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Fed Says Bounced Mortgage Settlement Checks Now Okay

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WASHINGTON (4/22/13)--The Federal Reserve Board late last week assured troubled borrowers whose mortgage settlement checks had bounced that the independent paying agent had fixed the problem.

Some early recipients of checks being sent to borrowers under the Independent Foreclosure Review informed the Fed's consumer helpline on Tuesday that they were told their checks could not be cashed because of insufficient funds.

The Fed said its staff contacted the paying agent, Rust Consulting, Inc., and the paying bank, The Huntington National Bank, and that Rust subsequently corrected problems that led to some checks being rejected.

The Fed said it will continue to monitor the payments closely.

The payments are part of agreements between federal regulators and servicers to provide $3.6 billion in cash payments to borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 and whose mortgages were serviced by one of the following companies, their affiliates, or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

Checks are being sent in waves. The first batch of 1.4 million checks was sent on April 12. The Fed announced Friday that a second wave of 1.4 million checks totaling $1.2 billion was sent, bringing value of checks sent to $2.4 billion.

All checks are expected to be distributed by mid-July 2013.

Postponing Credit Insurance Rule Effective Date Would Improve Compliance Efforts

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WASHINGTON (4/22/13)--The compliance deadline for portions of pending credit insurance provisions must be extended beyond June 1, the Credit Union National Association said in a Friday letter to Consumer Financial Protection Bureau Director Richard Cordray.

The CFPB credit insurance rule bans the financing of any premiums or fees for payment protection products in connection with a consumer credit transaction secured by a dwelling. The rule does allow the products to be paid for on a monthly basis.

CUNA Deputy General Counsel Mary Dunn in the letter said CUNA supports prohibiting the financing of true single-premium credit insurance. However, credit union mortgage lenders are concerned by language in the regulation that appears to prohibit the financing of any premiums or fees for credit insurance. Some terms in the supplementary language of the rule have also puzzled credit unions, Dunn wrote.

Language that may prohibit the addition of any monthly charge for the insurance to the loan balance has also given credit unions pause, she noted: "This practice appears to be fairly common among credit union mortgage lenders as a number of credit unions' data processing systems add the insurance premium amount to the loan balance on a monthly basis." It will be quite costly for credit unions to make the needed changes to comply with this portion of the rule by June, Dunn added.

To ease compliance and help avoid unneeded costs, the CUNA letter suggested the CFPB delay the effective date of any provisions of the existing final rule that would impact products other than actual single-premium credit insurance, as well as any future rule that will address these issues, until January 10, 2014. Most of the rest of the mortgage loan originator compensation rule is set to take effect at that time.

Postponing the effective date of these provisions will give all parties the time needed to gain a clear understanding on what is required, and to take the necessary compliance steps, Dunn wrote. Such steps could include changes to contracts, data processing programs, and member payment arrangements.

House Panel To Study SBLF 'Backdoor Bailout'

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WASHINGTON (4/22/13)--House lawmakers are going to be taking a close look this week at the Small Business Lending Fund (SBLF), the $30 billion program established by the Small Business Jobs Act of 2010, which was intended to encourage banks to lend more to credit-strapped small businesses.

The hearing, scheduled by the House Oversight and Government Reform Committee, is titled, "Broken Promises: The Small Business Lending Fund's Backdoor Bank Bailout."  It is scheduled for April 25 at 9:30 a.m. (ET). Witnesses will be announced this week.

The House oversight panel is charged with being a "watchdog" committee, in effect holding the government accountable to the nation's taxpayers. SBLF is a U.S. Treasury Department administered program.

A report earlier this month from the Office of the Special Inspector General for TARP (SIGTARP) criticized the former Troubled Asset Relief Program (TARP) banks that took part in the taxpayer-funded SBLF. Those banks "have not effectively increased small-business lending and are significantly underperforming compared to non-TARP banks," SIGTARP wrote.

While the SBLF was intended to incentivize bank small-business lending, 24 former TARP banks have not increased their lending, and the remaining former TARP banks have increased lending by $1.13 for each SBLF dollar they received, the report said.

"By comparison, banks that did not participate in TARP but received SBLF funding have increased small-business lending by more than three times that amount--$3.45 for each $1 in SBLF funds," SIGTARP added.

While Congress was considering whether to give the banks $30 billion in taxpayer money to lend to small businesses, credit unions were telling Congress that  they had money to lend but needed more authority to do so.  CUNA and credit unions strongly advocate for a measure that would raise the member business lending cap and would increase credit to small businesses by $14 billion in the first year of enactment.

"Small businesses must wonder what's going on here.  Of the $30 billion in taxpayer-funded SBLF money,  banks didn't even make use of most of it.  But many of the banks that did participate in SBLF used that bailout money to pay off another bailout," Ryan Donovan, CUNA senior vice president of legislative affairs, noted Friday.

He added, "All the while, a growing number of credit unions have been forced to stand on the sidelines with money to lend but a cap to contend with.  And today, the community banks have the gall to go to Congress and block additional credit union lending.  Looking at all of this, it make you wonder if they want anyone lending to small businesses… including themselves!"

New Simpson-Bowles Tax Plan Strips To Rebuild Code

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WASHINGTON (4/22/13)--Former Sen. Alan Simpson, a Republican, and former White House Chief of Staff Erskine Bowles, who worked for the Clinton White House, released a new versiono of their self-named Simpson-Bowles tax reform and debt-reduction plan Friday.

The authors are co-chairs of President Obama's Deficit Commission and they are proposing nearly $2.5 trillion in reduced spending and increased tax revenues over ten years. On the tax side of the equation, the duo offer "the Zero Plan," which strips all expenditures and then rebuilds the tax code from the bottom up.

The Credit Union National Association noted last week (News Now April 16), the "zero plan" idea reflects an approach that is gaining more attention in Washington.

The Simpson-Bowles proposals, which made their first round in 2010, were unable at that time to garner enough support to be approved by the U.S. Congress. However, as CUNA President/CEO Bill Cheney said in his weekly newsletter, The Cheney Report, Friday, it remains to be seen to what degree this new version will be embraced on Capitol Hill.

Cheney also noted that the emergence of Simpson-Bowles 2.0, as some are already calling it, is "another stark reminder of how serious Washington is this year about moving forward on broad tax reform--and how serious we must all be about preserving credit unions' tax status."

Preserving the credit union tax status is a top issue for CUNA, and the group has been meeting with Washington's tax policy writers to educate them about the public policy reasons that dictate the credit union tax status.

CUNA also provides its members with an online toolkit to help credit unions educate members about the value and benefits of credit unions. CUNA research has shown that when credit union members understand the value of membership, they will work with credit unions to defend their tax status.

CFPB Offers Escrow Rule Help, More Mortgage Clarifications

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WASHINGTON (4/22/13)--An escrow rule summary, and tips to help small issuers and their business partners implement that rule, were released by the Consumer Financial Protection Bureau late last week. The CFPB also released a proposal to address questions regarding qualified mortgages and servicing.

The escrow rule guide provides a plain language overview of the rule, and a list of frequently asked questions. These documents will make the content of the rule "more accessible and consumable for a broad array of industry constituents, especially smaller businesses with limited legal and compliance staff," the CFPB said in a release. "The guide summarizes the TILA Escrow Rule, but it is not a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding its requirements," the agency stressed.

Organizations that originate higher-priced mortgage loans secured by principal dwellings, servicing market participants, software providers, and other companies that serve as business partners to creditors may all find the new guidance useful, the CFPB said.

The guide, according to the agency, will help those entities determine whether the mortgages they originate would fall under the rule, and what their compliance obligations are. The guide also addresses:

  • Exceptions to the rule that may apply to a given mortgage originator;
  • Special rules for loans made by certain small creditors operating predominantly in rural or underserved markets; and
  • Special rules for loans secured by condominiums and other multi-unit developments.
The CFPB's escrow rule, issued in January, generally extends the required duration of a mortgage loan escrow account to five years, up from one year. Lenders that work in rural or underserved areas will be exempt from the escrow changes, provided they meet certain other criteria. Proposed clarifications and technical amendments to the escrow regulations were issued earlier this month. (Use the resource link to read April 14 News Now story: CFPB Releases Escrow Rule Tweaks, Clarifications.)

The CFPB's ability to repay/qualified mortgages and mortgage servicing rule clarifications, released on Friday, are meant to address questions that have been posed in the months since the rules were first issued.

The clarifications address:
  • Small servicer exemptions;
  • Debt-to-income ratios;
  • Contract variances and the temporary QM provision;
  • Purchase, guarantee or insurability status and the temporary QM; and
  • Field preemption under Regulation X.
The mortgage clarification proposal will be published in the Federal Register soon, the CFPB said. The agency plans to accept comments on the proposal for 30 days after it is published.

CUNA is analyzing the CFPB escrow guidance and the proposed clarifications.

More plain language compliance resources and updates of official regulatory interpretations, examination procedures and other materials addressing CFPB mortgage regulations will be unveiled in the coming months, the CFPB said.

For the new escrow guide and the proposed qualified mortgage and servicing clarifications, use the resource links.

NCUA Letters Address LICU, Corporate Credit Risk Issues

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ALEXANDRIA, Va. (4/22/13)--The National Credit Union Administration on Friday sent out two letters: One on low income credit union (LICU) changes and a second letter that addresses creditworthiness and credit risk guidance for corporate credit unions.

The LICU letter was sent to federally insured state-chartered credit unions. The letter highlights recent NCUA procedural changes that streamline the process for state-chartered credit unions to determine if they are eligible for a LICU designation. The NCUA and the National Association of State Credit Union Supervisors (NASCUS) in February announced a joint plan that allows state regulators to provide limited geographic and income data to the NCUA when they upload their examinations.

The NCUA said it will use that data to determine if there are state-chartered credit unions eligible for the low-income designation and provide a list to state regulators on a quarterly basis of those credit unions. State regulators have the sole authority to make the LICU designation for state-chartered credit unions.

The creditworthiness and credit risk guidance follows a December final rule that replaces the ordinal credit rating scale used by natural person and corporate credit unions with a pair of new standards: "investment-grade" and "minimal amount of credit risk." The NCUA in the new corporate credit union guidance said it expects corporate credit unions to follow this final rule by maintaining "the credit quality of their securities, their issuers, and any counterparties, in all investment transactions."

The letter also provides a detailed outline of the credit rating rule, which is scheduled to come into effect on June 11.

For both letters, use the resource links.

Avalos Is Now NCUA Region IV Associate Director

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ALEXANDRIA, Va. (4/22/13)--Milagro "Millie" Avalos has been named Associate Regional Director--Programs for the National Credit Union Administration's Region IV office in Austin, Texas.

Avalos has been an agency employee since 1999, most recently working as a Division of Supervision analyst and a Supervisory Examiner in Region II. She has also served as a field examiner. Avalos spent 13 years in the credit union industry and worked as an auditor before joining the agency.

Region IV covers Arkansas, Illinois, Iowa, Kansas, Louisiana, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, Texas and Wisconsin.

For the full NCUA release, use the resource link.

Fed Warns Of Student Debt Economic Impact

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WASHINGTON (4/22/13)--Unprecedented levels of student debt may be restricting the spending power of young, skilled workers, and, in turn, harming the recovery of U.S. housing, automobile and general consumer markets, Federal Reserve Bank of New York economists reported in a blog post filed last week.

The New York Fed research found that the percentage of 25-year-olds with some level of student debt has nearly doubled, from 25% in 2003 to 43% in 2012.

Average student loan balances have increased by 91% in that period, from $10,649 to $20,326. The post also noted an increase in student loan delinquencies.

While the homeownership rate for 30-year-old student debtors traditionally has exceeded the homeownership rate of those without higher education debt, that relationship changed, falling 10 percentage points by 2012. "Now, for the first time in at least 10 years, 30-year-olds with no history of student loans are more likely to have home-secured debt than those with a history of student loans," the Fed economists wrote. Student loan borrowers may also have issues accessing other forms of credit due to tightening lending standards, and their own high debt-to-income ratios, the said.

The Consumer Financial Protection Bureau has noted that student loan debt, which surpassed $1 trillion in 2012, has exceeded credit card debt as the largest source of consumer debt in the U.S. More than $150 billion of this $1 trillion total is comprised of private student loans, and at least $8 billion of these private student loans are in default, the CFPB said.

To address student loan issues, President Barack Obama in his 2014 budget suggested capping federal student loan repayments at 10% of a borrower's discretionary income and forgiving any remaining student loan debt after 20 years of repayments have been made. The Obama budget also proposed changing the structure of interest rates on federal student and parent loans to reflect prevailing market interest rates at the time loans are made, with rates remaining fixed for the life of the loans.

Interest rates on subsidized Stafford Loans are scheduled to increase from 3.4% to 6.8% on July 1 if changes are not approved.

CUNA estimates that around 300 credit unions currently offer student loans to their members. Credit unions also provide financial education and seminars relating to student lending generally, and encourage students to attend. The website also provides extensive financial education regarding student lending, through both written information and webinars.

In a March letter to the CFPB, CUNA emphasized that credit unions should be given greater latitude to provide student loans to their members. CUNA is forming a student loan advisory group to address these and other student lending issues, and that group plans to meet with officials from the CFPB and the NCUA.

For the full Fed blog post and more on student lending, use the resource links.