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Inside Washington (12/06/2007)

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* WASHINGTON (12/7/07)--Rep. Carolyn Maloney (D-N.Y.), chair of the Financial Services Subcommittee on Financial Institutions and Consumer Credit, announced that a hearing on the Financial Consumer Hotline Act of 2007 will take place next Wednesday. The act will establish a toll-free telephone number that consumers can call if they have a problem with their financial institution. The National Credit Union Administration is scheduled to testify … * WASHINGTON (12/7/07)--The House Wednesday approved a bill to give the Federal Deposit Insurance Corp. and the Comptroller of the Currency power to define unfair and deceptive practices. It also passed a bill that would require the Treasury Department and the four banking agencies to give Congress annual reports about their progress regarding expansion of minorities’ ownership of depository institutions (American Banker Dec. 6) … * WASHINGTON (12/7/07)--A study conducted by Federal Financial Analytics Inc. indicates that Basel II could actually increase capital levels, despite industry representatives’ worries that the accord would drop the levels. Assets have become riskier than some had anticipated, so risk-based capital requirements would increase, said Karen Shaw Petrou, managing director of Federal Financial Analytics (American Banker Dec. 6). The study did not state how much the levels would increase, but did note that introducing Basel II during credit problems in the markets could strain banker’s profits …

NCUA backs efforts to help subprime borrowers

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WASHINGTON (12/7/07)—The National Credit Union Administration (NCUA) Thursday backed “good faith attempts to facilitate loan modifications” to help troubled subprime mortgage borrowers, calling prudent workout arrangements good for both credit unions and their members.
Click for slide show The NCUA has encouraged its federally insured credit unions to work with troubled borrowers using appropriate loss mitigation strategies including loan modifications and work out plans when available and practicable, NCUA Board Member Gigi Hyland said in her written testimony. CLICK TO VIEW SLIDESHOW (Photo provided by CUNA)
Testifying before the House Financial Services Committee, NCUA board member Gigi Hyland noted that, while delinquencies and foreclosures in credit union mortgage lending have increased, they remain a very small part of overall credit union real estate lending. However, Hyland stressed that the NCUA is “mindful of the broader market dislocation" and vowed that the agency will continue its work to encourage judicious mortgage lending by credit unions, particularly in the non-traditional segment of the market. While supporting Congressional scrutiny of the subprime mortgage market, Hyland also offered her agency’s suggestions regarding several proposals currently being considered by the committee. They included:
* Broadening language to include FHA as well as VA loans in a definition of mortgages qualified for certain workout plans; * Extending the window for workouts and modifications from 6 to 12 months; * And conforming a definition of "reasonably foreseeable default" to one used by NCUA and other regulators in lending guidance issued earlier this year.
Hyland also urged lawmakers to be “balanced and consistent” in their approach to the current subprime crisis. She raised concerns regarding an provision in a House-approved bill (H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007) intended to provide basic protections to mortgage consumers and investors. That provision would impose civil penalties on creditors who violate minimum standards for writing mortgage loans. Hyland said the NCUA supported the additional penalty as a deterrent but is concerned that, as written, the penalty would not be applied equally to offenders. “It appears that under this amendment, a federally regulated entity would be subject to an administrative monetary penalty and a civil penalty in contrast to non-federally regulated entities. This result would be inconsistent with the general direction of H.R. 3915 of applying similar regulatory standards to all mortgage loan originators,” she said. "NCUA supports any responsible effort that enhances consumer protection while preserving the mortgage financing market's ability to attract and retain capital and liquidity," Hyland added. Also during the hearing, Chairman Frank generally applauded today’s announcement by the Bush administration (see related New Now story) regarding subprime mortgage workouts. The White House said mortgage lenders have voluntarily agreed to help homeowners with subprime mortgages taken out between January 2005 and July 2007, as those borrowers face resets to a higher, and perhaps unaffordable, rate—facing the threat of foreclosures. However, Frank expressed frustration with a part of the plan that he said would exclude those with credit scores higher than 660 from being eligible for help. Frank said borrowers who managed their credit wisely should not be unfairly punished: "I think it is a terrible idea for us to perpetuate." Other witnesses testifying before Frank’s committee included:
* Panel One: Sheila C. Bair, chairman, Federal Deposit Insurance Corporation; Randall S. Kroszner, governor, Federal Reserve Board; John C. Dugan, comptroller, Office of the Comptroller of the Currency ; Scott M. Polakoff, senior deputy director/CEO, Office of Thrift Supervision ; and North Carolina Deputy Commissioner of Banks Mark E. Pearce, on behalf of the Conference of State Bank Supervisors. * Panel Two: Faith Schwartz, executive director, HOPE NOW Alliance; Hilary O. Shelton, director, National Association for the Advancement of Colored People;; Damon Silvers, associate general counsel, AFL-CIO; and Richard Kent Green, Oliver T. Carr, Jr. Chair of Real Estate Finance, The GW School of Business, George Washington University. * Panel Three: Laurence E. Platt, partner, K&L Gates, on behalf of the Securities Industry and Financial Markets Association;Josh Silver, of the National Community Reinvestment Coalition; and Michael Calhoun, president, Center for Responsible Lending.
Use the resource link below to access written testimony.

IRS releases updated model HSA agreements

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WASHINGTON (12/7/07)--The Internal Revenue Service (IRS) has released updated versions of its model Health Savings Account (HSA) agreements many credit unions use to establish HSAs for their members. The model HSA agreements, Forms 5305-B, Health Savings Trust Account and 5305-C, Health Savings Custodial Account, have been updated to reflect the 2007 and 2008 annual HSA contribution limits and the catch-up contribution limits for 2007, 2008, 2009 and later. The revised agreements also expand the definition of permitted HSA contributions to include direct rollovers from health flexible spending accounts, health reimbursement accounts, and traditional IRAs. These new HSA funding options were created by passage of the Tax Relief and Health Care Act of 2006. The high deductible health plan minimum annual deductibles and annual out-of-pocket maximums were also updated to reflect calendar year 2007 and 2008 limits. The revised model agreements, dated November 2007, replace the previous versions, which have not been updated since their release in August 2004. The IRS has not issued formal guidance on use of the revised model agreements and they have no plans to do so, according to Dennis Zuehlke, compliance manager for CUNA Mutual Group, which serves 80% of credit unions offering HSA programs. “In our discussions with senior IRS staff, we’ve been informed that use of the revised model HSA agreements is optional and that HSAs established under the prior versions of the model HSA agreements need not be amended,” Zuehlke noted. Most forms vendors are expected to update their versions of the model HSA agreements to reflect the new higher contribution limits and funding options. Although not required, credit unions would be well advised to begin using the new agreements as soon as they are available to ensure the information provided to their members is current, according to Zuehlke.

More time needed for breach settlement says CUNA

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WASHINGTON (12/7/07)--Credit unions and other financial institutions need more time--such as 30 days--to determine their best course of action in accepting the “alternative recovery offer” in the settlement reached between TJX Cos., Visa and Fifth Third Bank, the Credit Union National Association (CUNA) told officers of the three organizations. In a letter, CUNA President/CEO Dan Mica pointed out that the current 10-day “window” given to financials for accepting the offer is “unreasonably short.” “Such an important decision requires a great deal of consideration,” Mica wrote. “The alternative recovery offer is likely to have a major impact on card issuers, including smaller financial institutions. Many of these institutions will need the most time to review the offer due to smaller staff and reduced access to legal counsel,” he said. Mica highlighted two other factors that compound the need for more time: The onset of the holiday spending season (when mounting consumer spending taxes the resources of financials’ staffs), and the fact that acceptance of the “alternative recovery offer” waives the right of financials’ right to any other recovery. “When waiver of rights is involved it is extremely important to have adequate time to examine and consider the options available,” Mica stated.

White House reveals subprime mortgage relief efforts

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WASHINGTON (12/7/07)—The Bush administration Thursday announced an agreement with major mortgage servicers to freeze interest rates for five years for certain subprime mortgage borrowers who are facing steep interest rate resets that may make their loans no longer affordable. The rate freeze would be available to homeowners who took on adjustable-rate subprime mortgages between Jan. 1, 2005 and July 31, 2007. The agreement promises to accelerate the process for these borrowers seeking to refinance their mortgages through lenders or state and local housing authorities. According to the White House, up to 1.2 million homeowners could be eligible for assistance. The plan was developed by HOPE NOW, an alliance of mortgage servicers, mortgage counselors, government officials and non-profit groups formed this Fall under the auspice of the Treasury Department. In addition to the five-year freeze, HOPE NOW members have agreed on other industry-wide standards to help provide systematic relief to these targeted borrowers:
* Refinancing existing loans into new private mortgages; and * Moving them into an FHASecure loan.
President George W. Bush also called on Congress to act, specifically pressing for passage of his proposal to modernize the Federal Housing Authority, to fund mortgage counseling and to make changes in the tax code to help troubled homeowners. The President sought to assure the country that it would weather the subprime storm. He said America's economy has proven itself “highly resilient -- and it is strong, and it is flexible, and it is dynamic enough” to withstand its current housing and credit market problems. However, he added, “For individual homeowners, the problem is more difficult.” He called the threat of foreclosure a “terrible burden for hardworking families, and a source of concern for entire communities and neighborhoods across our country.”