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Inside Washington (03/18/2008)

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* WASHINGTON (3/19/08)--Homeownership among the underserved must increase, Rodney Hood, vice chairman of the National Credit Union Administration (NCUA) emphasized Thursday at a Santee Sioux Tribe town hall meeting. The meeting, hosted by the MidAmerica Credit Union Association, briefed Hood on the tribe’s effort to charter a new federal credit union on the reservation to help tribal members. “From an economic standpoint, lifting homeownership rates for all Americans has never been more important. Owning a home is the foundation of wealth creation for families and is their quickest path to self-sufficiency,” Hood said. He then thanked credit unions for their help in promoting economic empowerment ... *
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WASHINGTON (3/19/08)--Forty-six credit union CEOs, senior staff and volunteers from Kentucky attended the Credit Union National Association’s Governmental Affairs Conference in Washington, D.C. March 2-6, according to the Kentucky Credit Union League (By the Way March 2008). During their Hill visits with lawmakers, this group of Kentucky attendees met with Rep. Geoff Davis (R-Ky.) on the steps of the Capitol. (Photo provided by the Kentucky Credit Union League) ...

Cummings signs on as CURIAs 148th

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WASHINGTON (3/19/08)--Rep. Elijah Cummings (D-Md.) signed on last week to support the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), bringing the number of signatures in support of the House bill to 148. Earlier this month, the Maryland and District of Columbia Credit Union Association brought 80 credit union officials to make a round of Capitol Hill visits arranged in conjunction with the Credit Union National Association’s (CUNA’s) Governmental Affairs Conference here. At that time, when the group met on credit union issues with Cummings, the lawmaker noted that he believes credit unions are a bridge that help people cross over financial difficulties to meet goals and attain wealth. CUNA VP of Legislative Affairs Ryan Donovan, noting that the CURIA co-sponsor list is on the precipice of reaching 150, warned Tuesday that there are no “magic numbers” when it comes to lawmakers’ support for the important credit union bill. “Credit union advocacy for regulatory improvements has to remain constant and at a high level until we accomplish the changes that are necessary to better serve credit union members,” Donovan said. Among changes proposed by CURIA:
* Clarify the 1998 Credit Union Membership Access Act to allow all credit unions, regardless of charter type, to serve those in underserved areas. The bill would also update the definition of an underserved area, incorporating definitions from the Community Development Financial Institutions Act and the New Markets Tax Credit; * Increase the current cap on loans to members for business purposes (MBLs) from 12.25% to 20% of assets, allowing credit unions to assist more members start and expand small businesses and to promote economic growth. The bill would also exempt loans under $100,000 and those to nonprofit religious organizations from the MBL calculation; * Establish additional consumer safeguards in the event of a credit union conversion to another form of financial institution; and * Reform the National Credit Union Administration's original prompt corrective action system to a risk-based approach more closely resembling the current Federal Deposit Insurance Corp. capital standard for banks.
“CUNA continues to work for the broadest possible support in both the House and Senate for important credit union legislation and continues to encourage leagues and credit unions to contact their federal lawmakers—especially over the Spring recess," Donovan added. Congress adjourned for a Spring District Work Break from March 17 through 28.

Visa IPO presents unique situation for CUs

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WASHINGTON (3/19/08)—As the Visa Inc. initial stock offering was set to hit the markets this morning--at $44 a share--credit unions prepared to accept and hold Visa stock issued to them in connection with the card giant’s conversion to public ownership. The Visa offering presents a unique situation for credit unions. Generally, the Federal Credit Union Act does not authorize federal credit unions to invest in the stock of companies other than credit union service organizations (CUSOs) and Visa Inc. is not a CUSO. However, as Visa’s plans for an initial public offering (IPO) advanced, the National Credit Union Administration (NCUA) in 2007 issued a legal opinion letter that cleared federal credit unions for the stock deal. In the letter addressed to Visa Inc. General Counsel Joshua Floum, the NCUA wrote: “Members will not compensate Visa Inc. for the stock, will receive the stock without taking further any action, and no cash or other rewards to members are available in lieu of the stock." Under the IPO plan, Visa U.S.A. becomes a subsidiary of Visa Inc. as part of the restructuring and its members will receive stock in Visa Inc. calculated on the basis of fees a member institution has generated in the past, according to the letter. The NCUA cautioned that federal credit unions may receive and retain the stock unless "its examiner determines holding the stock is a safety and soundness problem for that federal credit union." State-chartered credit unions, the NCUA said, should consult with the appropriate state supervisory agency about “the permissibility of their receipt of stock and any regulatory restrictions that may apply." In January, the Credit Union National Association’s (CUNA’s) Accounting Task Force issued an analysis of the complex accounting issues associated with treatment of VISA Class B stock. Task Force Chairman Scott Waite, who is also SVP-CFO of Patelco CU, San Francisco, has urged all credit unions affected by the stock offering ultimately to consult their own accountants for specific guidance for their situations. However, Waite and the task force offer these following tips for credit unions:
* Financial institutions should record their investment in Visa USA common stock received at its historical cost (carryover basis) which is most likely $0 (per SEC); * When and if recognized in 2008, the stock exchanged from Visa USA common stock to CLASS B common stock should be recorded at its carryover basis, in other words $0 (per SEC); * A liability should be established in 2007 for both the Amex settlement and the Discover estimate per FIN 45 and FAS 5; * The amounts are $2.065 billion for AMEX and $650 million for Discover – as disclosed, recorded, and SEC filed by VISA with the SEC; * Technically a FIN 45 liability should also be established for the remaining pending litigation; * A charge should be taken through earnings; * The amount is an estimate but should be generally based on an institution's membership proportion of interest in Visa USA times the AMEX and Discover amounts; * Despite the outcome of the IPO and its potential stock value, the restructuring agreement (already in effect in 2007) contains an indemnification clause (see VISA SEC filings S4 page 96 and VISA SEC filing 10K, item 3, page 49) that is now being considered the member's guarantee to pay as its liability, not VISA's; * The escrow will be funded when and if the IPO is completed by calculating a pro rata reduction of the stock held by financial institutions that may be converted to CLASS A stock so that the escrow account will have a balance to pay the litigation settlement. We understand that the SEC has indicated that the pro rata value of stock deposited in the escrow account should be considered "as if sold" and a gain recorded when the IPO is complete but only to the extent that a FIN 45 and FAS 5 liability was previously recorded. Or course this makes a timing difference in the recognition of the litigation indemnification and the gain of the conversion ratio of the shares used to fund the litigation escrow; and * The payment of the litigation costs by Visa members in the form of receiving less stock (net proceeds) still constitutes a payment by the members regardless of any exchange of cash.
This CUNA information is based on the general conclusion that there will be carryover basis in the stock in 2008 and a liability for the fourth quarter of 2007 for the indemnification of litigation losses, Waite stated.

April hearing on Franks housing rescue bill

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WASHINGTON (3/20/08)—The House Financial Services Committee Tuesday announced an April 9 hearing on the economic, mortgage and housing rescue plan announced last week by that committee’s chairman, Rep. Barney Frank (D-Mass.). Witnesses will include federal regulators, academics, economists and representatives of cities and communities that are being impacted by high numbers of foreclosures, according the committee’s announcement. The proposal, unveiled March 13 by Frank and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) at a joint conference, seeks to address the rising tide of mortgage foreclosures. According to the release, the three main portions of the plan would:
* Permit the Federal Housing Authority (FHA) to provide [up to $300 billion] in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the agreeing to a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA guaranteed loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay: * Permit the loan program to be used to refinance and guarantee mortgages through a facility that would provide for auction or other mechanism to refinance loans on a bulk basis; and * Provide $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible.
Use the resource link below to read Frank’s announcement of the rescue plan.