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NCUA asks Corp. CUs to speed biz plan development

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ALEXANDRIA, Va. (12/16/10)--The National Credit Union Administration (NCUA) in a letter encouraged corporate credit unions to submit their business plans “as early as possible,” and provided a timeline and other information “designed to enable corporate and natural person credit unions to undergo a smooth transition and ensure no disruption in member services” as they transition into an altered corporate credit union system. In a letter to credit unions sent this week, the NCUA provided an outline of the actions that credit unions will need to take due to the new rule, and the dates by which many of these actions will need to be completed. One key date is March 31, the date by which undercapitalized corporates must provide recapitalization plans and business plans to their members. The NCUA in the letter said that district examiners will work with corporates in some cases to obtain an early understanding of their proposed strategic and capital compliance plans to help expedite the review and approval process. The letter to credit unions and a fact sheet also specifically address corporate capital escrow accounts, capital priority and conversion, the priority of legacy assets, corporate chartering and merging, and various credit union service organization (CUSO) activities. One notable addition is a to-be-established process that will require corporates to maintain escrow accounts for accumulated capital. “If a corporate raises enough capital by Sept. 30, 2011 to meet NCUA’s new capital standards, which take effect Oct. 20, 2011, the pledged capital in escrow will be converted to regulatory capital. However, if a corporate’s capital subscription falls short by that Oct. 20 regulatory compliance deadline, all pledged capital in escrow will be returned to members,” the NCUA said. For the NCUA documents, use the resource links.

Sen. Inouye is latest to back MBL cap increase

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WASHINGTON (12/16/10)—Sen. Daniel Inouye (D-Hawaii) this week became the latest backer of Sen. Mark Udall’s (D-Colo.) S. 2919, the Small Business Lending Enhancement Act of 2009. Inouye joins Sens. Charles Schumer (D-N.Y.), Joe Lieberman (I-Conn.), Olympia Snowe (R-Maine), Barbara Boxer (D-Calif.), Susan Collins (R-Maine), Kirsten Gillibrand (D-N.Y.), Michael Bennet (D-Colo.), Bernie Sanders (I-Vt.), Arlen Specter (D-Pa.), Harry Reid (D-Nev.), Bill Nelson (D-Fla.), Ron Wyden (D-Ore.), and Sherrod Brown (D-Ohio) as cosponsors of S. 2919. Brown signed on to back the member business lending (MBL) legislation late last month. Udall’s bill, which was introduced late last year, would increase the cap on credit union member business lending to 25% of a credit union's total assets and raise the de minimis loan threshold from $50,000 to $250,000. Inouye also backed the MBL legislation, which came in the form of an amendment, earlier this year. The Credit Union National Association (CUNA) has estimated that expanding the capacity of credit unions to make business loans could result in $10 billion in new business loans through credit unions and at least 108,000 new jobs in the first year after enactment, with no additional costs to taxpayers. With this session of Congress likely to wrap up this week, CUNA continues to seek out a vehicle for the MBL legislation. That vehicle could come in next year’s 112th Congress if the legislation is not moved in the current lame duck session. CUNA Senior Vice President of Legislative Affairs John Magill has said that the MBL legislation could fit in to the House agenda if Republicans follow up on campaign promises of reducing government spending and helping small businesses create jobs.

Gift cards as meeting incentive NCUA says yes but...

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ALEXANDRIA, Va. (12/16/10)—In a legal opinion released this week, the National Credit Union Administration (NCUA) advised a federal credit union that sought to increase participation at its yearly meeting by giving $25 gift cards to members in attendance. According to the letter, the credit union believed that the gift card giveaways could increase meeting participation at a lower cost than similar giveaways such as free meals. The NCUA found that the gift card giveaway meets a federal credit union’s incidental powers authority, which holds that certain activities are permissible when it is “convenient or useful” to the performance of one of the credit union’s express powers. However, the NCUA said, “while the use of a gift card incentive is generally permissible under a federal credit union's incidental powers authority, a gift card incentive may be objectionable on safety and soundness or corporate waste grounds. “Any incentive offered by a federal credit union to increase participation at its annual meeting must be reasonable,” the NCUA added. The incentive should not be used to influence the outcome of a vote, if there is a vote held during the meeting, the NCUA added. The NCUA cited another credit union’s use of a prize raffle as evidence that the gift card giveaway would be permissible, However, the NCUA added, while the final cost of the raffle was determined in advance, the cost of the gift card giveaway may be less predictable. Specifically, the credit union cannot predict how many members will end up attending the annual meeting. In light of this potential cost variability, it is up to the credit union’s examiner and the NCUA’s regional director “to determine if the proposed $25 gift card incentive is objectionable on safety and soundness or corporate waste grounds,” the NCUA said. For the full letter, use the resource link.

Ohio league NCUA should revisit 2011 budget

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ALEXANDRIA, Va. (12/16/10)—The National Credit Union Administration (NCUA) should revisit its 2011 budget and “adjust it to reflect the difficult prioritization and fiscal restraint required of all organizations in this economy,” Ohio Credit Union League President Paul Mercer said in a recent letter to NCUA Chairman Debbie Matz. While Mercer in his letter noted that there are several ways in which the NCUA serves credit unions and their members well, the NCUA’s budget process “is not among them.” Mercer specifically criticized the NCUA for denying credit union professionals a voice in the budgetary process, a move that he speculated was taken to “facilitate the huge run up in staff and spending.” The NCUA’s budget, which was approved last month, represents a $25 million increase over the NCUA’s 2010 budget. The 2011 budget dedicates $7 million to pay and benefit increases and $750,000 to enhanced examination and supervisory programs. The NCUA announced this spending increase with little regard for current employment conditions, “the shift toward fiscal restraint by the Obama administration, and the growing micromanagement of credit union spending by NCUA examiners,” the letter said. Mercer in his letter noted that the NCUA’s total budget has increased by nearly $70 million since 2008, a 42% increase. The NCUA has also approved three consecutive budgets with yearly increases exceeding 12%, has added 244 full-time positions, and increased its salary/benefit spending by $44.8 million during that same period. The letter suggested that the NCUA emphasize increasing its own performance over increasing spending, develop ways to spread out the financial burdens that NCUA costs and other related costs place on credit unions, and roll back NCUA spending to pre-2009 levels within the next few years. Also this week, the Federal Deposit Insurance Corporation (FDIC) announced that it is slightly reducing its 2011 budget. However, the FDIC is also aiming for a 2% reserve ratio, which is higher than the NCUA’s targeted reserve ratio of 1.3%. Credit Union National Association President/CEO Bill Cheney has also questioned the NCUA’s 2011 budget in a letter to Matz, expressing CUNA’s concern about the size of the agency’s recently approved 2011 budget increase and employee pay raises. CUNA will continue to press the NCUA to re-evaluate its budget priorities and take steps to bring down its expenditures, Cheney added.

CUs can qualify for two SBA initiatives

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WASHINGTON (12/16/10)—Qualified credit unions and other lenders will soon have two new Small Business Administration (SBA) programs to back their loans to small businesses in certain markets. The SBA announced two initiatives Wednesday: the Small Loan Advantage and Community Advantage programs. They are aimed at increasing the number of lower-dollar SBA 7(a) loans going to small businesses and entrepreneurs in underserved communities, according to an SBA announcement. Credit unions may qualify to be SBA 7(a) lenders. The SBA’s most popular loan product--the 7(a) government-guaranteed loans--can be used for variety of general business purposes, including working capital and purchases of equipment and real estate. The agency said both Small Loan Advantage and Community Advantage will offer a streamlined application process for SBA-guaranteed 7(a) loans up to $250,000. The loans will come with the regular 7(a) government guarantee: 85% for loans up to $150,000 and 75% for those greater than $150,000. In conjunction with the implementation of these two new Advantage loan initiatives by March 15, the agency will end its existing Community Express pilot loan program on April 30. SBA Administrator Karen Mills Wednesday also named Catherine L. Hughes, chairperson and founder of Radio One, Inc. and a former SBA borrower, to chair the agency’s new Advisory Council on Underserved Communities. During the next few weeks, the SBA will accept nominations for the 20 members who will serve on the panel. It is anticipated that members will reflect a variety of key sectors, including business owners, banking and finance, community development, nonprofit and academia. Member nominations can be emailed to

Inside Washington (12/15/2010)

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*WASHINGTON (12/16/10)—Federal banks and thrift regulators announced new rules to expand the scope transactions that qualify for Community Reinvestment Act (CRA) rule consideration. The final rule, substantially similar to a proposal issued for comment in June, is intended to provide additional support to communities affected by high foreclosure levels. It encourages banks and thrifts to support eligible development activities in areas designated under the Neighborhood Stabilization Program (NSP) administered by the U.S. Department of Housing and Urban Development (HUD). Under the NSP, HUD has provided funds to state and local governments and nonprofit organizations for the purchase and redevelopment of abandoned and foreclosed properties. The new rule encourages depository institutions to make loans and investments, and provide services to support NSP activities in areas with HUD-approved plans. The rule becomes effective 30 days after its publication in the Federal Register Credit unions do not fall under CRA ... * WASHINGTON (12/16/10)--Rep. Randy Neugebauer (R-Texas), incoming chair of the House Financial Services Oversight Subcommittee, yesterday expressed “serious concern” regarding recent media reports that the Obama Administration is pressuring Fannie Mae and Freddie Mac to begin writing down mortgage principal to qualify underwater borrowers for lower-rate Federal Housing Administration (FHA) mortgages. In a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), Neugebauer asked for details and justification as to why Fannie and Freddie’s participation in the loan modification program would be in the best interest of taxpayers. “It is the responsibility of Congress and FHFA to ensure that taxpayer dollars are being spent in the most prudent manner,” Neugebauer wrote. “It appears that writing down loan principal for homeowners who are current on their mortgages simply because they may walk away from their homes does not fulfill our obligation to protect U.S. taxpayers” … * WASHINGTON (12/16/10)--Citing an agricultural sector that is susceptible to shocks from a number of sources, including volatile commodity prices, the Federal Deposit Insurance Corp. (FDIC) urged institutions to exercise prudent credit risk management practices. In a letter to banks, the FDIC said institutions should place a strong emphasis on borrower cash flow and repayment capacity without undue reliance on collateral. The agency also advised banks not to place undue reliance on cyclical factors such as appreciation of land prices when making credit decisions. “Institutions should be sensitive to evidence of speculation in agricultural land prices or commodities that are influencing the market and remain focused on repayment ability and borrower underwriting,” the letter said … * WASHINGTON (12/16/10)--The Senate Banking Committee approved President Barack Obama's nominee, Joseph Smith, as director of the Federal Housing Finance Agency by a vote of 16 to 6 on Tuesday (American Banker Dec. 15). Smith’s nomination still requires full Senate approval. Smith currently serves as the North Carolina commissioner of banks. The committee approval was not without objection. Sen. Richard Shelby (R-Ala.) said Smith had been evasive in answering questions during his confirmation hearing. Three Republicans did support Smith’s nomination: Sen. Bob Bennett of Utah, Bob Corker of Tennessee and Kay Baily Hutchison of Texas … * WASHINGTON (12/16/10)--The Home Affordable Modification Program (HAMP) will fall far short of expectations, according to a report issued by the Treasury Department Tuesday. HAMP will prevent only 700,000 to 800,000 foreclosures, far fewer than the 3 million to 4 million foreclosures that Treasury initially aimed to stop, and well short of the 8 million to 13 million foreclosures expected by 2012. The report said HAMP--which provides financial incentives to borrowers, lenders and services to modify troubled loans—failed in part because mortgages were more complicated than a one-to-one relationship between borrower and lender. For example, the report said many servicers fail to participate in the program because the servicers’ interests may at times conflict with those of lenders and borrowers. Although lenders suffer losses in foreclosures, servicers can turn a substantial profit from foreclosure-related fees. HAMP’s failure led key policymakers to join the call for nationwide mortgage servicing standards (American Banker Dec. 15). Sen. Ted Kaufman (D-Del.) said regulation should be developed to eliminate any conflict of interest …

NCUA adds NCUSIF matter to todays agenda

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ALEXANDRIA, Va. (12/16/10)—Discussion of an addition to the National Credit Union Share Insurance Fund (NCUSIF) Investment Committee has been added to the agenda for the National Credit Union Administration’s (NCUA) December meeting, which will take place later today. A final rule addressing credit union mergers and conversions, as well as fiduciary duties and indemnification of credit union directors, will also be considered during the meeting, which will begin at 10 a.m. ET. Potential amendments to the NCUA's low income definition, rules that address the accuracy of advertising and insurance status notices, and a share-insurance related rule will also be discussed during the meeting. A closed meeting will follow tomorrow. Supervisory and personnel matters will be discussed during that meeting. For the full NCUA meeting schedule, use the resource link.