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NCUA risk-based capital plan could cut CU capital buffers by billions: CUNA

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WASHINGTON (2/10/14)--The National Credit Union Administration's proposed risk-based capital rule could prove costly for many credit unions, forcing them to increase their capital levels by a net $7.3 billion to maintain their current margins above the proposed "well capitalized" thresholds.
Credit Union National Association Chief Economist Bill Hampel explains, "We looked at the 2,504 federally insured credit unions with more than $40 million in assets, and compared their current margins above being well capitalized to what they would be if the NCUA proposal were in effect.  Although the rule would only apply to credit unions with more than $50 million in assets, many--if not most--of the almost 300 credit unions with between $40 million and $50 million in assets will exceed the $50 level in just a few years."
About one-third, or 863, of these 2,504   credit unions would enjoy greater buffers above well-capitalized thresholds under the proposal, but the total increase among these credit unions would be only $63 million, Hampel says.  The remaining 1,641 credit unions with above $40 million in assets would see their cushions above well-capitalized thresholds shrink by a combined total of $7.4 billion if the proposal were in effect.
"Meanwhile, earnings at credit unions continue to be squeezed by low interest rates, downward pressure on other revenue streams, and moderate, but rising, loan growth," CUNA President/CEO Bill Cheney wrote in the most recent edition of The Cheney Report .
Specifically, the NCUA proposal would restructure the NCUA's current prompt corrective action regulation to include calculation of a capital-to-risk-assets ratio, analogous to Basel III for community banks, but with substantially higher risk weights.  The proposal would impose higher capital requirements for credit unions with higher concentrations of assets in real estate loans, member business loans, longer term investments and some other assets. The proposal would apply to credit unions with assets of more than $50 million. A final version of the proposal is not likely to go into effect until 2016 or later.
CUNA analysis of the proposal indicates that a number of credit unions would fall from being comfortably well capitalized under the current system to being merely well capitalized under the proposed system. Currently, 68% of credit unions with more than $50 million in assets maintain more than a two-percentage point buffer above being "well capitalized."

This total would fall to about 62% under the proposal, Cheney wrote. Almost 10% of credit unions would drop below "well capitalized" under the proposed rule, he added.
"Most credit unions desire to continue their long practice of being 'comfortably well capitalized,'" the CUNA leader wrote.
CUNA is also concerned by parts of the proposal that would grant the NCUA additional authority to impose even higher capital requirements on individual credit unions.
The agency has not adequately justified the need for this rule, and CUNA will push for a number of major changes in the proposal before it is made final, Cheney said.
"We will continue analyzing all aspects of the proposal, including the agency's legal authority for the proposal and how it compares with Basel III for community banks," he added.
CUNA's Governmental Affairs Conference the last week in February in Washington, D.C. will focus on the proposal.  For more information about GAC opportunities for credit unions to learn more about the proposal and air concerns, use the resource link below.

Morgan Stanley to pay $1.25B over 'faulty' mortgage bonds

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WASHINGTON (2/10/14)--Wall Street firm Morgan Stanley and the Federal Housing Finance Agency have reached a $1.25 billion settlement to resolve alleged violations of federal and state securities laws.

Under the terms of the settlement, $625 million, each, will be paid to Fannie Mae and Freddie Mac. The settlement follows a suit that alleged Morgan Stanley misled Fannie Mae and Freddie Mac by selling faulty private-label mortgage-backed securities between 2005 and 2007.

The FHFA has filed 17 similar lawsuits. This is the seventh of those suits to be settled.

The National Credit Union Administration in September also sued Morgan Stanley and eight other institutions over the sale of nearly $2.4 billion in mortgage-backed securities to Southwest and Members United corporate credit unions.

The agency has sued a number of Wall Street banks in similar cases. In November, JP Morgan agreed to pay the NCUA $1.4 billion in a settlement over mortgage-backed securities issued, underwrote and sold to now-defunct corporate credit unions in 2006 and 2007. The wholesale lenders collapsed in 2009 due, in part, to the faulty instruments.

CUNA offers real-life mortgage closing advice to CFPB

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WASHINGTON (2/10/14)--The Credit Union National Association detailed the common problems and issues faced by consumers at mortgage closings, common errors and changes that have occurred at closings and the resources borrowers use to define unfamiliar loan terms in a Friday letter to the Consumer Financial Protection Bureau.

The letter provided specific responses to questions raised by the CFPB. The bureau last year asked credit unions and other stakeholders for information regarding the mortgage closing process.

CUNA's responses were derived from surveys of credit union members, and in coordination with the CUNA Lending Council and CUNA's Consumer Protection Subcommittee.

CUNA Associate General Counsel Jared Ihrig in the letter said credit union members are often overwhelmed with the sheer amount of paperwork and disclosures they receive at closing. A typical closing package is over 100 pages, and contains 25 spots for consumer signatures, on average. "Most consumers cannot possibly read and understand everything they are signing...These notices and disclosures are so voluminous that the consumer and the closing process are often disadvantaged, rather than helped," Ihrig said.

The CUNA letter suggested that many of these closing documents could be consolidated.

Consumers continue to have difficulties understanding Truth in Lending disclosures, Good Faith Estimates and HUD-1 closing statements, Ihrig added.

While many borrowers feel helpless at closing, credit unions have suggested that clearly laid out, simplified financial information about the transaction would aid the borrowers and lenders. "Giving the member the closing documents in advance, without the final closing numbers, but including all non-critical but necessary disclosures to read ahead of time would be a positive change," CUNA wrote. Borrowers would also benefit from reviewing the note, the payment, loan amount and interest rate at the closing table, the letter added.

Some of the errors that occur at closing involve:
  • Prepaid interest calculations;
  • Payment calculations;
  • Property tax proration amounts;
  • Loan amounts;
  • Closing costs;
  • Property legal descriptions;
  • Missing documents;
  • Personal information for borrowers; and
  • Good faith estimates.
"These error possibilities aside, many credit unions experience very few errors at closing when there has been careful preparation of all documents and pre-closing auditing processes," Ihrig said.

For the full comment letter, use the resource link.

Diversity standards cannot be one-size-fits all: CUNA to NCUA

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WASHINGTON (2/10/14)--Credit unions strongly support diversity in the workplace, but the Credit Union National Association is concerned about the one-size-fits-all approach of a proposed joint agency statement for assessing diversity policies and practices of financial institutions.

CUNA urged the rulemakers to clarify that the standards are not subject to enforcement and to limit their application to those institutions that are already reporting to the Equal Employment Opportunity Commission.

The proposed standards would encourage regulated entities to include diversity and inclusion considerations in both employment and contracting as an important part of their strategic plan.

The Dodd-Frank Act charged regulators with developing assessment standards regarding financial institutions' diversity policies, but did not authorize them to enforce them or subject institutions to additional supervision.

The NCUA, Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Securities and Exchange Commission developed the standards.

CUNA Deputy General Counsel Mary Dunn in the comment letter noted that while the U.S. Congress directed those agencies to develop standards for assessing diversity at the entities they regulate, it did not authorize the agencies to issue rules or enforce any new standards. An overall approach that does not result in new regulations, additional enforcement powers for regulators, or provide further support for private causes of action against covered entities is the only approach consistent with the intent and language of the Dodd-Frank Act, Dunn wrote.

The CUNA letter also urged the NCUA and other agencies to be cognizant of the regulatory burdens that smaller financial institutions such as credit unions face.

"We also urge the agencies to change and clarify the standards in a number of areas and to reflect in the standards the importance of developing a well-qualified workforce within the context of promoting diversity in the workplace," Dunn wrote.

For the full CUNA comment letter, use the resource link.

House vote expected this week on CFPB restructure bill

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WASHINGTON (2/10/14)--The U.S. House of Representatives will consider H.R. 3193 this week, a bill that would restructure the leadership of the Consumer Financial Protection Bureau from a single director to a five-member panel.  

The bill, called the Consumer Financial Protection Safety and Soundness Improvement Act, would also make some fundamental changes to the way the bureau operates.  For instance, it would authorize the Financial Stability Oversight Council to set aside any CFPB regulation that is found to be inconsistent with safe and sound operations of financial institutions. It also would require the CFPB to take into consideration the impact of its rules on insured depository institutions.  

The House Financial Services Committee approved the bill, along with five other CFPB-related ones, late last November.  However, even if the House passes the bill this week, its future in the Senate is considered to be very bleak.

New HMDA data research panel, resources announced by CFPB

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WASHINGTON (2/8/14)--A new small business panel to help consider Home Mortgage Disclosure Act (HMDA) changes, and new resources to help users navigate publicly available HMDA data were announced by the Consumer Financial Protection Bureau on Friday.

Under HMDA, financial institutions with total assets of more than $43 million that have home or branch offices in defined metropolitan statistical areas must collect certain mortgage loan data and report it to federal regulators.

CFPB Director Richard Cordray on Friday said the bureau is seeking feedback on how the HMDA reporting process can be improved, and new requirements that would more accurately capture access to credit in the mortgage market.

A Small Business Regulatory Enforcement Fairness Act (SBREFA) panel has been assembled to consider these and other HMDA issues.

Potential HMDA reporting additions discussed by the panel will include:
  • Total points and fees, and rate spreads for all loans;
  • Riskier loan features including teaser rates, prepayment penalties, and non-amortizing features;
  • Lender information, including a unique identifier for the loan officer and the loan;
  • Property value and improved property location information;
  • Age and credit score;
  • Mandatory reporting of denial reasons;
  • Debt-to-income ratios;
  • Qualified mortgage status of loans; and
  • Combined loan-to-value ratio.
The first meeting of the SBREFA panel is scheduled for March, and an advance notice of proposed rulemaking on HMDA changes will likely be issued this year, Cordray said. Many of the proposed data points under consideration are required by the Dodd-Frank Act, but many are not. CUNA will raise this as a point of concern with the agency.

In 2012, 7,400 financial institutions provided data on 18.7 million applications and loans. According to the CFPB, data supplied includes:
  • The name of the lender;
  • The type and general location of the property;
  • The race, ethnicity, and sex of the applicant;
  • The loan amount; and
  • Whether the loan is for purchasing a home, refinancing an existing mortgage, or home improvement.
The CFPB has produced a new data tool that will help users examine HMDA information filed between 2007 and 2012. Users will be able to filter information by geographical location, loan characteristics, property type and more. They will also have the option of comparing refinances, home purchases and home improvement loans through summary tables, and can then download these tables and data in the format of their choice.

Users will be able to save and share their results on a website or through social media.

Use the resource link for more.