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Inside Washington (11/30/2007)

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* WASHINGTON (12/3/07)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) was scheduled to introduce a bill that would not only restrict commercial ownership of industrial loan companies (ILCs), but stop the activities of those that are currently commercially owned (American Banker Nov. 30). Dodd’s bill is tougher than ILC legislation that passed through the House in May, with the exception that his bill would allow automakers to own ILCs. However, the bill is still in draft stages and must be approved by lawmakers such as Sen. Robert Bennett (R-Utah), a strong supporter of ILCs. Dodd’s bill comes just one month before a moratorium on ILC applications, imposed by the Federal Deposit Insurance Corp., is set to expire. FDIC Chairman Sheila Bair said the moratorium already has been extended for 18 months and will not be lengthened again …

Faster loan modifications gets House panel look

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WASHINGTON (12/3/07)—The House Financial Services Committee announced it will take an overall look at recent proposal to improve the pace and volume of subprime mortgage loan modifications that are meant to help troubled borrowers hang onto to their homes purchased with hybrid ARMs and other nontraditional loans. The committee intends to examine whether the current approach by mortgage servicers and lenders to look at loans on a case-by-case basis may be slowing the pace and limiting the number of loan workout agreements. The Dec. 6 hearing is entitled “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement.” The hearing will also address specific issues arising from House consideration of H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act, which was Nov. 16. According to a committee release, the lawmakers will focus in particular on:
* A proposal to provide a safe harbor from legal liability for mortgage market participants who modify mortgage loans according to certain criteria; and * A proposal to add civil monetary penalties for a “pattern and practice” of violations of the bill’s basic lending standards.
The committee had not yet announced its scheduled witnesses.

White House calls subprime rule talk premature

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WASHINGTON (12/3/07)—The White House Friday said it was working closely with the private sector and the mortgage industry to find ways to help people keep their homes through the current upheavals in the mortgage and housing markets, but added it is too early to discuss possible initiatives to address the crisis. Reuters reported Friday that when White House spokesman Scott Stanzel was pressed by reporters on the subject, he answered that talk about any news steps would be “premature” at this time. The article noted that in August the Bush administration announced a series of initiatives geared toward helping homeowners avoid defaulting on “risky mortgages” and that economists are increasingly concerned about the impact of the subprime mortgage crisis on the broader U.S. economy. The White House acknowledged last week when it released the most current economic forecasts that the decline in housing had been "more pronounced" than expected. The forecast had cut projections for the U.S. gross domestic product growth for the coming year to 2.8% from the 3.1% estimated in June.

House subcommittee looks at Californias bleak subprime picture

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WASHINGTON (12/3/07)—The Federal Deposit Insurance Corp. (FDIC) chairman’s special advisor for policy was one of 21 witnesses scheduled to testify on three panels during Friday’s House subcommittee field hearing in California on foreclosure prevention. The FDIC’s Mike Krimminger noted in his prepared testimony that California’s exposure to subprime mortgages is particularly significant and the approaching rate resets for subprime hybrid ARM loans is introducing “additional uncertainty for California homeowners, lenders, and the public.” The hearing was conducted by the House Financial Services subcommittee on housing and community opportunity. Krimminger testified that California’s subprime mortgage problems already have spread to cause other problems, such as a decline in the state’s employment levels, spurred in part by a 16% drop in construction employment as of the third quarter of this year. The non-depository finance and services sector also experienced a decline of 3% from a year ago. Krimminger split subprime loan portfolios into three groups, identifying: a small subset of loans that can be expected to perform after reset without modification; loans that became past due under the starter rate and probably cannot repay even if they are modified; and loans that have remained current prior to reset, but will likely not remain so after reset without modification. Based on FDIC calculations, he said, perhaps more than 1.5 million hybrid loans totaling $330 billion are scheduled for their first rate reset between September of this year and December 2008. H e said “the vast majority of these loans” remain current and fewer than 350,000 are 60 days or more past due. “A key issue is how to address the mortgage loans for owner occupied properties where the borrowers are current on their payments but will not be able to maintain the payments following reset. If servicers do nothing and allow all of these loans to reset to the full contract rate, the result will be the eventual default and foreclosure on hundreds of thousands of additional loans.” The FDIC official reiterated Chairman Sheila Bair’s recommendation that servicers take a “systematic and streamlined approach” to restructuring loans into fixed-rate loans at the introductory rate. He also took on what he called “misconceptions” regarding restructuring loans. For Krimminger’s complete testimony and that of other witnesses, use the resource link below.

Inside Washington (11/29/2007)

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* WASHINGTON (11/30/07)—The House Financial Services subcommittee on housing and community opportunity announced it will conduct a Dec. 5 hearing on the affordable housing needs of the country’s low-income veterans. A witness list has not yet been made publicly available… * WASHINGTON (11/30/07)—House Financial Services Committee Chairman Barney Frank (D-Mass.) criticized the Security and Exchange Commission’s (SEC’s) decision to restrict shareholder access to company proxies. Frank said the result of the SEC’s vote would be “a step backward for shareholders, as evidenced in part by the thousands of comments received in opposition to the rule, primarily from those representing shareholder interests.” Frank said the approved amendments to the SEC’s proxy rules will leave shareholders with “inadequate recourse to influence insular boards that are unresponsive to shareholder concerns, by effectively precluding shareholders from proposing changes to director election procedures”… * WASHINGTON (11/30/07)--Treasury Secretary Henry Paulson was scheduled to meet with Washington Mutual Inc., Wells Fargo & Co., JPMorgan Chase & Co., Countrywide Financial Corp., and four thrift and banking representatives Thursday to agree on a plan that would help subprime borrowers refinance adjustable-rate mortgages. Federal Deposit Insurance Corp. Chairman Sheila Bair, Office of Thrift Supervision Director John Reich, Comptroller of the Currency John Dugan, Housing and Urban Development Secretary Alphonso Jackson and Federal Reserve Board Gov. Randall Kroszner also were expected to attend Paulson’s meeting (American Banker Nov. 29). Paulson's work to solidify a federal plan for mortgage modifications comes as individual states are unveiling their plans. Next week, the California Assembly is scheduled to reveal its initiatives to change the state's lending process. One suggestion, made by California Assembly Banking and Finance Committee Chairman Ted Lieu (D-El Segundo), is to require lenders to report their loan modification data each month. If federal regulators reach a consensus at Thursday's meeting, industry representatives anticipate that Paulson could announce the plan at a housing conference Monday ... * WASHINGTON (11/30/07)--Banks still fear that borrowing from the Federal Reserve Board’s discount window could be construed as accessing emergency loans for troubled financial institutions, Donald Kohn, central bank vice chairman, said Wednesday (American Banker Nov. 29). The Fed needs to think about how its liquidity facilities can be effective despite stress in the financial markets, he said. His speech, given before the Council on Foreign Relations, signaled that the central bank may cut interest rates further at its next meeting Dec. 11 … * WASHINGTON (11/30/07)--Leadership elections have been scheduled for Dec. 6 to replace Senate Minority Whip Trent Lott, who announced his resignation this week (CongressDaily PM Nov. 28). Candidates include Sen. John Kyl (R-Ariz.), Republican conference chairman; Sen. Kay Bailey Hutchison (R-Texas), Republican Policy Committee chairwoman; Sen. Richard Burr (R-N.C.) and Sen. Lamar Alexander (R-Tenn.), Sens. John Cornyn (R-Texas), John Thune (R-S.D.) and Jim DeMint (R-S.C.) have also expressed interest in running …

Slight sigh for CUs with FASB rule delay

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WASHINGTON (11/30/07)—Credit unions and other not-for-profit organizations may breathe a temporary sigh of relief since the Financial Accounting Standards Board (FASB) has proposed to defer the effective date of Interpretation 48 (FIN 48) for nonpublic entities, which addresses accounting for uncertainty in income taxes. FIN 48 is applicable to unrelated business income taxation (UBIT) for state-chartered credit unions and provides direction on how to financially recognize such tax when there is a question regarding the amount of the tax liability. Credit unions who are subject to UBIT and who made not have filed or paid would have had to record a liability on their financial statements anyway. The interpretation was to have taken effect for tax periods after Dec. 15, 2006, but FASB is now asking for public comment on pushing that back to periods after Dec. 15, 2007. There will be a 30-day period to comment on the proposed delay. Credit unions might welcome the delay, according to Scott Waite, chairman of the Credit Union National Association (CUNA) Accounting Task Force, because it would provide additional time determine just how to apply FIN 48 in the sometimes uncertain world of not-for-profit organizations. This is particularly true in the case of UBIT where there is still some uncertainty as to exactly what is and is not subject to the tax. Waite, who is also SVP-CFO of Patelco CU, San Francisco, said the CUNA task force is reviewing this and a number of other accounting issues for credit unions. He noted that FASB has also announced a partial delay of FAS 157, Fair Value Measurement, but not as it relates to financial assets and liabilities, except for those that are recognized or disclosed on a recurring basis. This is important to those who adopted FAS 159, Fair Value Option, earlier this year. The Accounting Task Force also is awaiting FASB's final determination on business combinations and will be analyzing that interpretation, which was expected earlier this fall, he said, adding that his group is also developing answers to questions for credit unions on the Visa IPO issue, which it plans to distribute to credit unions shortly.

FACT Act rules on consumer report info issued

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WASHINGTON (11/30/07)—Consumers will be able to directly dispute inaccuracies about certain information reflected on their consumer reports with the furnishers of that information under an inter-agency proposal announced Thursday. The federal financial regulatory agencies and the Federal Trade Commission (FTC) approved proposed regulations and guidelines they say will help ensure the accuracy and integrity of information provided to consumer reporting agencies. The proposal would implement section 312 of the Fair and Accurate Credit Transactions (FACT) Act of 2003, which amended the Fair Credit Reporting Act. As required by the FACT Act, the agencies are:
* Proposing guidelines for use by entities that furnish information about consumers to a consumer reporting agency regarding the accuracy and integrity of the information that they furnish; and * Proposing regulations that would require each entity that furnishes information to a consumer reporting agency to establish “reasonable policies and procedures” for implementing the guidelines.
The proposal soon will be published in the Federal Register and the comment period will end 60 days thereafter. If adopted, the proposed rules will apply to federal credit unions through the National Credit Union Administration’s action and to state-chartered credit unions through the FTC’s authority. The Credit Union National Association will soon issue a comment call seeking credit union perspective on the proposed rule and will refer the issue to its Consumer Protection Subcommittee. Use the resource link below to access CUNA’s e-Guide entitled “FACTA Rulemaking - Agencies Issue Proposed Rules and Guidelines that Address Accuracy and Integrity of Consumer Report Information and Rules to Allow Direct Disputes.”

Foreclosure risk field hearing announced

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WASHINGTON (11/29/07)—The House Financial Services Committee has announced its housing and community opportunity subcommittee will conduct a field Friday on mortgage issues. The hearing will examine foreclosure prevention and intervention, as well as the importance of loss mitigation strategies to help homeowners hang onto homes. Witnesses were not yet announced. The hearing will be convened at the California Science Center in Los Angeles. It will be lead by the subcommittee chair, Rep. Maxine Waters, a Democrat from California. Another hearing, tentatively scheduled by the full committee for Dec. 6 to study ideas for supplementing the mortgage reform bill passed 291-127 by the House before Thanksgiving recess, has been postponed, according to American Banker (Nov. 28). No new date has been set.

Sen. Dodd announces bankruptcy bill plans

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WASHINGTON (11/29/07)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) announced Wednesday that he plans to introduce bankruptcy reform legislation that would affect five changes in the country’s bankruptcy code. The bill is intended to establish a safety net for families who have fallen on hard times and offer those who file for bankruptcy a second chance at establishing financial security, Dodd said in a release. Dodd said his bill would:
* Allow judges to consider debtors individual circumstances when determining their ability to pay to ensure that families have enough to meet their children’s needs; * Ensure that child support and alimony payments are settled first and are not eligible for distribution to creditors; * Ensure that medical debts can always be discharged in bankruptcy; * Treat mortgages like other secured debt so that bankruptcy courts can restructure mortgages to help borrowers stay in their homes; and, *Make private student loans dischargeable.
“Financial hardship can strike even the most diligent and hardworking Americans,” said Dodd. “Most often, individuals are forced into bankruptcy by a devastating medical event or the loss of a job. Our bankruptcy laws should not punish these vulnerable members of our society, but instead should help them get back on their feet while protecting them and their families from added suffering at the hands of creditors.” The Credit Union National Association (CUNA) has urged Congress to use the care and precision of a good surgeon in pursuing efforts to address the current subprime mortgage crisis through changes in nation's bankruptcy laws. CUNA President/CEO Dan Mica told lawmakers recently that CUNA has "considerable concerns" with any legislation that would open the Bankruptcy Code to amendment so soon after major revisions were enacted through the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. That law went into effect in October of that year. The CUNA leader sent the credit union letter to Capitol Hill as the House Judiciary Committee was wrestling with a bill to allow mortgage restructurings under the bankruptcy code. The Emergency Home Ownership and Mortgage Equity Protection Act (H.R. 3609) would also give judges power to modify certain terms in existing mortgages.

Inside Washington (11/28/2007)

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* WASHINGTON (11/29/07)--Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he expects the decline in housing activity to “bottom out” by the end of the second quarter in 2008. Plosser spoke Tuesday before the University of Rochester’s graduate school of business administration in Rochester, N.Y. He also noted that he expects the U.S. economy to “go through a brief period of sluggish growth before returning to a sustained expansion,” and inflation to remain about the level I view as consistent with price stability. “We will have to remain vigilant on the inflation front and prepare to act as necessary to avoid the risk of undermining the public confidence in the central bank’s commitment to price stability,” he said … * WASHINGTON (11/29/07)--The National Association of Affordable Housing Lenders (NAAHL) supports legislation, introduced by Sen. Jack Reed (D-R.I.), that would reform the affordable housing goals of Fannie Mae and Freddie Mac. The Government Sponsored Enterprise (GSE) Mission Improvement Act of 2007 “is another strong statement from a key member of Congress that any GSE legislation passed by Congress should be comprehensive, not piecemeal,” said NAAHL President/CEO Judy Kennedy. The bill would direct GSEs Fannie Mae and Freddie Mac to set aside $500 million to $900 million every year for an affordable housing fund. About 65% of the fund would go to a housing program operated by the Department of Housing and Urban Development, while the remaining 35% would be placed in a fund operated by the Treasury Department (News Now Nov. 20) … * WASHINGTON (11/29/07)--Keith Hennessey will replace Al Hubbard as the director of the National Economic Council, President Bush announced Wednesday. Hennessey, who has served as Hubbard’s deputy and deputy to two other council directors, began his career at the White House in 2002. He also has worked for the Senate Budget Committee (Associated Press Nov. 28). Hubbard stated in a letter to the president that he resigned to spend more time with his family. The National Economic Council was created under the Clinton Administration to coordinate economic policy…

Mica Bank strain not from CUs

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WASHINGTON (11/29/07)—Credit Union National Association (CUNA) President/CEO Dan Mica noted that even with the impact of mortgage-related losses banks continue to post substantial profits. And, banker rhetoric aside, any strains they're feeling are certainly not the result of credit union competition, he said. "As credit unions work to help members of their communities survive the credit crunch caused by the real estate bust, banks clearly need to stop their anti-credit union rhetoric and false claims of unfair competition,” the CUNA leader said. The Federal Deposit Insurance Corp. (FDIC) announced that federally insured commercial banks and savings institutions reported net income of $28.7 billion for the third quarter of 2007. The net income level was a $9.4 billion drop (24.7%) from the third quarter of 2006, according to the FDIC. However, in 2006 banks---for the sixth consecutive year-- scored record-breaking profits. They earned $146 billion last year, up 6.6% from the previous year’s record. According to FDIC Chairwoman Sheila Bair, the banking industry’s performance this quarter was hurt by asset-quality problems and volatility in financial markets. “Almost half of all insured institutions reported year-over-year declines in earnings. Residential mortgage loans were the focal point of asset-quality problems. But delinquency and loss rates were up across all major loan categories," said Bair in a release.

NASCUS toTreasury Dual chartering should remain

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WASHINGTON (11/29/07)—The National Association of State Credit Union Supervisory (NASCUS) sent a Nov. 21 letter to the Treasury Department commenting on Treasury’s review of the regulatory structure associated with financial institutions. The letter noted that the topic of revamping the regulatory framework has been debated for many years and conceded that if the system had been “created by design,” the current system would not have been “deliberately engineered.” “(H) owever, the current system has provided competition, innovation and diversity. One cannot overlook the benefits offered by the current system,” wrote Sandra Troutman, executive vice president of government relations for NASCUS. NASCUS focused the body of its comments on three main areas: the dual chartering system, state charters, and what the group considers to be the optimal role of a deposit insurer. The letter argued that today’s regulatory system is strengthened by dual chartering which, it said, provides for “diversity, innovation and healthy competition. “Charter choice creates healthy competition and provides an incentive for regulators (both state and federal) to maximize efficiency in their examinations and reduce costs. It also allows regulators to take innovative approaches to regulation while maintaining high standards for safety and soundness,” the letter said. The state chartering option, NASCUS said, improves consumer protections and economic vitality. Responding to a specific request for comment issued by the Treasury, NASCUA said it believes “the roles and responsibilities of the insurer and the primary regulatory should be separate, distinct and well defined” as exemplified in the banking system with the Federal Deposit Insurance Corp. That system, according to NASCUS, limits conflicts of interest between the regulator and the insurer and allows an insurer to be independent.”

CUNA Garnishments a state issue

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WASHINGTON (11/28/07)—-How financial institutions respond to state court garnishment orders when exempt federal benefit funds are involved would best be addressed by federal policymakers coordinating with state officials to develop model statutory language that all states would be encouraged to adopt, according to the Credit Union National Association (CUNA). The objectives of such language would be to encourage greater uniformity in garnishment proceedings and to ensure adequate notice is provided to consumers by the courts that are reviewing claims for garnishment. It would also address that notice to consumers would spell out the exemptions for federal benefit funds and state that the courts should work with the parties through the hearing or review process to develop garnishment orders that recognize the amount of such funds that are exempt, CUNA wrote in a comment letter to the National Credit Union Administration (NCUA). The NCUA and other federal financial regulators proposed guidance on the issue in September, just as the Senate Finance Committee conducted a hearing on the subject. The agency’s proposed “Guidance on Garnishment of Exempt Federal Benefit Funds” is comprised of nine best practices. It seeks to address situations that arise when a financial institution should be encouraged to develop and maintain sound policies for dealing with garnishments in a pro-consumer manner while recognizing the practical constraints on their operations. However, the CUNA letter said that a number of legal concerns regarding the processing of garnishments are more appropriately the purview of state courts and the parties to the garnishment proceeding, rather than the third party financial institutions. “Credit unions want to uphold the law and make every effort to do so but should not be expected, even through best practices, to assume responsibilities that belong to others,” the CUNA letter said. The subject of garnishments also has received the attention of House members. Earlier this year House Financial Services Committee Chairman Barney Frank (D-Mass.) sent a letter to all the federal financial institution regulators asking them what actions they have taken to ensure compliance with the Social Security Act's prohibition against the garnishment of federal benefits. Frank, at that time, noted a lack of regulatory guidance on the issue. The CUNA comment letter also addressed each of the nine proposed best practices noting that a number of the proposals are simply not workable. The letter, soon to be posted on the CUNA website at, may be read in its entirety by clicking on the Regulatory Advocacy page of the website.

Inside Washington (11/27/2007)

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* WASHINGTON (11/28/07)--Bank regulators need to watch activities taking place outside of the balance sheet, said John Bovenzi, chief operating officer of the Federal Deposit Insurance Corp. during the China International Banking Convention in Beijing two weeks ago (American Banker Nov. 27). Given the problems in the subprime market, regulators need to improve consumer protection, he said, noting that Basel II may not be enough to protect financial institutions from risk when leaving their structured investment vehicles behind … * WASHINGTON (11/28/07)--The Federal Reserve released data Friday indicating that discount window lending to troubled financial institutions was $2 million as of Nov. 21. Lending to healthy institutions was steady at $11 million. About $45 million was provided as seasonal credit to support rural financial institutions (American Banker Nov. 27). Of that amount, $15 million was from the Federal Reserve Bank of Kansas City. About $11 million was distributed by the Minneapolis Federal Reserve Bank, and $12 million by the San Francisco Federal Reserve Bank … * WASHINGTON (11/28/07)--The maximum 2008 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac will remain at the 2007 level of $417,000 for one-unit properties in most of the U.S., announced Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart. Higher limits will apply to Alaska, Hawaii, Guam, the U.S. Virgin Islands and properties with more than one unit. The loan limit is based on the October-to-October change in the average house price in the Monthly Rate Survey of the Federal Housing Finance Board (FHFB). The FHFB reported the decline in the average price was $10,685, or 3.49%, to $295,573 in October 2007 from $306,258 in October 2006. The combined two-year decline is now 3.65% … * WASHINGTON (11/28/07)--Arguments made in a Monday hearing ask the U.S. Supreme Court to overturn a 2006 ruling stating that employees cannot sue their employers for mishandling 401(k) or retirement accounts. Last year’s ruling was built off of the 1974 Employee Retirement Income Security Act (Erisa), in which the appeals court viewed the law as one allowing lawsuits for improper management of plans, but not for individual accounts (The New York Times Nov. 27). In the case, James LaRue had sued the consulting firm handling his retirement account when he realized that the plan’s administrator didn’t transfer his investments as he had requested, resulting in a $150,000 loss. On Monday, LaRue’s lawyer argued that the appeals court misinterpreted Erisa and created a distinction between the plan and individual accounts. Justice Stephen G. Breyer noted that it would be difficult the draw the distinctions, arguing that it wouldn’t matter where the losses came from … * WASHINGTON (11.28/07)—The Small Business Administration (SBA) announced two personnel changes Tuesday: Molly Wilkinson will become SBA’s chief of staff in January, replacing Joel Szabat; and Eric Zarnikow, beginning next week, will be the SBA’s associate administrator for the Office of Capital Access. Zarnikow replaces Michael Hager. Wilkinson, who currently is the General Services Administration’s chief acquisition officer, will be responsible for implementing SBA Administrator Steve Preston’s agenda to improve SBA’s efficiency, transparency and accountability, according to the agency. Zarnikow will be responsible for the management and oversight of SBA’s principal lending, international trade, surety bond and venture capital programs, including the new Patriot Express loan, and initiatives designed to reach underserved markets. Since 1994, he has held a number of executive positions at The ServiceMaster Company, including most recently, senior vice president, chief risk officer and treasurer...

CUs unique nature requires own regulator says NCUA

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WASHINGTON (11/28/07)—The National Credit Union Administration (NCUA) pointed to its success under the current regulatory structure and the unique nature of the credit unions under its supervision as key to demonstrating a need to maintain the current regulatory regime. In a comment letter addressed to Treasury Secretary Henry Paulson, the NCUA wrote that several facts concerning the structure and operation of credit unions segregate the financial cooperatives—and their regulatory system—from “the core concerns raised” the an ongoing Treasury study. The Treasury Department has been seeking comment on the regulatory structure of the country's financial institutions and whether improvements are needed. The Treasury request came on the heels of a Government Accountability Office (GAO) study released last month that examined federal financial institution oversight and recommended consolidation of the regulators. “The current regulatory structure for all depository institutions has effectively met the needs of the regulated industries and resulted innovation, leading ultimately to better products, services and choice for the American consumer,” wrote NCUA Chairman JoAnn Johnson. “One concern with the structure (as noted in the GAO report) is the blurred lines of oversight due to changes in the financial industry. The regulators have made changes to address the blurred line between services and are working together through interagency committees to address common issues," she added. The NCUA also said that the current regulatory structure allows depository institutions “of all sizes and types” to be fairly represented in the marketplace due to the “specialized attention provide by each regulatory agency.” “Since each regulator oversees a specific group, the business needs and risks of those groups can be fully understood and regulated accordingly,” Johnson wrote. Among other points addressed by the NCUA, the federal regulator urged modifications to the Fedearl Credit Union Act to “enable credit unions to continue their safe and sound operations and fulfill Congressionally mandated public policy objectives.” Specifically the agency said credit union need: an enhanced and modernized Prompt Corrective Action system which would allow a “more robust” risk-based capital standard’ and clarification that all types of federally chartered credit union may adopt underserved communities. Provisions for both are contained within the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537).

Current regulatory structure right for CUs says CUNA

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WASHINGTON (11/27/07)--Consolidating federal financial institution regulatory agencies would have dire consequences for credit unions because they are “distinctive and exceptional financial organizations” that require their own regulatory framework, the Credit Union National Association (CUNA) said in a recent comment letter to the Treasury Department. The orientation of an amalgamated agency would favor large commercial banks and other more affluent institutions over not-for-profit credit unions, as history has shown, CUNA said remarking on Treasury’s ongoing review of the framework for the regulation and insurance of financial institutions. Credit unions are distinct from other financial services providers and as a result and in order to preserve those differences -- which Congress has determined benefit the public -- the regulatory framework for supervising credit unions must reflect and facilitate those distinctions, the CUNA letter said. As evidence, CUNA pointed to the past – specifically 1942 to 1948, when the Federal Deposit Insurance Corp. (FDIC) supervised federal credit unions. In 1946, for example, the FDIC issued an audit report to Congress which declared “the supervision and examination of Federal Credit Unions was an extraneous function of the Corporation.” Subsequently, in 1947, the CUNA Board of Directors wrote to President Harry S Truman asking that the regulation of credit unions be transferred from FDIC. In 1948, the Congress created the Bureau of Federal Credit Unions, the predecessor to the National Credit Union Administration, to be the new, solely credit union-oriented regulatory agency – and removed credit unions from FDIC’s regulatory jurisdiction. CUNA also pointed out in its letter that the FDIC’s recent attitude toward credit unions aligned more closely to the banking industry. Noting that immediate past FDIC Chairman Don Powell called for taxation of credit unions, CUNA said the chairman’s words aligned him with the banking industry’s position, but was directly at odds with the Bush administration’s support of the credit union tax exemption. In other comments, CUNA noted its support for a continued National Credit Union Share Insurance Fund (NCUSIF) that is independent of other federal deposit insurance funds and still administered by the NCUA; the continuation of the credit union tax exemption; the benefits of the dual chartering system of federal and state credit unions; the critical nature of reforming “prompt corrective action” requirements for credit unions; the need for additional regulatory relief; and the need for flexibility in regulation and safeguarding reasonable consumer interests. The Treasury Department has been seeking comments—due Nov. 21--on the regulatory structure of the country's financial institutions and whether changes are needed to improve regulation. The Treasury request came on the heels of a Government Accountability Office (GAO) study released last month that examined federal financial institution oversight and recommends consolidation of the regulators. Mary Dunn, CUNA senior vice president and deputy general counsel, has said that comprehensive restructuring is not an imminent threat to credit unions. It would require statutory changes that could not happen quickly—and certainly not this year. Also, the leadership of neither the House nor the Senate committee with jurisdiction over financial services matters has publicly identified such restructuring as an upcoming issue. "Nonetheless, the GAO study was required by Congress, and any time the government reviews regulatory consolidation there is reason for concern," Dunn has said.

Inside Washington (11/26/2007)

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* WASHINGTON (11/27/07)—Sen. Trent Lott of Mississippi, who as minority whip is the Senate’s No. 2 ranked Republican, announced Monday that he will be retiring by the end of this year. He said during a press conference that he is healthy and that he and his wife, Trisha, had decided it was time to “do something else.” Richard Gose, senior vice president for political affairs for the Credit Union National Association (CUNA), said the retirement announcement could have been spurred in part by the Senate’s new ethics and lobbying rules that go into effect Jan.1, 2008. The new rules prohibit lobbying by a former senator for two years after leaving office... * WASHINGTON (11/27/07)--With the exception of Chicago, the Federal Home Loan Banks (FHLB) are reporting increases in the number of advances they granted their financial institutions in the third quarter, some calling the uptick “unprecedented” in their filings to the Securities and Exchange Commission (American Banker Nov. 26). FHLB New York reported an increase of 27.2%; Boston, 50.8%; Seattle, 48.2%; Des Moines, 45.3%; Atlanta, 37.3%; Pittsburgh, 30.3%, San Francisco, 28.6%; Cincinnati, 27.8%; Topeka, 15.9%; Dallas, 7.6%; and Indianapolis, 8.5%. FHLB Chicago reported a loss in advances of 6.3%. The increase in advances demonstrates the need for liquidity in regard to recent market problems, FHLB New York stated in its filing. On Monday, Sen. Charles Schumer (D-N.Y.) sent a letter to the Federal Housing Finance Board expressing his concerns regarding the FHLB Atlanta’s advances to Countrywide Financial Corp. (The Wall Street Journal Nov. 26). In its latest filing, Atlanta reported advances of $51.1 billion to Countrywide Bank, which accounts for 37% of FHLB Atlanta’s outstanding advances as of Sept. 30. The advances “may pose a risk to the safety and soundness of the FHLB system as a whole,” Schumer said. He urged the board to review FHLB Atlanta’s and Countrywide’s collateral evaluation policies …

Options exist to meet CUs ID theft requirements

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WASHINGTON (11/26/07)--New interagency “red flag” regulations and guidelines have credit unions asking if they must start from scratch or can they incorporate current fraud prevention procedures into ID theft prevention programs? According to CUNA’s monthly Compliance Challenge, when appropriate to address identity theft, a credit union may incorporate existing fraud prevention policies and procedures into its ID Theft Prevention Program. The National Credit Union Administration (NCUA), Federal Trade Commission (FTC) and the federal banking agencies issued final guidelines and regulations to implement Section 114 of the Fair and Accurate Credit Transaction Act (FACTA). Section 114 defines the identity theft “red flags,” and in this case:
* NCUA’s regulations will apply to federal credit unions; * FTC’s regulations will apply to state chartered credit unions.
The rules are substantially similar and have a mandatory compliance date of Nov. 1, 2008, reports Compliance Challenge. The interagency “red flag” regulations require institutions to develop and implement a written “Identity Theft Prevention Program,” which is designed to “detect, prevent, and mitigate identity theft in connection with the opening of a covered account or any existing covered account.” The regulation defines “covered accounts” as those:
* Offered or maintained primarily for personal, family, or household purposes that involve or are designed to permit multiple payments or transactions such as a credit card account, mortgage, loan, automobile loan, checking account or share account; and * Any other account the credit union offers or maintains for which there is a reasonably foreseeable risk to members or to the safety and soundness of the federal credit union from ID theft, including financial, operational, compliance, reputation, or litigation risks.
The regulations’ accompanying guidelines make clear that “a credit union may incorporate existing fraud prevention policies and procedures into the ID Theft Prevention Program, as appropriate,” says the Challenge. According to the supplemental information, “this will avoid duplication and allow covered entities to benefit from existing policies and procedures.” However, the credit union may only incorporate existing policies, procedures, and arrangements “that control reasonable foreseeable risks to members or to the safety and soundness of the credit union from identity theft,” it concludes. Use the resource link below to learn more in this month’s Compliance Challenge.

Inside Washington (11/21/2007)

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* WASHINGTON (11/26/07)--California Gov. Arnold Schwarzenegger Tuesday announced his plan to stop foreclosures in California. The governor said he has made an agreement with lenders, including Countrywide Financial Corp., GMAC, Litton and HomeEq to “fast track” loan modifications. His proposal is based on a suggestion made by Federal Deposit Insurance Corp. Chairman Sheila Bair that financial institutions should lock borrowers’ interest rates (American Banker Nov. 21). Meanwhile, Office of Thrift Supervision (OTS) Director John Reich suggested that loan servicers and thrifts should extend starter interest rates for periods of up to three years to help subprime hybrid mortgage borrowers. Unlike Schwarzenegger’s broader approach, Reich advocated for modifying loans case-by-case and then limiting modifications to hybrid mortgages only. As an incentive, OTS would also provide $500 per loan to servicers who modify mortgages … * WASHINGTON (11/26/07)--Weakness in the housing and credit markets caused earnings in the thrift industry to drop 84% from one year ago to $704 million during the third quarter, the Office of Thrift Supervision (OTS) reported Tuesday. Net income also is down 82% from $3.83 billion in the last quarter. Despite the drop, OTS Director John Reich said he is encouraged that managers of OTS-regulated institutions are taking the right steps “to provide a cushion for the future” …

Online Early peek around the GAC site locale

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WASHINGTON (11/26/07)—Credit unions preparing to attend the Credit Union National Association’s (CUNA) 2008 Governmental Affairs Conference (GAC) can watch an advance video preview of the meeting’s new locale. The 2008 GAC happens March 2-6 at the Washington Convention Center in downtown Washington, D.C.
Click to access GAC videos
In the 2-1/2 minute online video, CUNA President/CEO Dan Mica provides a glimpse of the Gallery Place and Chinatown neighborhoods near the new site. He points out different area attractions and eateries while walking along historic 7th Street Northwest, which is adjacent to the convention center. The International Spy Museum, the National Portrait Gallery, the Shakespeare Theater and DC's Chinatown are among the sites Mica highlights on the quick tour. Wrapping up back on the convention center steps, he also reminds credit unions that political action is what the GAC is all about: "Make your presence known here at this facility and at Capitol Hill right down the street." Mark Wolff, CUNA senior vice president of communications, said the video is meant to generate excitement about our new GAC venue and help attendees become more familiar with the surroundings. Last month, CUNA released a video featuring CUNA Board Chairman Allan Kemp McMorris. He invites his credit union peers to join the event, and urges them to travel via any possible mode , "bike, car, train or plane. What matters is that you're here!" McMorris prefers his Harley Davidson motorcycle. "We need you in Washington," says McMorris. A large turnout, he adds, makes a bold statement. "So when you come to the GAC, bring a friend." Use the resource link below to view the videos and see a map of Washington, D.C.

NCUA says CUs have continued loan and share growth

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ALEXANDRIA, Va. (11/21/07)—The nation’s 8,163 federally insured credit unions continue to “diligently fulfill their mission” of being a major lending source for their members, according to third-quarter 2007 Call Report data just released by the National Credit Union Administration (NCUA). The NCUA noted that the loan-to-share ratio increased and is now at 82.66%. NCUA Chairman JoAnn Johnson said in a release, “A significant portion of loan growth can be attributed to real estate lending during the first nine months of 2007. “Looking at annualized figures, first mortgage real estate loans increased 12.49% and other types of real estate loans increased 8%. NCUA continues to stress the importance that credit unions offer their members safe, stable mortgage lending products.” Loan delinquencies also crept up a bit during the reporting period. The NCUA reported that credit union first mortgage fixed, hybrid, and balloon delinquency hit 0.44%, up from 0.28%, and first mortgage adjustable rate loan delinquency increased to 0.46% from 0.33%. Net charge-offs for first mortgage real estate remained constant from 2006 at 0.02%. Credit Union National Association Chief Economist Bill Hampel said Tuesday that CUNA’s monthly estimates of credit union data tracks very closely to the final NCUA numbers just released. “Our sample showed loans increasing by 5.4% in the first three quarters of 2007 compared to NCUA's 5.2%. Our savings estimate at 4.0% was just below the final 4.4% figure from NCUA,” Hampel said and noted: “Going forward, with a slowing economy we expect savings growth to accelerate and loan growth to slow.” CUNA has also noted an increase in delinquency recently. “According to our sample, the overall delinquency rate from 0.69% to 0.77% over the quarter. NCUA's final report shows the increase was a bit greater, to 0.82%,” Hampel said. Despite the rising delinquency, net charge-offs were virtually unchanged at 0.46% of loans outstanding during the quarter, according the CUNA, “We expect delinquency to rise to 1% or slightly more and charge-offs to 0.65% next year as the economy weakens and credit unions in some parts of the country experience collateral damage from the weak housing market. Although high by recent standards, these levels of delinquency and charge-offs are similar to those of the late 1990's,” Hampel added. The NCUA released the following details of annualized, major balance sheet categories and membership growth for the period spanning Dec. 31, 2006, to Sept. 30, 2007:
* Assets increased 6.5% to $744.4 billion from $709.9 billion; * Loans increased 6.7% to $519.2 billion from $494.4 billion; * Investments increased 5.5% to $186.7 billion from $179.5 billion; * Shares increased 6.0* to $628.1 billion from $601.2 billion; * Net worth increased 6.1% to $85.6 billion from $81.9 billion; and * Membership increased 1.9% to 86.97 million members.
Also, a shift in the share structure continued through the third quarter. Share certificates grew an annualized 14.4% to $209.3 billion, while money market shares grew 10.5% to $108.4 billion, and IRA/KEOGH accounts grew 10.3% to $56.0 billion. Regular shares declined an annualized 3.1% to $176.9 billion and share drafts declined 2.5% to $69.0 billion, which, the NCUA said, may indicate members are transferring funds, taking advantage of the often higher rates offered in money market accounts or share certificates. In addition to growth in mortgage lending, unsecured credit card loans expanded an annualized 7.21% to $28 billion and other types of unsecured loans increased 6.54% to $23.7 billion in the first nine months of the year. Loans for used automobiles grew 2.8% to $89.4 billion, and new automobile loan volume decreased a slight 0.47% to $88.2 billion. While gross income increased, the cost of funds and net operating expenses also increased. As a result, the return-on-average-assets remained at the 0.75% level reported at mid-year 2007. Use the resource link below to access CUNA’s Economic and Credit Union Forecast and to read third quarter 2007 data details in a consolidated balance sheet and a September 2007 NCUA Facts/Summary.

Inside Washington (11/20/2007)

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* WASHINGTON (11/21/07)--The Federal Deposit Insurance Corp. Monday updated the Regional Economic Conditions (RECON) database for the second quarter. RECON provides information to help financial institutions analyze risk … * WASHINGTON (11/21/07)--On Nov. 28, the Federal Deposit Insurance Corp. (FDIC) is scheduled to release its Quarterly Banking Profile for the third quarter. FDIC officials will provide a public briefing after its release. The report, which is usually published about 50 days after the end of each quarter, provides a comprehensive summary of financial results for all FDIC-insured financial institutions …. * WASHINGTON (11/21/07)--The Federal Reserve Board announced a new resource, Federal Reserve Consumer Help, which consolidates and streamlines the Federal Reserve’s consumer complaint and inquiry program. The Federal Reserve Consumer Help is available through a new toll-free number, 888-851-1920, from 8 a.m. to 6 p.m. CT, or through the Consumer Help website … * WASHINGTON (11/21/07)--Freddie Mac Tuesday posted a $2 billion loss for the third quarter and reported that its shares dropped 25%. Revenues were posted at a negative $678 million. The loss is the biggest in Freddie Mac’s history (Associated Press Nov. 20). Freddie said it would consider cutting its dividend in half during the fourth quarter, and stated that it has hired Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. to devise ways to raise capital. If cutting the dividend doesn’t work, Freddie officials said it could issue new stock, reduce the amount it invests in mortgages or limit growth …

Ed Dept. alleges 34 million in state misuse of funds

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WASHINGTON (11/21/07)—An inspector general’s report from the Department of Education (DOE) alleged that the student loan corporation in Pennsylvania improperly used a subsidy program to collect millions from the federal government, but the chief executive of the state agency rebuffed the charge. According to an article in the Nov. 20 issue of The New York Times, the IG of the Department of Education called on that agency to collect $34 million from the Pennsylvania Higher Education Assistance Agency (PHEAA), a state-owned company that makes and guarantees student loans, which it claims exploited the subsidy. However, PHEAA Chief Executive James Preston issued a statement saying that the report made a jumble of a “present-day interpretation of past department regulations.” He added that it ignored 10 years of his agency’s compliance with regulations. The article noted that a DOE spokesperson has said the report is under review. The subsidy program, started in the high-interest-rate environment of the 1980s and which guaranteed lenders a 9.5% rate of return, has seen a number of failed attempts by Congress to rein it in. The PHEAA is the state agency that warded off a $1 billion hostile takeover attempt by Sallie Mae in 2005.

Five noted for service to Native communities

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ALEXANDRIA, Va. (11/21/07)--National Credit Union Administration Chairman JoAnn Johnson noted five credit unions as examples of the positive impact the financial services cooperatives are having on American Indian and Native Alaskan communities. In a release that acknowledged President George W. Bush’s designation of November as National American Indian Heritage Month, the NCUA said its Community Development Revolving Loan Fund (CDRLF) program, along with the Treasury Department’s Community Development Financial Institution Fund (CDFI), have been important sources of assistance to low-income credit unions, including those serving Native communities. The credit unions cited by the NCUA were:
* Lac Courte Oreilles FCU, Hayward, Wis., which received CDRLF assistance to help members with basic financial services, home ownership, and credit building. The credit union also has been proactive with financial literacy initiatives by offering classes covering budgeting; working with checking and savings accounts; understanding credit; and other issues facing their local economy; * Bear Paw CU, Havre, Mont., which used its CDRLF assistance for software upgrades, staff training, and financial education for its members, which includes residents of the Fort Belknap Indian Reservation; * CR Community First FCU, Eagle Butte, S. D., chartered by the NCUA earlier this year to serve 12,000 residents of the Cheyenne River Indian Reservation in Dewey and Ziebach Counties. The credit union organizers worked with the Cheyenne River Sioux Tribal Council, the Cheyenne River Housing Authority, and NCUA staff to obtain the charter, and the credit union has received a low-income designation; * Wolf Point FCU, Wolf Point, Mont., in partnership with the CDFI fund, provides important financial services to Native Americans in the Wolf Point community’ and * Tongass FCU, Metlakatla, Ak., has initiated financial education and savings programs to schools in the communities it serves, helping to promote the importance of savings at an early age.
“The President's proclamation of November 2007 National American Indian Heritage Month presents an opportunity to underscore the way credit unions are fostering financial stability for American Indian and Alaskan Native communities,” said Johnson. “I am particularly pleased with the central role that financial literacy programs are playing in American Indian and Native-focused credit unions as they help members move along a path of financial health and well-being,” she added.

Nearly 30 press outlets cover CUNA holiday poll

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WASHINGTON (11/20/07)--Nearly 30 media outlets covered yesterday's Credit Union National Association (CUNA) and Consumer Federation of American (CFA) press conference to learn the findings of the groups' eighth annual Holiday Spending Survey.
Click to view larger image Nearly 30 media outlets covered the Monday's event in dowtown Washington, D.C. Among them: ABC TV, NBC TV, CBS News, Bloomberg, FOX News, FOX Business Television, ABC Radio, Reuters, CNN, Dow Jones, MarketWatch, and U.S. News & World Report. (Photo provided by CUNA)
The event was held at The National Press Club in Washington, D.C. Among the television, cable and radio networks, and newspaper groups that attended or covered the press conference: CUNA's Mark Wolff, senior vice president of communications, said the event with CFA--particularly with the advice about controlling holiday debt and consumer spending tips--has become another way to show credit unions are a trustworthy resource for the nation's consumers. Use the link below to read more details about the eighth annual CUNA/CFA holiday survey.

Inside Washington (11/19/2007)

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* WASHINGTON (11/20/07)--Sen. Jack Reed (D-R.I.) Friday introduced a bill, the Government-Sponsored Enterprise (GSE) Mission Improvement Act of 2007, which would direct GSEs Fannie Mae and Freddie Mac to set aside $500 million to $900 million every year for an affordable housing fund. About 65% of the money would be put in a housing program operated by the Department of Housing and Urban Development, while the remaining 35% would be placed in a fund operated by the Treasury Department. The latter fund would provide grants for “financial activities that leverage affordable housing development, construction and preservation for low, very low and extremely low-income families,” Reed said ( Nov. 16) …

Motion seeks summary judgment in banker lawsuit

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WASHINGTON (11/20/07)--A motion supporting summary judgment against a banking industry challenge to the National Credit Union Administration (NCUA) decision allowing credit unions to expand their charters is being filed by the Credit Union National Association (CUNA) in cooperation with several credit union organizations. The other organizations are the Pennsylvania Credit Union Association the affected credit unions--Members 1st FCU, New Cumberland FCU, and Americhoice FCU--and the National Association of Federal Credit Unions. The motion was filed Monday. The bankers' case was brought in the name of the American Bankers Association and a group calling itself the Credit Union Task Force of Pennsylvania. The litigation challenges NCUA's determination that a six-county area in south central Pennsylvania constitutes a "well-defined local community" under the Federal Credit Union Act. "Our brief takes head-on the banker-plaintiffs' arguments that NCUA's approvals were 'arbitrary," said CUNA General Counsel Eric Richard. "The statement presents a well-crafted analysis showing that NCUA carefully reviewed the facts and made a reasoned decision after appropriate deliberation," Richard said. "NCUA's approval of the charter applications was based on a review of the full record, which demonstrated sufficient evidence of community interests, as well as the agency's expertise in chartering and supervising credit unions.” Richard added: “In short, it is clear that NCUA did what it was supposed to do in approving these applications. Our motion leaves no doubt that was the case."

House adjourned Senate in pro forma session

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WASHINGTON (11/20/07)—It is almost quiet on Capitol Hill as the House has adjourned for a Thanksgiving recess until Dec. 3 and the Senate hovers in pro forma status—no longer in session but on standby alert--but the tensions of a busy session linger. For instance, Senate Majority Leader Harry Reid (D-Nev.) invoked the formality of a pro forma session—an adjournment that is not an adjournment--to prevent President George W. Bush from making recess appointments of controversial nominees who have not been subject to confirmation votes. Also, the Nov. 19 CongressDailyPM reports that Reid told senators to be prepared for a busy three weeks between early December and when they adjourn for the year, which could be as late as just a few days before Christmas. Although members of the Senate Banking Committee last week asked the Credit Union National Association (CUNA) and other financial trade groups to identify their regulatory relief priorities, that issue is not yet on the Senate’s immediate horizon. The Senate is expected to focus the rest of the year on FY08 appropriations bills, legislation addressing the alternative minimum tax, and perhaps an energy package and a bill to extend the State Children's Health Insurance Program, along with some other pending issues. The House is expected to end its year by finishing work on Alternative Minimum Tax relief and negotiations with the Senate over FY2008 spending legislation.

Huron River Area CU liquidated by NCUA

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ALEXANDRIA, Va. (11/19/07)-- The National Credit Union Administration (NCUA) announced Sunday that it has liquidated Huron River Area CU of Ann Arbor, Mich. and that the credit union’s members’ accounts were purchased and assumed by Detroit Edison CU of Detroit. The purchase by Detroit Edison ensures Huron River members uninterrupted credit union service. The NCUA began overseeing the operations of Huron River in February 2007 when the Michigan Commissioner of the Office of Financial and Investment Services placed Huron River Area into conservatorship. The action was taken to protect member assets while addressing operational issues within Huron River. A lawsuit was filed earlier this year against the $362 million-asset credit union and a homebuilder, First Home Builder, alleging fraud in the way their home construction loans were set up. In March, Jason Stewart Dodge, 31, of Plymouth, Mich., a former manager of Huron River, was arrested and accused of making fake loans in members' name to cover about $90,000 embezzled during the past two years, according to reports at the time. In July, Dodge pleaded no contest to embezzling less than $50,000 from the credit union. He also pleaded no contest to two counts of identity theft. After earmarking more than $61.5 million to cover the potentially bad loans it had issued, the Michigan credit union reported a $58.9 million loss for the six-month period ending June 30. Huron River Area's assets dropped to $268 million at that time. Detroit Edison CU is a state-chartered, federally insured institution chartered in 1944. The NCUA announcement noted that it is a full service, $485 million-asset credit union with more than 27,000 members primarily located in southeastern Michigan. DECU members have access to 77 service center branches in Michigan, with thousands of additional locations across the U.S, and it offers free ATM service at over 25,000 locations. The NCUA reminded member that accounts are insured to at least $100,000 while IRA and KEOGH retirement accounts are insured up to $250,000 under coverage provided by the National Credit Union Share Insurance Fund, a federal fund backed by the full faith and credit of the U.S. Government.

Inside Washington

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* WASHINGTON (11/19/07)--Regulators shouldn’t be blamed for problems in the mortgage markets, said Alan Greenspan during a keynote speech at the opening session of the Bank Administration Institute’s Retail Delivery conference in Las Vegas Tuesday (American Banker Nov. 16). Global market forces had driven the crisis, and investors are going to “stay away,” eliminating the need for legislation, he said … * WASHINGTON (11/19/07)--A Federal Housing Administration (FHA) reform bill and a bill that would increase the caps on the portfolios of Fannie Mae and Freddie Mac by 10% were held from voting Thursday (American Banker Nov. 16). Senate Democrats wanted to pass the FHA measure before Thanksgiving, but after it cleared Sen. Elizabeth Dole's (R-N.C.) hold, it was blocked from the Senate floor by Sen. Tom Coburn (R-Okla.) and Sen. Jim DeMint (R-S.C.). Coburn stated that he thought the bill was "too important to consider under unanimous consent." At the same time, Sen. Charles Schumer (D-N.Y.) brought the bill concerning the government-sponsored enterprises’ portfolio caps to the floor, winning support from Senate Majority Leader Harry Reid. But Sen. Richard Shelby (R-Ala.), the top-ranking Republican, rejected the measure. Democrats were expected to try for a vote again Friday … * WASHINGTON (11/19/07)—On Friday the Senate passed a measure that would make minor changes to the government’s terrorism risk insurance program and extend it past its expected sunset date at the end of this year. However, the Senate bill is significantly different from an approach approved earlier by the House that would expand the program, all but guaranteeing a face-off between the two houses of Congress. House Financial Services Chairman Barney Frank (D-Mass.) has threatened to push through a three-month extension if differences cannot be worked out in December before Congress adjourns for the year. (CongressDaily Nov. 16)…

House votes yes on mortgage reform

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WASHINGTON (11/16/07)—The House voted 291-127 Thursday in favor of an amended Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), a comprehensive bill intended to combat abuses in the mortgage lending market and to provide basic protections to mortgage consumers and investors. But by the next day, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said Congress may not need to act. (American Banker Nov. 16) Dodd told reporters on a conference call that Federal Reserve Board rules that are due out in proposed form in December may be sufficient to address abusive lending practices. Dodd said he would be pleased if the Fed’s action make legislation unnecessary, but the article noted that Dodd will likely feel growing political pressure to move legislation. Meanwhile, the House-passed mortgage bill targets reform to three areas of mortgage practices. It would:
* Establish a federal duty of care, prohibit steering, and call for licensing and registration of mortgage originators, including brokers and bank loan officers; * Create a licensing system for residential mortgage loan originators, * Set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay; and * Attach limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. The bill would not make individual investors in the securities liable.
The bill proposes expanding and enhancing consumer protections for "high-cost loans" under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes. Notable among the many revisions to the bill made during the hours of debate before the House vote are:
* An amendment reflected provisions of Rep. Paul Kanjorski’s bill, The Escrow, Appraisal, and Mortgage Servicing Improvements Act (H.R. 3837), which would require escrow accounts for borrowers who might experience difficulty with repayment of their mortgages and would establish disclosure for consumers who waive escrow accounts. The amendment was also designed to improve mortgage servicing, protect appraiser independence, and ensure quality appraisal and regulatory oversight; * A requirement was added that borrowers receive an option of a mortgage without a prepayment penalty, if they are offered an amendment with such a penalty. The maximum time for a prepayment penalty would be three years and a maximum prepayment amount would be set at 3% for the first year, 2% for the second year and 1% for the third year; * The removal of civil liability of a lender and of a borrower’s right of rescission in instances where the borrower lied on a mortgage application. A second degree amendment was added stating that an obligor must have actual knowledge of the false material information for the exemption from liability to take effect.
To address any lingering concerns of critics who charge the mortgage reform bill could cut into the availability of mortgage credit for potential homebuyers, the bill directs the Government Accountability Office (GAO) to determine the effects of the legislation on the availability and affordability of credit for homebuyers and to submit a report to Congress within one year of the bill’s enactment. H.R. 3915 followed a fast track to final approval in the House, with less than a month between the bill’s introduction by Reps. Barney Frank (D-Mass.), Brad Miller (D-N.C.) and Mel Watt (D-N.C.) and the House vote. However, no similar legislation is currently being considered by the Senate, a necessary step for enactment into law. Congress adjourned Friday for Thanksgiving.

Compliance New Fed rules affect CU e-disclosures

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WASHINGTON (11/19/07)—Federal Reserve System staffers may have felt recently as though they were sitting in a big bowl of alphabet soup as they worked on amendments to the Fed’s Regulations B, E, M, Z, and DD. All their work resulted in the Fed’s recent adoption of clarifications to requirements for providing consumer disclosures in electronic form. Now the soup bowl gets passed to financial institutions and the compliance folks at the Credit Union National Association (CUNA) want credit unions to consider: How will these changes affect the way credit unions deliver electronic disclosures? “In a nutshell,” Writes CUNA’s Valerie Moss in the November Compliance Challenge, “the regulations allow credit unions flexibility in delivering disclosures electronically, and eliminate any confusion about the status of the Fed’s regulations concerning electronic communication.” In 2001, the Fed published interim final rules to establish uniform standards for the electronic delivery of consumer disclosures required under Regulations B (Equal Credit Opportunity), E (Electronic Fund Transfers), M (Consumer Leasing), Z (Truth in Lending) and DD (Truth in Savings). The interim rules addressed the timing and delivery of electronic disclosures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (ESIGN). The Fed has now withdrawn these provisions and simplified the regulations with regard to electronic communication. The mandatory compliance date is Oct. 1, 2008. The new rules eliminate certain portions of the 2001 interim final rules that restate or cross-reference provisions of ESIGN, things such as the consumer consent provisions. The regulations now simply state that the required consumer disclosures may be provided in electronic form, subject to ESIGN. They also adopt guidance on the use of electronic disclosures. The rules vary slightly because they each address different disclosure requirements , so CUNA’s Moss urges credit unions to take a look at each one. To find out what else is new in the Fed rules, used the resource link below and take the CUNA Compliance Challenge.