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WesCorp risk management was inadequate NCUA says

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ALEXANDRIA, Va. (11/22/10)--The National Credit Union Administration (NCUA) has found that the management of failed Western Corporate Federal Credit Union (WesCorp) “did not implement appropriate risk management practices to adequately limit or control significant risks in its investment strategy” before its ultimate conservatorship in early 2009. This and other findings are detailed in the NCUA Office of Inspector General’s (OIG) report, which was released on Friday. The goals of the review were to determine why NCUA placed WesCorp under federal conservatorship and assess the NCUA‘s supervision of WesCorp, the OIG said in its report. To complete the review, the OIG analyzed NCUA examination reports, supervision reports and other correspondence, interviewed NCUA staff, reviewed NCUA policies, procedures and financial statements, and reviewed WesCorp’s policies, procedures, and investment documents. The review found that WesCorp’s excessive investments in privately-issued residential mortgage backed securities resulted “in a significant concentration risk, and left WesCorp increasingly vulnerable to significant credit risk, market risk, and liquidity risk through the portfolio‘s exposure to economic conditions in the residential real estate sector.” The OIG report also shifted some blame to the NCUA, saying that the NCUA’s Office of Corporate Credit Unions (OCCU) “did not adequately and aggressively address WesCorp‘s increasing concentration” of these investments. “OCCU examiners did not have the regulatory leverage to limit or stop the growth” of those investment purchases. Early action by the NCUA “would have likely mitigated WesCorp‘s severely distressed financial condition and expected loss,” potentially averting the NCUA’s conservatorship of WesCorp. The OIG recommended that the NCUA “provide corporate credit unions with more definitive guidance on limiting investment portfolio concentrations” in the future.

Inside Washington (11/19/2010)

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* WASHINGTON (11/22/10)--Bankers want regulators to create a long list of exceptions to the Dodd-Frank Act’s Volcker Rule, which restricts banks’ ability to participate in some types of investments and other risky activities. Comment letters sent to regulators seek exceptions that would expand banks’ ability to invest in private-equity firms and hedge funds, alter the definition of proprietary trading to give banks more freedom in making investments, and expand the list of “permissible activities” for banks (American Banker Nov. 19). Several lawmakers joined Paul Volcker, former Federal Reserve Board chairman, in calling for the development of clear rules that provide concise definitions and specific guidance to prevent ambiguity and make it easier to enforce the laws. But banking industry leaders and other lawmakers are seeking plentiful exemptions and broad definitions to give more latitude to financial institutions … * WASHINGTON (11/22/10)--Regulators were the target of strongly-worded criticism from both sides of the political aisle at a House Financial Services subcommittee hearing that examined flaws in the foreclosure process. Several legislators noted that regulators were unaware of the practice of “robo-signing” and other failings in the foreclosure process until the media disclosed the issues, even in situations where problems were previously identified by mortgage servicers’ internal controls. Rep. Maxine Waters, D-Calif., said mortgage servicers are unlikely to view regulatory consequences as a serious threat because regulators have consistently failed to both identify problems and levy fines when problems occur (American Banker Nov. 19). The hearing also explored consumers’ inability to reach mortgage servicers to discuss issues or negotiate mortgage modifications … * WASHINGTON (11/22/10)--George Madison, general counsel for the Treasury Department, said the Consumer Financial Protection Bureau (CFPB) can issue rules, release studies and gather feedback even though a permanent director has yet to be appointed (American Banker and The Boston Globe Nov. 19). Madison told the audience at a public policy luncheon sponsored by Women in Housing and Finance that the agency might go out for comment on proposed rules before existing federal agencies transfer their authority to the new agency on July 21, 2011. Elizabeth Warren is responsible for launching the CFPB in her role as assistant to the president and special advisor to the secretary of the Treasury. The banking industry has been a vocal critic of the potential scope of the CFPB’s authority and has opposed Warren’s role in shaping the new agency. To date, President Obama has not nominated a CFPB director … * ALEXANDRIA, Va. (11/22/10)--The National Credit Union Administration (NCUA) issued the following notice on Friday: “Due to unforeseen technical issues, the invoice payments for your capitalization deposit adjustment and share insurance premium that were originally scheduled for ACH withdrawal on Monday, November 22nd, will be withdrawn from credit union accounts today, Friday November 19th. This will affect credit unions with invoice amounts due to NCUA that use Pay.Gov for ACH payments. If your institution pays by check, this will not affect your institution. We apologize for this last minute change. In addition, refunds will be paid as scheduled today.” …

FHFA Max conforming loan limits steady through mid-2011

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WASHINGTON (11/22/10)--The Federal Housing Finance Agency (FHFA) on Friday announced that the maximum conforming loan limits for mortgages originated in the first nine months of 2011 will remain unchanged from 2010 limits. The maximum conforming loan limits “are generally $417,000 but can be as much as $729,750 in certain high cost areas in the contiguous United States,” the FHFA said in a release. A continuing congressional resolution requires Fannie Mae and Freddie Mac to set the loan limits for mortgages originated during the federal government’s 2011 fiscal year at an amount “equal to the higher of the maximums determined under the Economic Stimulus Act (ESA) of 2008 and the Housing and Economic Recovery Act (HERA) of 2008,” the FHFA release added. The ESA limits are fixed dollar amounts, while the HERA limits are updated annually, the FHFA added. For the full release, use the resource link.

30- 15-year mortgage rates rise from record lows

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WASHINGTON (11/15/10)--The average rate on both 30-year and 15-year fixed-rate mortgages rose from previous record lows this week. As reported in Freddie Mac's most recent mortgage rate survey, both mortgage rate averages showed double-digit basis point increases, with 30-year mortgages averaging 4.39% and 15-year mortgages averaged 3.76%. Those mortgage rates averaged 4.17% and 3.57% last week, respectively. Both five-year and one-year adjustable rate mortgages remained low, with average rates of 3.4% and 3.26% reported. Freddie Mac Vice President/Chief Economist Frank Nothaft noted that rates on shorter-maturity loans also rose, “although by somewhat lesser amounts.” For the full release, use the resource link.

Constitution Corporate to be liquidated

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ALEXANDRIA, Va. (11/22/10)--Constitution Corporate FCU (Constitution) will be liquidated on Nov. 30, the National Credit Union Administration (NCUA) announced Friday. Constitution was placed into conservatorship on Sept. 24. The liquidation, the NCUA said, is the next step in gaining control of the mortgage-backed securities on Constitution’s balance sheet to facilitate the securitization of those assets and is the same process undertaken at four other corporate credit unions that had “significant investments in distressed securities. “ The agency reiterated that it is committed to uninterrupted payment processing and other critical services for Constitution’s members and therefore is transferring the to-be liquidated corporate’s operations to Members United Bridge Corporate FCU, a bridge corporate created when Members United Corporate FCU was liquidated. Bridge corporates also formed around the liquidations of U.S. Central FCU, Western Corporate FCU, and Southwest Corporate FCU. “NCUA made this decision after determining it was in the best interest of Constitution’s members and the (National Credit Union Share Insurance Fund),” the agency announcement said.