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Regulators reveal hot exam topics for 2010

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WASHINGTON (2/24/10)—Staff from the National Credit Union Administration (NCUA) and two state-level financial regulators revealed some of the hottest exam topics that they will focus on this year—including indirect lending and risk concentration, which NCUA will soon provide guidance on in Letters to Credit Unions. The topics were revealed in a Tuesday breakout session at the Credit Union National Association’s Governmental Affairs Conference. The session was moderated by Tom Candon, deputy commissioner of banks for Vermont. Joining him were: Jerrie Jay, North Carolina Credit Union Division administrator; Melinda Love, director of the office of examinations and insurance at NCUA and president of the National Credit Union Share Insurance Fund; Joe Ostrowidzki, NCUA division of insurance director; and Wendy Angus, NCUA director of risk management. Regarding concentration of risk, Angus suggested that the credit unions document their board’s approved policies and concentration risk limits, and risks in totality to net worth. Credit unions also should stress-test their own portfolios. Such documentation could be valuable during an examination process, she told the session. “It doesn’t have to be fancy,” Angus said. Consider economic factors in a certain area of the portfolio and how they could have an impact on your credit union, she advised. For real estate lending, credit unions should get as much data on borrowers as they can, including credit and collateral values. Larger credit unions may want to invest in third-party models to do this, she said. Ostrowidzki noted that real estate loan modifications have increased, and credit unions generally have the greatest chances of success with modifications if they lower monthly payments for borrowers. Ostrowidzki added that for real estate portfolio risk assessment, examiners could focus on areas such as management’s process to project losses, modification policies and procedures, processes to track modified loans, abilities to segregate troubled debts, and their understanding of increased risk for modified loans. For indirect lending, the elements of a comprehensive due diligence plan for credit unions could include a planning process, a review process to assess vendor risk, and a risk management process, Ostrowidzki said. He noted that the number of credit unions participating in indirect lending is on the rise, and indirect lending can expose a credit union to a host of risks. While delinquencies have reduced, charge-offs have increased, he said.

Inside Washington (02/23/2010)

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* WASHINGTON (2/24/10)—The U.S. Treasury Department is considering changes to the Home Affordable Modification Program (HAMP), which include forcing lenders to delay foreclosures by one month if they denied a borrower a mortgage modification. Treasury also is considering allowing trial modifications to be extended by another two to five months to make up for delays in receiving paperwork from bankruptcy courts (American Banker Feb. 23). The Obama administration and the Treasury also are considering a moratorium on certain types of foreclosures. The HAMP program has been criticized by financial observers as ineffective … * WASHINGTON (2/24/10)—Financial observers are debating whether tackling a resolution process for systemically significant institutions is a national or global issue. As the U.S. Congress continues to work toward a plan to help systemically important institutions in the event of failure, the International Monetary Fund is studying whether it is feasible to charge taxes on internationally active institutions to make up resolution costs that the government normally absorbs. A report by Adair Turner, head of the United Kingdom’s Financial Services Authority, indicates why global coordination is needed. It cited the failure of Lehman Bros., which had implications for the United States and abroad. Some argue that creating a global standard is too complicated because it deals not only with how “sovereign countries regulate banks, but how they deal with bankruptcy,” Susan Krause Bell, former senior official at the Office of the Comptroller of the Currency, told American Banker (Feb. 23). Robin Lumsdaine, a former Federal Reserve Board official, said she could see why some might want to coordinate globally, but recognized challenges. She also discussed what it would entail if countries decided to create a fee standard to mitigate resolution costs. In terms of charging institutions extra fees, one must determine the principles on the banks that qualify for the fees, how the fees are based and how they would be used to resolve institutions, she said … * WASHINGTON (2/24/10)—Fannie Mae has opened a mortgage help center in Miami, Fla., to assist struggling borrowers, according to a press release. Services available at the center include reviewing the borrower's loan, discussing foreclosure alternatives, collecting the required documents for the federal Home Affordable Modification Program and reaching a decision on any pending loan workout efforts. Fannie, which is also partnering with the Neighborhood Housing Services of South Florida, will provide information and clarify expectations for the foreclosure prevention process and work to counteract local scams and groups that charge fees for modifications and foreclosure prevention services …

CUNA witness to testify on small business lending

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WASHINGTON (2/24/10)--St. Mary's Bank CU President/CEO Ronald Covey, who is testifying on behalf of the Credit Union National Association (CUNA), will be among those discussing the condition of small business and commercial real estate lending before members of the House Financial Services Committee and Small Business Committee on Friday. Treasury Assistant Secretary for Financial Stability Herbert Allison, U.S. Small Business Administrator Karen Mills, Federal Reserve Governor Elizabeth Duke, Federal Deposit Insurance Corporation Chair Sheila Bair, Comptroller of the Currency John Dugan, and Office of Thrift Supervision Director John Bowman will also testify in a separate panel. Other industry representatives and leaders will also testify dring the hearing. Small business lending will be one of the many issues highlighted by credit unions and credit union leagues as they hike Capitol Hill to meet with their state representatives this week. CUNA and credit unions have called on Congress to expand credit unions' ability to work with small businesses by lifting the current member business lending cap of 12.25% to 25% of a credit union's assets. The House Financial Committee is also scheduled to hear Federal Reserve Chairman Ben Bernanke's Semiannual Monetary Policy Report later today, and will discuss finance industry compensation during a Thursday hearing.

CUNA blog offers constant coverage of 2010 GAC

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WASHINGTON (2/24/10)--Up-to-the-minute coverage of the latest news and notes from the Credit Union National Association's (CUNA) 2010 Governmental Affairs Conference (GAC) will continue to be available on the GAC Blog until the conference closes on Thursday. More than 4,000 credit union representatives are in town for CUNA's premier conference featuring addresses by top policymakers, and more. CUNA Editorial Communication Vice President Lisa McCue, Web Assistant Editor Tiffany Stronghart, and Communications Specialist Darryl Tait continue to provide frequent convention updates. Also, for full coverage, read CUNA's daily online news service News Now. The CUNA GAC Daily will be distributed to conference attendees and News Now readers will have access to its electronic version. Use the resource link below to access the GAC Blog.

Hyland The future is now

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WASHINGTON (2/24/10)—After entering the stage of the Credit Union National Association’s (CUNA) Governmental Affairs Conference (GAC) to the tune of, “It’s the End of the World as We Know It,” by rock band R.E.M, National Credit Union Administration (NCUA) Vice Chair Gigi Hyland told credit unions that the future is now. Hyland spoke during the general session of the conference Tuesday. She acknowledged that 2010 will be a tough year for credit unions, evidenced by data from previous recessions showing a lag effect on credit unions recovering from a recession. However, she encouraged credit unions to seize the future. To attendees who might not be ready to think about the future just yet, she said: “If not now, when?” The credit union movement is not the credit union stationary bicycle. “It’s the end of the world as we know it and it’s time for the movement to do something,” Hyland added. Hyland also discussed her feelings on NCUA’s role in the credit union movement. She said her vision is something called “constructive conflict.” She referenced a recent article in which Dr. Sidney Wolfe, director of health research at Public Citizen and a longtime drug industry critic, described the relationship between the Food and Drug Administration (FDA) and the companies it monitors. The FDA must maintain constructive conflict, otherwise, what’s the point of the FDA, he questioned. The same is true of NCUA, she said. NCUA must maintain constructive conflict with the credit unions it regulates and insures. “The key word is constructive. I believe ‘constructive’ means getting out of your way to serve your members. This must be balanced by ensuring you do so safely and soundly with appropriate due diligence. My vision for the future is a safe and sound credit union system that is dynamically focused on serving members,” she said. NCUA has sent out recent supervisory letters on earnings, supervision of community development credit unions, and member business lending (MBL) and its risks. Hyland supports lifting the cap on MBLs—but said that if the cap is lifted, there must be safeguards in place. Hyland also is working on a white paper about supplemental capital—capital that credit unions do not currently have access to. She has consulted with regulators in the states and internationally on the issue—and also with CUNA staff. The paper is coming soon, she said. Hyland also noted that being a credit union CEO is tougher than ever. She encouraged credit union CEOs to collaborate and educate, while encouraging credit union volunteers to check the strategic directions of their credit unions and ensure that the board and staff reflect the diversity of membership. And lastly, credit unions need to engage young people. Hyland pointed out members of “Crash the GAC,” a group of young conference attendees, in the audience. “Take a look back there,” she said. “That’s our future.”

SBAs Mills CUs critical to growing businesses

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WASHINGTON (2/24/10)--U.S. Small Business Administrator Karen Mills on Tuesday told thousands of credit union representatives gathered at the Credit Union National Association's (CUNA) Governmental Affairs Conference (GAC) that their financial institutions are "critical" to growing businesses and creating new jobs, adding that her "impression" is that "credit unions really know what is going on in their communities." Mills also commended credit unions for their shared goal of supporting small business and helping them create jobs by "giving them the tools that they need" to prosper. Mills said that credit unions represent the fastest growing segment of financial institutions taking advantage of Small Business Administration (SBA) lending programs, adding that credit unions have represented 10% of financial institutions that have returned to the SBA program over the past year and have taken part in over 1700 loans related to the recovery act. Mills also reminded credit unions that the SBA currently guarantees 90% of each loan made under its program, and that same amount of each SBA loan does not count against a credit union's business lending cap. Portions of these loans may also be sold on secondary markets, she added. Mills encouraged GAC attendees to participate in a March 25 CUNA audio conference call on SBA loans. The call, which will feature commentary from both Mills and National Credit Union Administration Chairman Debbie Matz, will provide credit unions with up-to-date information on how to make SBA loans or expand their current SBA lending programs. To register for the audio conference call, which will also feature CUNA President/CEO Dan Mica and Senior Vice President/Deputy General Counsel Mary Dunn, use the resource link.

FHFA seeks comment on changes to use of secured loans

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WASHINGTON (2/24/10)--The Federal Housing Finance Agency (FHFA) on Tuesday released for public comment proposed rules that amend its existing rules on advances to allow Community Financial Institution members to use secured loans "for community development activities as eligible collateral for advances" and to use "long term advances to fund community development activities." The amendments, which apply to the Federal Home Loan Bank Act, would also transfer the authority over advances and new business activities from the Federal Housing Finance Board's (FHFB) regulations to the FHFA and would classify secured loans from financial institutions to their affiliates or members as advances. Comments on the FHFA proposal must be received by April 26. For the announcement, as published in the Federal Register, use the resource link.

Barr Treasury backs CU help to small business

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WASHINGTON (2/24/10)--Calling credit unions an essential part of the "fabric" of communities throughout the country, Assistant Treasury Secretary for Financial Institutions Michael Barr on Tuesday told attendees of the Credit Union National Association's (CUNA) Governmental Affairs Conference that the Treasury would work with credit unions to expand their small business lending activity.
Click for slide show Michael Barr, assistant secretary for financial institutions for the U.S. Treasury Department, said a main goal of the Obama administration is to bolster the economy and create new jobs, but that it is also working to \"reform a financial regulatory system that remains fundamentally flawed.\" Specific to credit unions, BARR told attendees at the CUNA Governmental Affairs Conference (GAC) that Treasury wants to work with credit unions to expand their small business lending activities. (CUNA photo)
CUNA and credit unions are working to have legislation that would increase the cap on member business lending (MBL) to 25% of a credit unions assets added to a jobs bill in either the House or the Senate. This MBL legislation will be a key topic of discussion when credit union delegations meet with their state representatives this week. Barr also commented on the Treasury's recent work with the National Credit Union Administration (NCUA), saying that the relationship between the two regulatory bodies has never been stronger than it is today. The NCUA and Treasury have worked together to resolve issues affecting credit union legacy assets. The Treasury also offered $6 billion in funds to the NCUA to help shore up the corporate credit union system, and Treasury backed the NCUA's wishes to remain independent in the event that the ongoing financial regulatory reforms result in a single regulator for financial institutions. While a main goal at this time is buffeting the economy and creating new jobs, Barr said that the Treasury and the Obama administration are also working to "reform a financial regulatory system that remains fundamentally flawed." "These flaws, if not corrected, will weaken long-term growth and expose families, businesses, and taxpayers to unnecessary risk," Barr added. One method of correcting these flaws is through the creation of the proposed Consumer Financial Protection Agency (CFPA), and while there has been significant debate over the authority and the very existence of this proposed regulatory agency, Barr said that the CFPA bill that passed the House "leaves over 99% of credit unions with the [NCUA] as their primary federal consumer compliance supervisor." "The CFPA will concentrate supervisory resources on big banks and nonbanks" to "ensure" that the financial marketplace that credit unions compete in is "fair and competitive." Echoing the Obama Administration's opinion on the matter, Barr added that the CFPA would "make banks and credit unions safer and sounder." The proposed CFPA would seek to protect consumers of financial products through the creation of a powerful independent agency with extensive rulemaking, oversight, and enforcement tools. However, legislators are reportedly considering a wide range of alternatives to the CFPA, and it is not certain that the CFPA will be included in the Senate's financial regulatory reform package. Barr's speech was also covered in The Washington Post, Bloomberg, and Business Week.

Greenspan addresses CU questions

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WASHINGTON (2/24/10)--Former Federal Reserve Board Chairman Alan Greenspan says the nation’s economy cannot absorb another economic stimulus package because of the impact on the deficit. Furthermore, he pointed out that, in the current political climate, it is virtually impossible to raise taxes or reduce government services, and in the kind of services economy that exists now in the United States, future economic growth is likely to be slow. He made the observations during a unique question-and-answer session during the Credit Union National Association’s Governmental Affairs Conference. Greenspan, sitting on the stage in an easy chair, spoke for about 10 minutes, and then responded to questions from the audience of credit union executives for about 45 minutes. The ex-Fed chairman, who held that post for 18 ½ years, said the current economic collapse resulted primarily from the inability of the market to distribute risk. He said the structure had never been faced with this type of massive challenge and simply broke down. In response to a question, Greenspan said he did not believe that the decision to abolish the Glass-Steagall Act was responsible for the current crisis--nor would reenactment of a similar statute prevent it in the future. In the wake of the devastating stock market crash in 1929, the U.S. Congress passed what is commonly referred to as the Glass-Steagall Act. The act separated investment and commercial banking activities, among other prohibitions intended to bolster safety. Greenspan said current studies, employing state of the art research technology, have found that the involvement of commercial banks in investment markets was not as much of a factor in the Great Depression has had been believed. “Glass-Steagal set up an artificial barrier,”he added, “and putting it back on does not seem to me a constructive act.” He was asked whether government emphasis on Community Reinvestment Act (CRA) lending was a factor in creation of the housing bubble. Greenspan opined that it was. The ex-Fed chairman said that in the mid-90s, Fannie Mae and Freddie Mac accelerated efforts to meet affordable housing goals, and that this contributed to the market pressures. Greenspan said one of Washington’s biggest problems right now is the partisan gridlock. He recalled nostalgically the days when Gerald Ford was president, and Rep. Thomas (Tip) O’Neill was House Speaker. “During the day,” he said, “they attacked each other, sometimes vitriolically, but at the end of the day they had a bourbon together over at the White House.”

Kanjorski praises CUs as part of nations recovery

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WASHINGTON (2/24/10)—Rep. Paul Kanjorksi (D-Pa.), a long-time proponent of credit union issues, said Tuesday that credit unions should “pat yourselves on the shoulder” for being part of the nation’s recovery. Kanjorksi, who made his remarks to the thousands of credit union
Rep. Paul Kanjorksi (D-Pa.), a long-time proponent of credit union issues, told credit unions they have been part of the nation's recovery and they should give themselves a pat of congratulations. (CUNA photo)
representatives attending the Credit Union National Association’s Governmental Affairs Conference (GAC) here this week, recalled his appearance at the GAC last year when the country’s economy was in a bleak state. Now, he said, credit unions can take some of the credit for moving the country toward a recovery. Kanjorski, who is a principal co-sponsor of legislation in the House that would raise the credit union member business lending cap to 25%, up from 12.25% (H.R. 3380), lamented the current low cap. He said, “(W)e put the cap on member business lending” into H.R. 1151—the Credit Union Membership Access Act that Kanjorski co-sponsored about a decade ago. “It didn’t exist before then. It hasn’t worked too well.” “We need help to provide credit to businesses and provide jobs” without costing the taxpayers one cent, he said. “If we move on lifting the cap quickly, we’ll inject $10 billion into the economy through small businesses and provide 108,000 new jobs.” Kanjorski, along with two other H.R. 3380 cosponsors, Reps. Ed Royce (R-Calif.) and Marcy Kaptur (D-Ohio), sent a letter Monday to each House member asking them to urge House leadership to add an MBL provisions to a jobs-creation legislative package. (News Now Feb. 23) Also at the GAC, Kanjorski asked for support for his “too big to fail” amendment in the House financial reform legislation. The provision would give regulators authority to keep an eye on the top financial firms and take appropriate and immediate actions. If not, “we’ll never outlive the fear, anguish, and anxiety of last year,” Kanjorski warned.

House Whip tells CUs Marshall your firepower

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WASHINGTON (2/24/10)--Rep. James Clyburn urged credit unions to marshal their political firepower to help resolve the financial crisis, adding that not all pending proposals to cure the current recession are in the interest of credit unions. Clyburn made the observation in a speech Tuesday before the Credit
House Majority Whip James Clyburn tells attendees at CUNA's Governmental Affairs Conference that he and his family have been involved with credit unions for years. (CUNA photo)
Union National Association‘s (CUNA) Government Affairs Conference (GAC). The South Carolina Democrat cited regulatory reform legislation, which he said should be amended to exempt credit unions. “Credit unions should be exempt from the risk provisions of the bill because credit unions are different,” he told the GAC. Clyburn, who is the House Democratic Whip, stressed that he and his family have been involved in the credit union movement for years, and the credit union influence needs to play a role in the current redesign of the financial structure. He also cited the importance of resolving the nation’s health care problems in easing the current economic recession, and the need to enact legislation to generate more employment. CUNA is urging lawmakers to lift a statutory cap on credit union business lending to members as a means to infuse more than 100,000 jobs into the jobs market and to bring $10 billion of new lending to small business members of credit unions within the first year of enactment.