credit Union Administration (NCUA). The opinion was written in response to CUNA inquiries seeking clarification on the statutory mandate prohibiting federal credit unions from charging a borrower a prepayment penalty. The NCUA answered that as long as the recoupement period is reasonable in terms of the size and type of fees involved, the action is not prohibited under the Federal Credit Union Act (FCUA). It is the NCUA’s view, its letter said, that an agreement stating a borrower will pay for fees initially waived if he or she closes the loan within one year does not constitute a prepayment penalty. A loan agreement should specifically disclose to borrowers the conditional nature of a fee waiver and the recoupment period should be only long enough as is “reasonably necessary to offset expenses associated with waived fees.” The NCUA also said it agrees with CUNA’s interpretation that a fee due at loan payoff, a so-called back-end fee, should be treated the same as a fee due at or before loan closing. “In principle, we agree but only if the back-end fee is one that is charged regardless of whether the MBL is paid early or at maturity,” said the agency opinion.