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Bank profits grow but small biz sees no benefits CUNA

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WASHINGTON (2/29/12)--Commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported an aggregate profit of $26.3 billion in the fourth quarter of 2011, a $4.9 billion improvement from the $21.4 billion in net income the industry reported in the fourth quarter of 2010.

This is the 10th consecutive quarter that banks' earnings registered a year-over-year increase, but Mike Schenk, Credit Union National Association (CUNA) vice president of economics and statistics, said these record profits are not resulting in more capital for the nation's small businesses.

FDIC Acting Chairman Martin Gruenberg reported that banks reported higher positive aggregate earnings and reduced numbers of "problem" banks and failures. Loan balances increased in the final three quarters of the year, and banks of all sizes "continued to make substantial progress in improving their profitability," he added.

Total loans and leases increased by $130.1 billion, residential mortgage loan balances rose by $26 billion, and credit card balances grew by $21.3 billion, the FDIC reported. Deposits also increased by $249.7 billion during the quarter.

Beyond the top-line data, the FDIC data showed that U.S. bank small business lending continued to decline in the fourth quarter and that year-over-year bank small business loans outstanding declined by nearly 5% in 2011, Schenk said.

"It's great that the banking system is inching its way back from the abyss, but small businesses don't seem to be benefiting," he added. "In contrast credit unions have been lending to small businesses throughout the crisis and ensuing weak recovery, but many are now bumping up against the arbitrary 12.25% member business lending (MBL) cap. The FDIC data make it clear: the time is now for Congress to pass MBL cap increase legislation."

Separate pieces of House and Senate legislation would increase this cap to 27.5% of total assets, injecting $13 billion in new funds into the economy, and creating as many as 140,000 new jobs, according to CUNA estimates.

For the full FDIC release, use the resource link.

The National Credit Union Administration is expected to release fourth quarter results for the credit union system soon.

Moore Capito joins GAC lineup

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WASHINGTON (2/29/12)--As final preparations for the 2012 edition of the Credit Union National Association's (CUNA) Governmental Affairs Conference (GAC) begin, another high profile speaker has been added to the list: Rep. Shelly Moore Capito (R-W. Va.).

She has backed regulatory relief for credit unions and has pledged to support the credit union tax exemption, and recently supported credit union interests by serving as lead sponsor of the Financial Institution Examination Fairness and Reform Act (H.R. 3461). That legislation would allow financial institutions to appeal examination reports from federal financial regulators and would provide further clarity to those regulators. It would also give credit unions and other financial institutions access to decision-making information gathered in their exams and codify exam policy guidance for financial regulators.

Capito will be joined at the GAC by many other key U.S. House colleagues, including House Minority Whip Steny Hoyer (D-Md.), House Financial Services Committee Chairman Spencer Bachus (R-Ala.), House Majority Whip and House Financial Services Committee member Kevin McCarthy (R-Calif.), Assistant House Democratic Leader James Clyburn (D-S.C.), and Reps. Jeb Hensarling (R-Texas), Ed Royce (R-Calif.), Barney Frank (D-Mass.), Carolyn Maloney (D-N.Y.) and Carolyn McCarthy (D-N.Y.).

Sens. Jon Tester (D-Mont.), Mark Udall (D-Colo.) and Rand Paul (R-Ky.) are also scheduled to speak.

Consumer Financial Protection Bureau Director Richard Cordray, Former Secretary of State Condoleezza Rice, premier, non-partisan political analyst Charlie Cook, and journalistic duo Bob Woodward and Carl Bernstein are also on the schedule of speakers.

The 2012 GAC, which will take place March 18-22 at the Washington Convention Center in Washington, D.C., will provide more than 4,000 credit union representatives an opportunity to hear from influential leaders from Congress and the federal regulatory agencies during the meeting's sessions, as well discuss pressing credit union issues with federal lawmakers and regulators in private meetings.

Recognized as the premier conference to attend for political impact, credit union networking and industry updates, the GAC also offers a wide array of educational breakout sessions, the industry's largest exhibitor showcase, guest/family programs to tour Washington's sights, and special entertainment including an opening concert and the closing Gala Reception and Dance. This year's event will be kicked off by American Idol star Taylor Hicks, who will perform at the opening concert, sponsored by the CUNA Councils.

Registration, housing information, and other information can be found using the resource link below.

FBI crime report includes mortgage FI fraud

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WASHINGTON (2/29/12)--Mortgage and financial institution fraud were two of the high priority issues investigated by the Federal Bureau of Investigation's (FBI) White-Collar Crime program in 2011, the agency reported.

The FBI in its Financial Crimes Report to the Public covered trends in financial crime in the 2010 and 2011 fiscal years. The report describes trends in corporate fraud, securities and commodities fraud, healthcare fraud, insurance fraud, mass marketing fraud, and money laundering.

While the FBI said it continues to consider loan origination fraud to be the "most egregious type of mortgage fraud because of the high dollar losses" associated with it, the report noted that distressed homeowner fraud has displaced loan origination fraud as the number one mortgage fraud threat investigated in many FBI offices.

The agency noted these schemes, which victimize troubled homeowners, can take the form of false foreclosure rescue and loan modification programs, and mortgage debt elimination schemes.

In foreclosure rescue schemes, criminals mislead homeowners into believing they can save their home by transferring the deed or putting the property in the name of an investor. The perpetrators then sell the property to a third party investor or use a so-called "straw borrower" to purchase the home, create equity using a fraudulent appraisal, and steal the seller proceeds or fees paid by the homeowners, the FBI said.

While some of these foreclosure avoidance firms tell the former homeowners they may rent the home until they are in good enough financial condition to buy it back, the new homeowners often stop paying their mortgage, and the home goes back into foreclosure, the FBI added.

Loan modification schemers often ask homeowners to pay up-front for loan modification help, and either negotiate unfavorable terms for their clients or do not negotiate on behalf of their clients at all.

Overall, the FBI has continued to dedicate significant resources to mortgage fraud cases, and has increased the total number of agents investigating these cases to 325 in 2011. Only 120 agents investigated these cases in 2007. The agency had 2,691 pending mortgage fraud cases in 2011, and the FBI's investigative actions resulted in $1.38 billion in restitutions and $116.3 million in fines being paid in fiscal 2011.

The FBI said its financial institution fraud investigations often uncover organized criminal groups that take part in the sale and distribution of stolen and counterfeit corporate checks, money orders, payroll checks, credit and debit cards, U.S. Treasury checks, and currency.

One fraud case outlined  in the report was the St. Paul Croatian FCU case. In that case, former CEO Anthony Raguz allegedly issued more than 1,000 fraudulent loans to more than 300 account holders between 2000 and 2010, and allegedly accepted more than $500,000 in bribes, kickbacks and gifts from people obtaining the fraudulent loans.  (See related News Now, Feb. 28 story: Woman gets a day in prison in St. Paul Croatian fraud)

The scheme resulted in the credit union being placed into conservatorship in April 2010, and ultimately cost the National Credit Union Share Insurance Fund $170 million in losses.

Raguz plead guilty to federal charges earlier this year and will be sentenced on June 11. A number of other co-defendants are also being sentenced for their roles in the fraud ring.

For more of the FBI crime report, use the resource link.

Fed is pondering housing market fixes

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WASHINGTON (2/29/12)--The Federal Reserve (Fed) is working to understand the reasons behind continued mortgage and home market difficulties "and the tradeoffs involved in designing policies that would remove obstacles to normal market functioning," Fed Governor Elizabeth Duke said during a Tuesday Senate Banking Committee hearing.

Duke was joined at the witness table by U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan and Federal Housing Finance Agency Acting Director Edward DeMarco during the hearing, which was entitled "The State of the Housing Market:  Removing Barriers to Economic Recovery."

While recent economic difficulties slowed the purchase of new and existing homes, home sales have not picked up as the economy has recovered. "Six years after aggregate house prices first began to decline, and more than two years after the start of the economic recovery, the housing market remains a significant drag on the U.S. economy," Duke said in her testimony.

"In a typical economic cycle, as the economy turns down households postpone purchases of durable goods such as housing. Once the cycle bottoms out, improving economic prospects and diminishing uncertainty usually help unleash this pent-up demand. This upward demand pressure is often augmented by lower interest rates, to which housing demand is typically quite responsive," she told the banking panel, adding that the current economic recovery "has not followed this script."

She said that may be, in part, because the problems in the housing market are a cause of the downturn as well as a consequence of it.

Declining home values caused by economic issues resulted in $7 trillion in lost home equity, and "this substantial blow to household wealth has significantly weakened household spending and consumer confidence," she added.

Duke further noted that 12 million U.S. households owe more than their home is worth, and this lack of home equity is one of many factors that can lead to delinquencies, foreclosures and other issues if employment issues arise for homeowners. The high foreclosure rate caused by these issues is likely to continue, Duke said, and home prices will continue to decline as a result.

She added that tight lending markets are not helping to stoke demand, and said the Fed is considering addressing this issue by taking action to increase credit availability to households that wish to purchase a home or refinance their mortgage. The Fed may also explore the scope of future mortgage modifications and create new ways for owners of foreclosed properties "to dispose of their inventory responsibly."

Any new policy proposals "will require wrestling with difficult choices and tradeoffs, as initiatives to benefit the housing market will likely involve shifting some of the burden of adjustment from some parties to others," Duke said.

DeMarco in separate testimony addressed the steps his agency has taken to deal with housing issues, including "preventing foreclosures through loss mitigation, facilitating refinancing at today's low interest rates, and initiating a real estate owned (REO) program to address the supply of foreclosed homes."

DeMarco also addressed the Obama administration's strategic plan for the next phase of the conservatorships of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. The administration has suggested that the government gradually contract the GSEs' dominant presence in the marketplace while simplifying and shrinking their operations, and maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

For more on the witnesses' testimony, use the resource links.

Inside Washington (02/28/2012)

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  • WASHINGTON (2/29/12)--Foreign institutions, and in some cases their governments, have protested that the U.S. is stepping outside of its jurisdiction in implementing a ban on bank proprietary trading. The so-called Volcker Rule--named for former Fed Chairman Paul Volcker, who first proposed the trading ban--is part of the Dodd Frank Act. "The proposed rule appears to extend well beyond U.S.-insured depository institutions and imposes significant restrictions on Canadian banking entities by limiting their use of U.S.-based resources, personnel and market infrastructure and by preventing them from trading with U.S. counterparties," Mark Carney, governor of the Bank of Canada and chairman of the Financial Stability Board, said in a letter to Federal Reserve Board Chairman Ben Bernanke. Other countries, including France, Germany, Mexico and Japan, share concerns that the rule could unintentionally harm liquidity, widen spreads and increase volatility at foreign institutions. They also argue that U.S. treasury bonds are treated more favorably than foreign debt under the rule …
  • WASHINGTON (2/29/12)--The Federal Reserve Board on Monday released action plans for its regulated banks to correct deficiencies in residential mortgage-loan servicing and foreclosure processing. The Fed also released engagement letters between supervised financial institutions and independent consultants retained by the firms to review foreclosures that were in process in 2009 and 2010. The action plans are required by formal enforcement actions issued by the Fed last year. The enforcement actions direct mortgage loan servicers to submit plans that describe how the institutions will: strengthen communications with borrowers by providing the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust, third-party vendor controls; and strengthen compliance programs …