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Inside Washington (12/23/2010)

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* WASHINGTON (12/28/10)--Citing the cost to taxpayers of taking over Fannie Mae and Freddie Mac and structural weaknesses of those government-sponsored institutions, the Congressional Budget Office (CBO) Wednesday released a study offering three alternative approaches for the future of the secondary mortgage market (American Banker Dec. 23). The study also reviewed the developments that led to the 2008 conservatorships of Freddie and Fannie. The report said because of their size and interconnectedness with other financial institutions, Freddie and Fannie posed “substantial systemic risk,” meaning that their failure could impose high costs on the financial system and the economy. The three alternatives for the future structure of the secondary market include: a hybrid public/private model in which the government would help ensure a steady supply of mortgage financing by providing explicit guarantees on privately issued mortgages or mortgage-backed securities (MBS) that met certain qualifications; a fully public model in which a federal entity would guarantee qualifying mortgages or MBSs; or an entirely private model with no special federal backing for the secondary mortgage market. For the report, use the link … * WASHINGTON (12/28/10)--The Treasury Department has updated the online resource center for the Small Business Lending Fund (SBLF) (American BankerDec. 23). Enacted into law as part of the Small Business Jobs Act of 2010, the SBLF encourages lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. Through the SBLF, community banks and small businesses can work together to help create jobs and promote economic growth in local communities across the nation. The SBLF, a pool of $30 billion, aims to stimulate small business lending by providing capital to participating community banks. The dividend rate on SBLF funding will be reduced as a participating community bank increases its lending to small businesses. The initial dividend rate will be, at most, 5%. If a bank’s small business lending increases by 10% or more, then the rate will fall to as low as 1%. Banks that expand their lending by amounts less than 10% can benefit from rates set between 2% and 4%. If lending does not increase in the first two years, however, the rate will rise to 7%. After 4 ½ years, the rate will increase to 9% if the bank has not already repaid the SBLF funding … * WASHINGTON (12/28/10)--The Federal Housing Finance Agency (FHFA) issued three final rules on Wednesday, including one that requires Fannie Mae and Freddie Mac to reduce the size of their portfolios by 10% annually. Under the second rule Fannie, Freddie and the Federal Home Loan Banks will each be required to promote diversity and the inclusion of women, minorities and disabled persons by establishing an Office of Minority and Women Inclusion. The third rule requires the FHFA to establish housing goals for bank purchases of mortgages. The Fannie Mae/Freddie Mac portfolio rule is unchanged from the FHFA's interim final rule that went into effect on Jan. 30, 2009. Under the rule, Fannie and Freddie may each hold mortgage assets up to $900 billion, but starting at the end of this year, they must reduce their portfolio holdings by 10% annually until they each reach $250 billion …

SAFE Act registration to begin in late Jan. NCUA says

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ALEXANDRIA, Va. (12/28/10)--The initial period for federal registration of residential mortgage loan originators under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) will begin on or around Jan. 31, the National Credit Union Administration (NCUA) announced late last week. This initial registration period will likely end in late July, the agency added. The NCUA, the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Farm Credit Administration will individually confirm the start date just prior to the beginning of the registration period. A notice will also be published in the Federal Register, the NCUA added. Under the SAFE Act, employees of financial institutions, or their subsidiaries that act as residential loan originators, are required to register with the Nationwide Mortgage Licensing System and Registry. The SAFE Act requires mortgage originators to obtain a unique identifier, and to maintain their registration. Financial institutions that are subject to the SAFE Act requirements must require employees acting as residential mortgage loan originators to comply with the act's requirements to register and obtain a unique identifier, and must adopt and follow written policies and procedures designed to assure compliance with these requirements. For the full NCUA release, use the resource link.

NCUAs McKechnie to move on

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ALEXANDRIA, Va. (12/28/10)--National Credit Union Administration (NCUA) Director of Public and Congressional Affairs John McKechnie last week announced his pending departure from the agency, a move that could be completed as soon as next month. McKechnie moved to the NCUA from the Credit Union National Association, where he served as senior vice president of government affairs, in 2006. In his Wednesday announcement, McKechnie said that his NCUA tenure has been “terrifically exciting, challenging, stressful and, in the final analysis, very professionally rewarding.” He has not announced what his next career move will be. “This experience was akin to a graduate education, although the diploma might have to reflect several disciplines, notably law, finance, public administration, history, and psychology,” he added. McKechnie thanked NCUA staff, as well as former NCUA leaders JoAnn Johnson and Michael Fryzel and current NCUA Chairman Debbie Matz.

CU director fin-lit rules kick in next month NCUA

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WASHINGTON (12/28/10)--National Credit Union Administration (NCUA) rules that require federal credit union directors to have or gain an understanding of "basic finance and accounting practices” will come into effect on Jan. 27, the agency has said. The NCUA earlier this month introduced and approved a proposal that requires credit union directors to not only carry out their duties in good faith, but also have or gain an understanding of "basic finance and accounting practices." According to the NCUA, federal credit union directors who are added or elected before the Jan. 27 effective date must comply with the financial literacy requirements by July 27. The NCUA said that directors who are not yet well-versed in financial terminology or have not yet received financial literacy training should do so in 2011, the NCUA said. Directors who join credit unions after Jan. 1 must comply with the financial literacy standards within six months of their join date. The NCUA said that it will offer training via a workshop provided through its Office of Small Credit Union Initiatives. Just last week, the Credit Union National Association (CUNA) announced that it is offering a Board Financial Literacy Certificate in response to the new NCUA board financial literacy requirements. For the NCUA release and a link to CUNA’s Board Financial Literacy Certificate program, use the resource links.

CUNA Fed credit insurance disclosures may mislead consumers

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WASHINGTON (12/28/10)--The Credit Union National Association (CUNA), in a comment letter to the Federal Reserve filed Dec. 22, urged the Fed in the strongest terms to revise and improve proposed disclosures for credit protection products that, if adopted, “will be misleading to consumers and flow from faulty assumptions about credit insurance.” The proposed disclosures were issued for comments by the Fed in September as part of a comprehensive proposal on home secured credit. CUNA in the letter said that the Fed should not adopt the credit protection product proposal in its current form. CUNA and CUNA Mutual Group met with the Fed to discuss these disclosures earlier this month, and previously had raised serious concerns about the proposed disclosures, saying that they go well beyond insuring that consumers are informed about these products. Instead, CUNA said, the disclosures cast these products in a negative light and strongly discourage consumers from purchasing them. These concerns were stressed in the comment letter. In the letter, CUNA Deputy General Counsel Mary Dunn emphasized that “credit unions support fair and accurate disclosures that inform consumer about the terms of credit protection products.” However, she stated that credit protection products provided by credit unions “provide meaningful benefits to members,” including those who would not otherwise have access to such protection. She also noted that the products protect credit union from potential charge offs and loan losses. “In many instances, the proposed language is ambiguous, incomplete and fails to fully inform consumers about the features of credit protection products,” Dunn said. “We urge the board to revise dramatically the disclosure requirements for credit protection products so that compliance will not result in a death sentence to these products.” CUNA’s 14-page letter also addresses the proposal’s treatment of interest rates for variable-rate home equity lines of credit, principal prepayments, and adjustable-rate mortgage and refinancing disclosures. Fee disclosures, The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, and other issues are also covered in the comment letter. For the full comment letter, use the resource link.