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NCUA to create loan loss resolution tool

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ALEXANDRIA, Va. (11/18/10)—Saying it was “taking a page” from the Federal Deposit Insurance Corp.’s (FDIC's) recent action plan to increase available tools to resolve large, complex financial institutions, the National Credit Union Administration (NCUA) Wednesday announced its own Loss Share Program. The agency said it would begin immediately to develop the pilot program, and that it anticipates that losses to the National Credit Union Share Insurance Fund (NCUSIF) will be reduced through a program that, like the FDIC’s, gives agency support to an acquiring institution’s purchase and service of pools of loans. The FDIC reimburses the acquiring financial institution a percentage of any loan losses. “This pilot represents an innovative and sensible effort by NCUA to minimize losses to the NCUSIF and foster a lower-cost, market-based solution to the problems associated wth failures,” noted NCUA Chairman Debbie Matz in a release. “By drawing on the experiences of FDIC, and tailoring the program to the unique nature of credit unions and the distinct structure of the NCUSIF, I am confident that the pilot program will be a worthwhile initiative. I look forward to carefully evaluating the results,” Matz added. The NCUA said loss share agreements could potentially defer NCUSIF losses or even reduce losses if loan value increases. “The FDIC experience has also shown that loss sharing can add clarity about risk in an acquiring institution‘s loan portfolio,” the release said. As part of the NCUA pilot, the agency will gauge the cost benefits of overseeing loss-share agreements that have eight- to 10-year time horizons.

Tweaking corporate rule on NCUAs plate today

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WASHINGTON (11/18/10)—The National Credit Union Administration's (NCUA) decision to extend the corporate credit union business plan deadline, which was previously set to be Dec. 31, until March 31, should be formally announced at today’s NCUA open board meeting. The corporate credit union business plans are expected to detail the individual corporate credit union's future plans for operations, focusing on capitalization and the services that they plan to offer to natural person credit unions. CUNA asked the NCUA to extend the deadline for these plans after many attendees of a recent CUNA corporate credit union task force said that the Dec. 31 due date was too soon. The NCUA will further address the corporates as it releases new corporate CU rules. Those rules could address corporate membership fees, internal reporting, risk management, and other issues. NCUA General Counsel Bob Fenner said that these would be among the changes sought by the NCUA when the agency released its original corporate rule in late September. The NCUA's agenda also includes discussion of its overhead transfer rate and operating fee scale, and the customary discussion of the status of the NCUA’s insurance funds will also take place. However, the NCUA’s closed board meeting, which normally follows the open meeting, took place on Wednesday. For the full NCUA meeting schedule, use the resource links.

CUs MBL lift backed again in online pub iFrum Forumi

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WASHINGTON (11/18/10)—Congress should enact member business lending cap lift legislation “without delay” if that body “wants to show it’s serious about getting the economy moving again,” columnist Eli Lehrer wrote in a recently published Frum Forum online editorial. The Credit Union National Association (CUNA) has estimated that lifting the MBL cap to 27.5% of total assets, as has been proposed, would help small businesses create over 100,000 new jobs. “The bill doesn’t allocate a dime from the federal Treasury and will produce billions of dollars in new loans, mostly to smaller businesses,” Lehrer said. “If implemented, the proposal will provide loans to businesses that wouldn’t otherwise get them, encourage more lending by banks, and offer a market oriented piece of economic stimulus,” he added. “A very large portion of credit union business loans go to businesses that simply wouldn’t get credit anywhere else,” said Lehrer, adding that the level of industry-specific specialization, coupled with default rates that are similar to those seen at banks, shows that credit unions “clearly know what they’re doing when they make these loans.” Extending credit unions’ ability to lend will also keep banks honest by encouraging more bank lending as well, Lehrer said. Lehrer, who has backed the MBL legislation in previous editorials, has said increased member business lending "deserves consideration both on its own and as a template for bipartisan action to get the economy moving." For the full editorial, use the resource link.

Fair value burner still hot

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WASHINGTON (11/18/10)--The Financial Accounting Foundation (FAF) appointed a new CEO and four new members to its Board of Trustees this week, and Financial Accounting Standards Board (FASB) Acting Chair Leslie Seidman has said that the FASB’s search for its own board additions will not derail its work on fair value and other pressing issues. Seidman made her comments, as reported in American Banker, before a recent Financial Executives International conference. Teresa Polley, who has worked with FASB in the past, will work with new FAF Board of Trustees members Carol Anthony Davidson, Stephen Howe, W.M. Lawhon and Mary Stone going forward. The FAF is comprised of members of the private sector and is tasked with overseeing FASB and the Governmental Accounting Standards Board (GASB). The Credit Union National Association (CUNA) has met several times with the FAF’s Grace Hinchman to discuss CUNA's concerns with FASB's proposal on accounting for financial instruments, as well as other projects. FASB has not yet appointed the two new board members needed to take it to the full board membership of seven. FASB was previously comprised of five board members. CUNA also recently reached out to FASB to specifically discuss the fair value issue, with CUNA Accounting Subcommittee Chairman and Patelco CU Chief Financial Officer Scott Waite telling FASB members during an open meeting that reporting fair value under U.S. Generally Accepted Accounting Principles (GAAP) is simply not useful to the members, creditors, board members, and regulators of credit unions. Waite told the FASB panel that credit unions "provide an economic value to consumers by leveraging their not for profit status in the higher rates on deposit and lower rates on loans." FASB’s fair value proposal, which is still being developed, would require most financial assets and liabilities to be reported under GAAP at fair value. Credit unions over $10 million in assets are required to comply with GAAP. CUNA Senior Vice President/Deputy General Counsel Mary Dunn has said that CUNA will "continue pursuing a positive result for credit unions" as FASB works on the final rule, which could potentially take effect in 2013.

Interagency foreclosure report coming early 2011

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WASHINGTON (11/18/10)—A full examination of financial institutions’ “policies, procedures, and internal controls related to foreclosure practices” should be released in early 2011, with federal regulators taking supervisory action and holding institutions “accountable for poor practices” as needed, Federal Reserve Board Governor Elizabeth Duke said in a prepared statement. Duke will be one of five regulators testifying later today before a House housing and community opportunity subcommittee hearing on “Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing.” Duke is expected to tell lawmakers later today that troubles in the mortgage loan servicing and foreclosure processes could “result in improper loss of a home or premature eviction” and could, at a minimum, cause consumers to “further mistrust the loan servicing process.” “For individual borrowers, uncertainty about the prospect or timing of foreclosure makes everyday decisions difficult,” and many borrowers “have little incentive to invest in or maintain” their homes due to fears that they may lose their home due to foreclosure, Duke said. The reported problems in “mortgage loan origination, securitization, and loan foreclosures,” as well as “the mishandling of documentation in foreclosure proceedings,” could also slow the overall market, Duke adds. “In cases where actual problems are found, regulators will require lenders and servicers to correct not only the faulty documents themselves but the faulty systems that allowed them to occur. Institutions with widespread problems may be subject to fines and fees in addition to the costs associated with correcting the errors,” the statement said. Duke's written testimony also said that the Fed is encouraging lenders to resolve home loan issues via loan modifications rather than “unnecessary foreclosures.” U.S. Treasury Homeownership Preservation Chief Phyllis Caldwell, Department of Housing and Urban Development Assistant Secretary David Stevens, Comptroller of the Currency John Walsh, and acting Federal Housing Finance Agency Director Edward DeMarco will also testify. The subcommittee has also asked finance industry insiders and academics to testify during the hearing. In a similar hearing held in the Senate this week, Banking Committee Chairman Christopher Dodd (D-Conn.) called for the Financial Stability Oversight Council to examine mortgage servicing as a potential systemic threat, and said that further investigation of mortgage servicers may be warranted. (See related story in Inside Washington)

Inside Washington (11/17/2010)

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* WASHINGTON (11/18/10)--Leading Republican legislators want to remove unemployment from the Federal Reserve’s dual mandate of price stability and unemployment, and have asked the Fed to drop plans to buy an additional $600 billion in U.S. Treasury bonds. The bond purchase represents a strategy of “quantitative easing” that attempts to promote employment and keep prices stable. Rep. Mike Pence, chairman of the House Republican Conference, introduced a bill that would shift the Federal Reserve from its current mandate of focusing on unemployment and price stability to instead concentrate on price stability and inflation (American Banker Nov. 17). Pence joined a group of conservative critics in claiming that pursuing quantitative easing could undermine currency standards and fuel inflation while failing to significantly impact employment. Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee, also endorsed redirecting the Federal Reserve’s mandate… * WASHINGTON (11/18/10)--Bigger problems than robo-signing could be disclosed by additional investigation of mortgage servicers, speakers at a Senate foreclosure hearing said. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and other senators cited specific examples of unjust foreclosure actions to support their doubts about the foreclosure practices of mortgage servicers (American Banker Nov. 17). Dodd and other Democrats called for the Financial Stability Oversight Council to examine mortgage servicing as a potential systemic threat. Consumer groups continue to claim that mortgage servicers improperly pursue many foreclosures, with protesters from the Neighborhood Assistance Corp. of America briefly disrupting the hearing to challenge statements made by a JPMorgan Chase Home Lending official. Iowa Attorney General Thomas Miller testified that state attorneys general have found other issues in addition to robo-signing but refused to provide details, citing an ongoing investigation. Republican senators also criticized the foreclosure process and noted that regulators failed to detect problems … * WASHINGTON (11/18/10)--The Federal Reserve Board has requested comment on a proposed rule dealing with the period of time allowed for banking firms to bring their activities into compliance with the Dodd-Frank Act’s Volcker Rule. The Volcker Rule prohibits banking entities from engaging in proprietary trading in securities, derivatives or certain other financial instruments, as well as from investing in, sponsoring or having certain relationships with a hedge fund or private equity fund. Banking firms have two years to bring their activities into compliance with the Volcker Rule, although the board is allowed to extend this conformance period for specified periods under certain conditions, a Federal Reserve release said. The Dodd-Frank Act calls for the board to issue rules to implement the conformance period. Comments on the proposed rule must be submitted within 45 days of publication in the Federal Register, which is expected to occur soon …