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Washington Archive

Washington

Inside Washington (12/12/2008)

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* WASHINGTON (12/15/08)--The U.S. Small Business Administration (SBA) Friday issued an interim final rule for new lender oversight regulations in its guaranteed loan program. Effective Jan. 12, the rule is intended to give the SBA greater enforcement authority and increase transparency on how risk is evaluated. It codifies in SBA regulations SBA's process of risk-based oversight including: accounting and reporting requirements; off-site reviews/monitoring; on-site reviews and examinations; and capital adequacy requirements. It also codifies SBA Supervised Lender regulation and updates SBA's business loan program regulations to specify program standards. Finally, the rule lists the types of, grounds for, and procedures governing SBA enforcement actions against 7(a) Lenders, Certified Development Companies, Microloan Intermediaries, and Non-Lending Technical Assistance Providers within consolidated enforcement regulations … * WASHINGTON (12/15/08)--Though the Federal Housing Finance Agency (FHFA) is expected to unveil a plan that would allow Fannie Mae and Freddie Mac to purchase mortgage-backed securities in an effort to lower rates, mortgage rates may drop to 4.5% on their own, FHFA Director James Lockhart said Thursday (American Banker Dec. 12). Fannie last week issued debt for five-year maturities at 2.8%--a positive sign, he said. Lockhart also noted that a recently announced Federal Reserve Board plan to buy Fannie and Freddie’s debt eliminates the need for the government to back the enterprises. Fannie and Freddie also will be required beginning Monday to support modifications from servicers that lower borrowers’ debt ratio to 38%. Lockhart said he is aware of the problems the Home Loan banks are facing, but said he is not looking to make accounting changes. The Chicago, Atlanta and Seattle banks reported “other-than-temporary” impairments regarding writedowns of private securities in the third quarter … * WASHINGTON (12/15/08)—A provision in a Department of Housing and Urban Development mortgage fee and disclosure rule--the Real Estate Settlement Procedures Act (RESPA)--could end partnerships that some lenders have with builders, according to industry observers. Under the provision, builders would be prohibited from giving homebuyers discounts if they use an affiliated mortgage or settlement company--such as Bank of America, Wells Fargo or JPMorgan Chase and Co. The provision is effective Jan. 16. Also on that day, lenders will be granted permission to charge borrowers average fees for settlement services, instead of the actual fees the lender paid the service provider. However, the rule does not allow average charges for fees based on loan amounts, such as daily interest, reserves, escrow, insurance or transfer taxes … * WASHINGTON (12/15/08)—More than 3,100 banks—mostly community banks--are not planning to participate in the Federal Deposit Insurance Corp.’s (FDIC) program to back debt. About 863 institutions also are not using the program’s coverage of checking deposits that bear no interest (American Banker Dec. 12). Some institutions said they chose not to participate in the program because the backing cost was high and they did not issue senior unsecured debt. The FDIC’s plan was released in October. It was designed to back debt for three years and back checking deposits with 0% interest through the end of 2009. Guarantees were offered free until Dec. 5, and banks could opt out before paying any fees. Banks who keep the coverage will pay to insure new senior unsecured debt—costing about 50 to 100 basis points …

CUNA GOP assignments bright for CUs

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WASHINGTON (12/15/08)—Recent U.S. House committee seat assignments carry some good news for credit unions, John Magill noted last week. Magill is the senior vice president of legislative affairs for the Credit Union National Association (CUNA). The House GOP selected their ranking committee members and among them Rep. Dave Camp (R-Mich.) displaced Rep. Jim McCrery (R-La.) as ranking Republican on the important tax-policy committee, Ways and Means. “Jim McCrery was not an advocate for credit unions,” Magill said, adding that his replacement, Camp, is a co-sponsor of credit union legislation. In fact, Magill pointed out that the number two Republican member of Ways and Means, his old boss Rep. Wally Herger (R-Calif.), is also a co-sponsor of the Credit Union Regulatory Improvements Act (CURIA). “Credit unions can expect a friendly one-two punch on Ways and Means with Dave as ranking member and Wally as number two,” Magill predicted. Also on the House Republican front, Rep. Spencer Bachus of Alabama was elected to remain the ranking member of his party on the House Financial Services Committee. Committee assignments will be finalized when the new Congress convenes in January.

Compliance How long is too long for holidays

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WASHINGTON (12/15/08)—Around the winter holidays each year, one of the most frequently asked questions of the Credit Union National Association’s compliance folks: Is there any federal regulation limiting the number of consecutive days a federal credit union can remain closed? There is no federal law or regulation that limits a federal credit union’s closing, but some states may limit state-chartered institutions from closing for more than three consecutive days. CUNA advises state-chartereds to check with their league’s compliance staff regarding state statutes that could affect their hours of operation. As for federal credit unions, CUNA says even they have several things to keep in mind if planning a longer than usual holiday closing. When closed for a national holiday, the entire credit union staff can be off. However, when closed on a day that isn’t a national holiday, the following must be considered:
* At least some employees in back office departments should be working to clear checks before the midnight deadline, deal with wire transfers, release funds availability holds on deposits and perform other required functions; and * Credit unions should stay open for business long enough to provide sufficient service to members, and to remain competitive with other financial institutions in the same area.
For this and other great compliance advice from CUNA, use the resource link below to visit the December CUNA Compliance Challenge.

US Central capital change approved

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WASHINGTON (12/15/08)—The Credit Union National Association (CUNA) Friday commended the National Credit Union Administration (NCUA) on the action it took the action stabilizes U.S. Central FCU’s AA+ senior unsecured debt rating among the various rating agencies. CUNA said the agency’s action ultimately should assure lenders and lead to U.S. Central being able to borrow at favorable rates. U.S. Central FCU was given the go ahead by NCUA to convert membership capital accounts (MCA), a portion of existing capital, to a new paid-in-capital instrument (PIC2). The NCUA in a Friday morning announcement stated that the PIC2 is considered Tier 1 capital by debt ratings agencies. The agency took the action—voting by notation—to help U.S. Central “maintain robust debt ratings.” NCUA Chairman Michael Fryzel said that converting callable MCA funds to Tier 1 capital is an important facet of the NCUA’s broader efforts. The agency provided the following specifics about the elements of the conversion to PIC2:
* Total subscription is $450 million; * The allocation is proportionate to shares on deposit with U.S. Central; however, there is a cap of 15% for any one corporate; * Perpetual in nature; * Dividends are paid at the discretion of U.S. Central’s board, and may be only paid from current net income (after expenses are recorded and dividends are paid) if U.S. Central would remain adequately capitalized; and * PIC2 subscriptions do not require additional funding by member corporates, unless current MCA falls short of required PIC2.
The NCUA said of its action on behalf of U.S. Central— the nation's only wholesale corporate credit union--that increasing the amount of Tier 1 capital will enhance US Central’s AA+ debt rating and generally requires no additional funding by members. Additionally, U.S. Central members will receive more favorable returns on U.S. Central investments due to U.S. Central’s high credit quality and lower debt costs. In a statement, CUNA said it looks forward to working with the agency and corporate credit unions in serving the nation’s credit unions.