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AG cramdown efforts get some Hill heat

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WASHINGTON (3/11/11)--Legislators this week criticized a potential mortgage modification settlement that a group of state attorneys general and mortgage servicers are negotiating, with Senate Banking Committee Ranking Member Richard Shelby (R-Ala.) calling the discussions an “end-around” past Congress. A group of state attorneys general and several federal agencies have been negotiating a settlement agreement with the major mortgage servicers which could create a loan modification process similar to mortgage cramdown proposals. A cramdown proposal that proposed to permit judicial modification of mortgage terms under the bankruptcy law was pushed back in 2009, and similar legislation has not been brought to the floor in Congress since then. Speaking during a Wednesday committee hearing on the state of the housing market, Shelby said that the cramdown discussion raised “serious concerns” and requested that his committee look into these developments immediately. Shelby also called on federal government agencies to delay any related actions. Republican members of the House also criticized the negotiations in a recent letter, saying that the settlement, if imposed, “would transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers and investors.” The letter also questions whether the Obama administration and state agencies “are attempting to legislate through litigation,” and asked U.S. Treasury Secretary Tim Geithner to respond to a number of detailed legal and policy questions. The letter questions what authority grants federal and state regulators the power to require mortgage principal writedowns or to legislate new mortgage servicing industry standards. The state attorneys general have circulated a 27-page outline of what they would like to see in a settlement agreement to address concerns about how mortgage servicers have handled foreclosures. One of the so-called "remedies" proposed by the attorneys general is "a loss mitigation duty," which would require covered servicers to "thoroughly evaluate borrowers for all available loss mitigation options prior to foreclosure referral." This would apply to all eligible borrowers, including borrowers in bankruptcy. Servicers subject to the agreement would have to "facilitate" modifications, such as helping to fill out the application, when a modification would result in a greater "net present value" (NPV) than foreclosure. Servicers would be expected to "consider and apply" reductions in principal and in bankruptcy cases to reduce the interest rate on a mortgage loan to zero percent for the first five years. The proposed agreement envisions the new Consumer Financial Protection Bureau involved in monitoring the calculation of the NPV, as well as other aspects of the agreement. Credit Union National Association General Counsel Eric Richard said that the CFPB’s involvement raises questions as to whether some terms of the agreement could become standards applied to mortgage lenders in general. CUNA continues to closely monitor the situation. (See related March 10 story: State AGs want principal adjustments before foreclosure.)

Interest-risk policy leads NCUA March agenda

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ALEXANDRIA, Va. (3/11/11)—A proposed rule addressing interest rate risk policy will be one of many items on the National Credit Union Administration (NCUA) Board's agenda when it next meets at 10:00 a.m. (ET) on March 17. While exact details on the NCUA’s proposal are not known at the time, the Credit Union National Association’s (CUNA) Senior Vice President for Compliance Kathy Thompson said that action on interest rate risk has long been awaited. Net worth and equity ratio definitions, corporate credit union technical corrections and low-risk asset definitions are also on the agenda. The net worth proposal is expected to implement recent Federal Credit Union Act amendments that allow credit unions to count 208 assistance as net worth during mergers and other situations. CUNA supports this change. CUNA Deputy General Counsel Mary Dunn added that the NCUA’s planned corporate credit union technical changes are not expected to be substantive. However, the NCUA is expected to discuss allowing corporate credit unions to purchase its NCUA Guaranteed Notes, Dunn added. The NCUA's monthly report on the status of its insurance funds will also be delivered during the meeting. A closed NCUA session will follow the open meeting. Insurance appeals and supervisory matters will be discussed during the closed meeting. For the full NCUA meeting agenda, use the resource link.

CU rep tells Fed panel of interchange concern

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WASHINGTON (3/11/11)-- Mike Long, a member of the Federal Reserve Board’s Consumer Advisory Council (CAC) and executive vice president/chief credit officer of UW CU, in Madison, reiterated credit union concerns with the Fed’s interchange fee proposal Thursday at a CAC meeting. Long is a member of the Credit Union National Association’s (CUNA) Consumer Protection Subcommittee and a member of the Executive Committee of the CUNA Lending Council. His comments involved the Fed’s implementation plan for a statutory cap on debit card interchange fees. Credit unions under $10 billion in assets are exempt from the proposed rule, but CUNA has voiced concerns that the exemption will not work in practice. Long reminded the Fed advisory panel that UW CU, like all credit unions, is a not-for-profit cooperative and that a need to impose a fee on currently free checking accounts may be necessary to recoup the revenue UW CU will likely lose if the Federal Reserve finalizes its proposed debit interchange regulation. He underscored that increased fees by credit unions would only be to cover the cost of operating checking accounts that are currently paid for through debit card interchange income, and not from greed, as some have charged of banks. Long said his credit union falls below the $10 billion threshold, but added the exemption will not likely work in practice. He said the Fed’s rule, that sets a seven to 12 cent fee limit for large issuers and could, de facto, do the same for his credit union, could reduce his credit union’s net income by 87% in 2012. Long urged the Fed to study the full impact of its regulation before moving to a final rule. Currently, the Fed rule is expected to go into effect in July. CUNA has asked the U.S. Congress to instruct the Fed to “slow down, study, and start over” on its implementation plan. CUNA is concerned that while the law requires the Fed to set a debit card interchange fee that is “reasonable and proportionate,” the Fed plan does not consider all costs associated with providing the service.

Flood insurance revamp hearing is today

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WASHINGTON (3/11/11)--A House Financial Services subcommittee today will conduct a hearing to study legislative proposals to reform the country’s flood insurance program, which is intended to offer some security to homeowners and business in flood-prone areas. Rep. Judy Biggert (R-Ill.), chairman of the subcommittee on insurance, housing and community opportunity, which is conducting the review, cited “inadequate management and insufficient funds,” as key problems of the program her subcommittee is scheduled to examine. “It’s crucial that we begin to restore the financial integrity of (the National Flood Insurance Program) NFIP so that homeowners and businesses in flood-prone areas, like many in Illinois, are not left without any protection and taxpayers are not on the hook for the failings of NFIP," she said. Witnesses for the hearing include: Craig Fugate, administrator, Federal Emergency Management Agency Orice Williams Brown, managing director, Government Accountability Office (GAO), Sally McConkey, vice chair, Association of State Flood Plain Managers and manager, Coordinated Hazard Assessment and Mapping Program, Illinois State Water Survey. For a complete witness list, use the resource link below.

Inside Washington (03/10/2011)

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* WASHINGTON (3/11/11)--While at the Credit Union National
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Association’s (CUNA) Governmental Affairs Conference last week, the Louisiana Credit Union League arranged a special opportunity for Louisiana attendees. On Tuesday, the state’s credit unions took part in the Wreath Ceremony at the Tomb of the Unknown Soldier in Arlington National Cemetery (Louisiana Credit Union League eNews March 10). Escorted by a military guard, four individuals representing Louisiana credit unions presented a wreath at the tomb as a bugler played “Taps.” Presenting the wreath were: Al Oar, Barksdale FCU, Bossier City, representing the Air Force; Cortez Bridges, Bossier FCU, Bossier City, Army; Rhonda Hotard, Louisiana FCU, Laplace, Navy; and Richard Pelloquin, CSE FCU, Lake Charles, Navy. More than 90 Louisiana credit union professionals and volunteers attended the GAC. On Wednesday, Louisiana credit unions spoke with one voice while visiting with their congressional delegation on Capitol Hill. They visited with: Sen. David Vitter (R), Rep. Steve Scalise (R), Rep. Cedric Richmond (D), Rep. John Fleming (R), Rep. Bill Cassidy (R), and Rep. Charles W. Boustany (R). Sen. Mary L. Landrieu (D) and Rep. Rodney Alexander (R) sent staff representatives. During the visits, attendees addressed key issues and stressed the credit union difference. They emphasized the importance of raising the member business lending cap and the positive impact it would have on small businesses and employment. A recent CUNA study found that lifting the MBL cap to 27.5% of assets from the current 12.25% limit would provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs at no cost to taxpayers … * WASHINGTON (3/11/11)--Agricultural lending is thriving in an otherwise sluggish lending environment, and regulators are wary. Thursday the Federal Deposit Insurance Corp. (FDIC) hosted a half-day symposium to discuss issues associated with escalating farmland values during the previous decade. “Farmland values have doubled on average in the past 10 years, and continue to rise in an environment of ample liquidity and low interest rates,” FDIC Chairman Sheila C. Bair said in announcing the symposium. “While we see strong fundamentals in the farm sector at present, the sector remains vulnerable to a reversal of market conditions or a rise in interest rates.” The FDIC also issued a financial institution letter in December on prudent management of agricultural credit through farming and economic cycles. During the symposium, the FDIC explored whether the growth represents an asset bubble similar to the residential real estate and booms, or a reordering of asset prices that reflect long-term economic changes … * WASHINGTON (3/11/11)--The Federal Deposit Insurance Corp. board will propose a new resolution rule during its board meeting Tuesday (American Banker March 10). The Dodd-Frank Act granted the FDIC authority to unwind large companies that would jolt the financial system if they went bankrupt. The board will not consider requirements for lenders that retain pieces of securitized loans. In January, the agency clarified how it will treat certain creditor claims under the authority provided by Dodd-Frank. The agenda for Tuesday’s meeting did not include the risk retention rule. As outlined in Dodd-Frank, several regulators are required to collaborate on the risk-retention rule. The process has been delayed as regulators consider whether to include new servicing rules within the risk-retention proposal …