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Fed National mortgage servicing standards should be considered

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WASHINGTON (12/2/10)--A national set of standards for mortgage servicers should be considered as a response to past and present mortgage industry issues, Federal Reserve Board Governor Daniel Tarullo said on Wednesday. Tarullo spoke before a Wednesday Senate Banking Committee hearing entitled "Problems in Mortgage Servicing From Modification to Foreclosure." Treasury official Phyllis Caldwell, Federal Deposit Insurance Corp. Chairman Sheila Bair, acting Federal Housing Finance Agency Director Edward DeMarco, and acting Comptroller of the Currency John Walsh also testified during the hearing. Overall, Tarullo said, “broader solutions are needed both to address structural problems in the mortgage servicing industry and to accelerate the pace of mortgage modifications or other loss mitigation efforts. Tarullo also called on both the U.S. Government and the broader finance industry to pay greater attention “to the lagging incidence” of home mortgage modifications. “Homeowners who try to obtain a modification of the terms of their mortgages are all too frequently subject to delay and disappointment, while those who simply stop paying their mortgages have found that they can often stay in their homes rent free for a time before the foreclosure process moves ahead. Moreover, many homeowners believe, reportedly on the basis of communications from servicers, that the only way they can qualify for modifications is by stopping their mortgage payments and thus becoming delinquent,” Tarullo added. “The dominance of foreclosures over modifications raises macroeconomic concerns,” Tarullo said, adding that foreclosures are costly to all concerned parties and “can delay a recovery in housing markets and the broader economy.” Caldwell also called for mortgage servicers to “increase efforts in helping borrowers avoid foreclosure through modification, as well as other alternatives to foreclosure, such as short sales.” More than 1.3 million of the 30 million mortgages guaranteed by Fannie Mae and Freddie Mac “are more than 90 days seriously delinquent,” according to DeMarco.

CUNA to meet with Fed on credit life insurance concerns

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WASHINGTON (12/2/10)-Representatives from the Credit Union National Association (CUNA) and CUNA Mutual will discuss proposed credit insurance disclosures with the Federal Reserve this morning as part of its ongoing effort to address concerns regarding Regulation Z changes. The meeting will cover credit union concerns regarding the Fed's comprehensive proposal that would impose new consumer disclosures for credit life insurance and credit disability insurance under the Truth in Lending Act. Similar disclosures are currently required by State authorities, as insurance usually falls under state jurisdiction. CUNA and CUNA Mutual have criticized the proposed Fed disclosures, saying that they go well beyond ensuring that consumers are informed about these products, instead casting these products in a strictly negative light, and strongly discouraging consumers from purchasing them. CUNA Senior Assistant General Counsel Jeff Bloch said that the credit life insurance proposal is “the most problematic part” of a comprehensive Fed mortgage loan proposal. Previously, the U.S. Internal Revenue Service questioned whether credit life insurance products and other related products were "substantially related" to credit unions' tax exempt purpose -- and should therefore be subject to Unrelated Business Income Taxation (UBIT) -- by arguing that these products were overpriced relative to theoretical alternative products. However, both federal courts which have reviewed the IRS's position concluded that credit insurance products promoted thrift and therefore should not be subject to UBIT. Credit insurance will pay a specified amount of a consumer's loans in the event of injury or death. Consumers have received an estimated $2 billion in benefits from credit insurance group products over the past five years, according to industry data. CUNA through a grassroots operation called "Operation Comment," is encouraging credit unions to report their concerns with the proposals to the Fed. CUNA Mutual has also taken on a similar operation. CUNA and CUNA Mutual will also hold an audio conference on these disclosures on Dec. 8. For more on the audio conference, use the resource link.

Inside Washington (12/01/2010)

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* WASHINGTON (12/2/10)--The final report from President Barack Obama’s fiscal commission released on Wednesday includes more politically sensitive issues for Americans, including cuts in military spending, a higher retirement age and tax reform (The Washington Post (Dec. 1). But so far, commission chairs—former U.S. Sen. Alan K. Simpson, a Republican, and Erskine B. Bowles, a Democrat and former White House Chief of Staff under President Bill Clinton--have been unable to garner support from the panel’s elected officials, an indication of the potential for political backlash that such issues hold (New York Times Dec. 1). A final vote by the panel’s 18 members had been delayed until Friday. The proposal includes cutting $1.6 trillion from Obama's proposed budgets by 2020 and reducing overall government spending to less than 22% of the nation's gross domestic product. The plan also proposes raising taxes by nearly $1 trillion by 2020 through reforms that could cost the average taxpayer $1,700 annually. While the report names tax expenditures as one debt decreasing measure, the credit union tax exemption is not specifically cited. Still, both Credit Union National Association President/CEO Bill Cheney and National Credit Union Administration Chairman Debbie Matz have addressed the tax issue, noting that removing credit unions’ tax exemption would be a grave mistake. Among the reforms on the table are elimination or reductions of the deduction for home mortgage interest; the tax-free treatment of employer-paid health insurance; and preferred rates for capital gains and dividends … * WASHINGTON (12/2/10)--Federal Reserve Bank of St. Louis President James Bullard on Monday voiced concern for funding of a consumer protection office established under regulatory reform laws, saying it was not based on a careful assessment of the bureau’s needs ( Dec. 1). The Consumer Financial Protection Bureau is to be funded and housed within the central bank with an independent leader. The bureau has been given responsibility for writing consumer protection rules and regulations that apply to all banking institutions. The bureau’s rule-writing authority will extend to institutions that have not historically fallen under federal oversight. These institutions will include check cashers, payday lenders, money transmitters, pawn shops and other entities that are viewed as part of the “shadow” network of consumer credit. Harvard law professor Elizabeth Warren has been named by President Barack Obama as an adviser to help shape the new consumer agency. In a press release from the district bank, Bullard said the Fed’s only interaction with the new bureau is to fund it. He also expressed concern that a mechanism does not exist for changing the amount of funding in the future … * WASHINGTON (12/2/10)--Bentley University on Tuesday won the seventh annual national College Fed Challenge, a competition that encourages students to learn about the U.S. economy, monetary policymaking, and the role of the Federal Reserve System in the economy. The team from Waltham, Mass., represented the First Federal Reserve District and included Christina J. Harstad, Satyajeet Jadhavrao, Pranay Kumar Jain, Peter Jurik, David Norrish, Victoria Tran, and faculty advisors David Gulley and Aaron Jackson. The finals were held in the boardroom at the Board of Governors in Washington D.C. as the climax to district competitions in which more than 100 teams competed throughout the country. Other nation finalists were: second place, Lafayette College; third place, Northwestern University; fourth place, Rutgers University at Newark; and fifth place, Virginia Commonwealth University. The College Fed Challenge is a team competition for undergraduate students. Teams play the role of members of the Federal Open Market Committee, the Fed’s monetary policymaking body …

IRS says revised IRA documents coming soon

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WASHINGTON (12/2/10)—The Internal Revenue Service (IRS) has now officially indicated that it will be releasing revised model Individual Retirement Account (IRA) documents soon. The IRS last week released Revenue Procedure 2010-48, providing amendment guidance on model and prototype IRA documents and information on submitting prototype documents to the IRS for approval. Most credit unions use versions of the model IRA documents to establish IRAs for their members. In this guidance, the IRS states that although it will not require model document IRAs to be amended for the law changes listed in Rev. Proc. 2010-48, it “recommends adoption of the latest model IRAs.” The IRS expects to issue revised model documents shortly, but credit unions can continue to use the current versions of the model agreements until the revised versions are issued. Seventeen IRA-related law changes have occurred since the IRS last amended its model IRA documents. Many of these law changes are significant, including eliminating the Roth IRA conversion eligibility requirements, allowing Roth IRAs to accept rollovers from employer-sponsored plans, and allowing nonspouse beneficiaries to roll over employer-sponsored plan assets to IRAs. “We anticipate that credit unions will follow the IRS recommendation to adopt the latest model IRAs, as the current model IRA agreements are outdated due to the large number of law changes,” said Dennis Zuehlke, compliance manager for the Ascensus Middleton, Wisconsin-based IRA programs, which serve 80% of credit unions offering IRA programs. Providing up-to-date IRA documents is critical to IRA program compliance, and by adopting the latest model IRAs and amending existing IRA agreements, credit unions can provide their members with accurate IRA documents that reflect the current state of the law, Zuehlke said. The IRS is not requiring amendments to prototype IRA documents either, but does provide amendment guidance in Rev. Proc. 2010-48 and sample language (List of Required Modifications) on its website.

Rep. Maloney praises NYC CU in House statement

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WASHINGTON (12/2/10)--The East River Development Alliance’s (ERDA) 2010 founding of its namesake credit union, the first credit union chartered in New York, NY in 10 years, was hailed by Rep. Carolyn Maloney (D-N.Y.) on the House floor this week. Maloney stood before the House to recognize the ERDA’s positive contributions to the western areas of Queens, NY. The credit union, founded by ERDA and known as ERDA FCU, focuses on residents of the Woodside, Ravenswood, Astoria and Queensbridge neighborhoods of New York City, and, as stated by ERDA Founder and President Mitchell Taylor earlier this year, “makes resident empowerment and ownership real.” Maloney in her remarks praised the credit union for helping “more than 150 low-income New Yorkers find good jobs.” Maloney also cited New York City Mayor Michael Bloomberg’s 2010 statement that ERDA FCU is indicative of the big impact that can be achieved by credit unions working with public housing residents. The credit union officially opened for business in April of this year.