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CUNA urges CU focus on call to Support S. 896

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WASHINGTON (4/30/09)—The Credit Union National Association (CUNA) said credit unions must stay focused on the grassroots call to action issued by CUNA and the leagues in support of Senate legislation due up for a vote today. That bill would mitigate the costs to credit unions of the National Credit Union Administration’s corporate stabilization program. CUNA said credit unions must disregard any conflicting instructions they encounter from some other quarters of the industry. For example, CUNA and the leagues received reports yesterday of calls circulating for credit unions to sign a petition requesting Congress delay consideration of the measure and hold hearings. “That petition drive was launched absent coordination with CUNA and the leagues. It has the potential to cause confusion or worse. not just among CUs but also among Senators and their staffs,” noted CUNA President/CEO Dan Mica. “Such actions are not helpful and could even be detrimental, hurting CUs by leaving them with no options to spread out their insurance costs should Congress interpret the mixed and divided messages as a reason to delay consideration of this critically important legislation,” he added. The measure to mitigate the corporate costs is expected to be part of an amendment to S. 896 offered on the Senate floor today by Senate Banking Committee Chairman Christopher Dodd (D-Conn.). The amendment would also extend the $250,000 deposit insurance levels that Congress enacted last year as a means of boosting consumer confidence in financial institutions. Yesterday CUNA and the leagues issued a call to action urging CUs to contact their Senators as soon as possible in support of S. 896. (See related stories in this morning’s News Now).

Cramdown unlikely in Senate housing bill

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WASHIINGTON (4/30/09)—A Senate housing bill, expected to be voted today, appears to be advancing with important language for credit unions, and without the contentious mortgage bankruptcy provisions it once featured. The bill (S. 896) intends to make permanent the increased, $250,000 deposit and share insurance cap. It would also allow credit unions to spread out the cost of their premium assessment that has resulted from losses at wholesale corporate credit unions. (See related stories: CUNA supports Dodd amendment to housing bill; CU action urged on NCUSIF provisions.) However, negotiations stalled between a key senator and financial services industry representatives—including the Credit Union National Association (CUNA)—over language that would have improved provisions allowing bankruptcy judges to modify—or cramdown—existing mortgages. Strongly opposed to a House-passed bill that gave broad authority to bankruptcy judges, CUNA worked closely with key senators and their staffs to narrow the scope of those provisions and mitigate its impact on credit unions in case Congress passed a bill containing that authority. CUNA President/CEO Dan Mica said Wednesday, “CUNA stayed at the table in the Senate, negotiating in good faith for sound public policy on behalf of credit unions and their members. We are gratified that we influenced a number of improvements to the legislation by our commitment.” He noted, however, that CUNA finally came to a point where the negotiations could not produce a bill that met all negotiating parties’ concerns and still pass the Senate. “Given this, we have suspended negotiations on the judicial mortgage modification provisions. We have the utmost respect for Sen. Durbin; we look forward to working with him on many more important policy issues,” Mica said.

Inside Washington (04/29/2009)

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WASHINGTON (4/30/09)--Hubert Hoosman Jr., (left) president/CEO of Vantage CU, Bridgeton, Mo., met Vice President Joe Biden in St. Louis April 17. Biden was in town at the University of Missouri-St. Louis for a speech on making college more affordable. The audience included U.S. Sen. Claire McCaskill (D-Mo.) and Missouri Gov. Jay Nixon. Hoosman is past president of the University of Missouri-St. Louis Alumni Association and remains active with the university. Vantage has $560 million in assets. (Photo provided by Vantage CU) ... * WASHINGTON (4/30/09)--Financial institutions may have more time to contest the results of stress tests that were given to 19 of the nation’s largest financial institutions. The results are expected to be released to the public May 4, and there is no clear cut-off date for banks to contest the results (American Banker April 29). The Federal Reserve Board Friday released stress test methodology ... * WASHINGTON (4/30/09)--Oral arguments Tuesday by some Supreme Court justices indicate support for the Office of the Comptroller of the Currency’s (OCC) ability to enforce laws--even state laws--at national banks (American Banker April 29). The high court heard a case related to a 2005 investigation by former New York Attorney General Eliot Spitzer, who asked for bank data so he could determine if they engaged in discrimination. The banks did not give him the data, so Spitzer threatened to sue. The OCC said it did not have to provide the information because of visitorial powers. Justice John Roberts, who voted against the OCC in a similar case--Watters v. Wachovia--appeared to side with the OCC. Justice David Souter noted language in the 1994 Riegle-Neal Act, which indicated that the OCC can enforce any law applied to national banks. However, Justice Ruth Bader Ginsberg said arguments that the Watters case sets a precedent for the current case are inaccurate. Justice Antonin Scalia said the federal government should not enforce state law, noting that it may not have the time to worry about state law ... * WASHINGTON (4/30/09)--Michael Bradfield, a Washington attorney, could be the Federal Deposit Insurance Corp.’s (FDIC) top pick for general counsel, according to financial industry observers. Bradfield served as a top lawyer at the Federal Reserve Board during the savings and loan crisis. He also worked at the Treasury from 1962 to 1975 (American Banker April 29). If chosen, Bradfield would succeed Sara Kelsey, who left the FDIC in October ... * WASHINGTON (4/30/09)--Democrats pushed Tuesday to widen the scope of which mortgages are permissible for modifications under legislation that aims to reform mortgage underwriting practices. Several amendments were proposed, including one that would widen the safe harbor to include fixed-rate loans less than 30 years old and adjustable-rate mortgages underwritten to the maximum rate in the loan’s first seven years (American Banker April 29). Fannie Mae, Freddie Mac and the Federal Housing Administration also could define which loans qualify for the safe harbor. Another proposed amendment would allow regulators to adjust a requirement that lenders have to take on 5% of a loan’s risk. A vote on the amendments was expected Wednesday ... * WASHINGTON (4/30/09) The Hope for Homeowners program will be included as a part of President Barack Obama’s Home Modification Program (American Banker April 29). The Treasury announced more program details Tuesday, most of which relate to second mortgages. Servicers who help borrowers with the Hope program will receive incentives, Treasury said. Anne Canfield, Consumer Mortgage Coalition executive director, noted that the Hope program is viable--but that some changes may need to be made. Others applauded the changes. The new details “address the 800-pound gorilla in the room--second liens,” according to Brian Chappelle, partner at Potomac Partners. (See Related: CUNA: CUs should note changes to loan mod program) ...

CUNA CUs should note changes to home mod program

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WASHINGTON (4/30/09)--Credit unions should note the changes to President Barack Obama’s Home Modification Program, specifically those involving second lien mortgages, according to Jeff Bloch, Credit Union National Association (CUNA) senior assistant general counsel. CUNA believes that credit unions would be most affected by changes regarding second liens and the inclusion of the Home for Homeowners Program (H4H). Incentives will be awarded to lenders who can modify monthly payments on second mortgages. On Tuesday, the Treasury Department released details on how second lien mortgages would be treated under the program. For second lien mortgages that amortize:
* The rate will be reduced to 1%. The cost will be shared with the government. After five years, the rate will increase in steps to the then-current rate of the first mortgage, which cannot exceed the prevailing mortgage rate at the time of the modification; * The term of the second loan will match the first lien mortgage and be amortized over the same period; * There will be principal forbearance in the same proportion as there may be for the first lien, but there is no requirement for principal forbearance for the first lien, unless the loan is refinanced under the Federal Housing Administration’s (FHA) H4H Program; and * Investors will receive incentive payments equal to half the difference between the interest rate on the first lien as modified and 1%, subject to a floor.
For interest-only second liens, the following will be required:
* The rate will be reduced to 2%, with the cost shared by the government. After five years, the rate will increase in steps to the then-current rate of the first mortgage, which cannot exceed the prevailing mortgage rate at the time of the modification; * The term of the second loan will match the first lien mortgage and be amortized over the same period. The second loan will be amortized over the originally scheduled amortization period if that is longer than the term of the first mortgage loan; * There will be principal forbearance in the same proportion as there may be for the first lien, but there is no requirement for principal forbearance for the first lien, unless the loan is refinanced under the H4H Program; and * Investors will receive incentive payments equal to half the difference between the lower of the contract rate on the second lien and the interest rate on the first lien as modified, and 2%, subject to a floor.
Servicers will receive $500 and then $250 per year for three years if the loan remains current. Borrowers will receive $250 per year for up to five years, which will be applied to the principal of the first mortgage. Lenders and investors also can extinguish second liens in exchange for a larger payment. The lender/investor will receive 3 cents on the dollar if the loan is more than 180 days past due. If the loan is less than 180 days past due, the lender or investor will receive between 4-12 cents on the dollar, based on the debt-to-income ratio and the loan-to-value of the second lien. Treasury announced that H4H also will be integrated into the Home Modification Program. When the borrower enters into a modification, the servicer will be required to evaluate the borrower for a H4H refinance and must offer that refinance if the borrower qualifies and agrees to the refinance. The H4H requirements differ in a number of ways from the Home Modification Program and specific factors will determine which will be the most beneficial to the borrower. Servicers can receive a $2,500 up-front incentive payment for successful H4H refinancing. Lenders who originate new H4H refinanced loans can receive up to $1,000 per year for up to 3 years, provided the refinanced loan remains current. The Housing and Economic Recovery Act of 2008 directed the FHA to refinance up to $300 billion in troubled mortgages through the H4H Program. Effective for loans originated on or before Jan. 1, 2008, eligible homeowners will be able to refinance their primary residence home loans into fixed-rate, FHA-backed loans. To qualify, the lender or mortgage investor must reduce the loan principal and would receive a guarantee for the reduced loan amount. For more information, use the links.

UBIT judge ponders governments premise

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WASHINGTON (4/30/09)— A district court judge’s pre-trial decision in an unrelated business income tax—or UBIT—case not only came out in favor of the plaintiff credit union’s witness list, it also pondered the premise of the government’s tax arguments. The case involved is Community First CU v. United States of America. The Appleton, Wis. credit union filed suit in January 2008 in the U.S. District Court for the Eastern District of Wisconsin against the United States seeking a refund of $54,000 in taxes paid in UBIT on income from several insurance products. Community First CU contends that the revenue from sale of the products is "substantially related" to the purposes and functions of the tax-exempt, state-chartered credit union. May 11 is the date set for a jury trial. On Tuesday, U.S. District Court Judge William Griesbach rejected the request of the government to disallow certain of the credit union’s witnesses, but also did not block any defendant witnesses. Notably, the judge also used the occasion to question aspects of the government’s intended line of testimony to support the Internal Revenue Service's UBIT position. For instance, Griesbach wrote: “The unstated, but apparent, premise of the government’s argument is that credit life and GAP insurance could (emphasis is the judge’s) be substantially related to a credit union’s tax-exempt purposes if they were offered at lowered rates. That is, no one argues that credit and GAP insurance isn’t related to the business of credit unions—the argument is simply that the premiums charged are too high.’ Noting that the credit union has said that 51% of its expenses take the form of dividend payouts to member deposits, the judge went on to ponder that members are “actually the beneficiaries of the insurance products in more ways than one.” “It would be one thing if there were allegations of lavish executive perks or waste,” the judge wrote adding that, instead, it appears the bulk of the premiums “is actually going into the pockets of the members who are depositors.” If that’s the case, Griesbach said, it seems the government’s objections to cost are “crippled.” Although the case will be decided by jury, the judge will decide points of law and instruct the jury in the case.

House backs Financial Literacy Month goals

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WASHINGTON (4/30/09)—The House adopted a resolution by voice vote Tuesday supporting the goals and ideals of Financial Literacy Month, including raising public awareness about financial education. Financial Literacy Month kicked off the beginning of April, and in a number of states there were gubernatorial proclamations, financial fitness fairs and educational workshops for youth, television shows to educate the public, and plans for motivating young members to save. (News Now April 3) Credit union participation in financial literacy efforts is strong. According to the Credit Union National Association's (CUNA) Financial Literacy Task Force, in 2008 nearly 80% of credit unions with assets of $10 million or more offered financial education to adults or youth, while more than half provide financial education to both. Credit unions with $50 million or more in assets are more likely to offer financial literacy programs than they were in 2005. The House resolution, adopted under suspension of the rules, was introduced by Rep. Ruben Hinjosa (D-Texas) and had 67 co-sponsors. As reported in News Now Tuesday, the need for improved financial education for consumers is great. About 41% of adults said they'd give themselves a C, D or F on financial literacy, according to the 2009 Consumer Financial Literacy Survey, a phone poll conducted annually to gauge the financial literacy of Americans.

Mica in IAtlantic MonthlyI on Obamas first 100 days

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WASHINGTON (4/30/09)--Credit Union National Association (CUNA) President/CEO Dan Mica was among three Washington notables in the Atlantic Monthly on President Barack Obama’s first 100 days in office. Mica was contacted by Atlantic along with former Sens. John C. Danforth (R-Mo.) and Bob Kerrey (D-Neb.) to provide perspective on the new administration. The Atlantic Monthly asked each to comment on Obama’s biggest strengths and weaknesses. The three noted some of their thoughts on Obama’s leadership abilities, demeanor and communication skills. The nation’s economic problems, national security and international concerns were also mentioned. Among the strengths Mica noted: Obama’s reach to the rest of the world, his calm approach to the nation, and his explanation of problems. One weakness could be his handling of declassified information. The nation traditionally pauses at each new administration’s 100th day in office to note how the president and administration are doing. Obama reached his 100th day in office Wednesday. To see the article, use the link.

IRS tax prep guide has tips for CUs

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WASHINGTON (4/30/09)--The Internal Revenue Service has provided a preparation checklist--with some tips that are applicable to credit unions--for tax-exempt organizations filing the 2008 Form 990. Form 990 must be filed by the 15th day of the fifth month in a credit union’s accounting period. For credit unions that are calendar year filers, the form would be due May 15. The tips from the checklist that are most relevant to credit unions include:
* Determining if the organization is eligible to file the Form 990-EZ for 2008; * Reviewing the redesigned 2008 Form 990 and final instructions (released in December 2008); * Identifying the appropriate schedules to complete; * Identifying officers, directors, and key employees; * Preparing to answer new questions about governance, executive compensation and insider transactions; and * Establishing and modifying internal systems to prepare for filing season.
The notice also provides a link to a document that highlights the changes between the 2007 and 2008 versions of Form 990. For more information, use the link.

CU action urged on NCUSIF provisions

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WASHINGTON (4/30/09)—With a Senate vote fast approaching on its bill to prevent mortgage foreclosures (S. 896), the Credit Union National Association (CUNA) is asking credit unions to urge lawmakers to adopt an amendment addressing National Credit Union Share Insurance Fund (NCUSIF) issues. Sen. Chris Dodd (D-Conn.), the bill's sponsor, has offered a manager's amendment that makes permanent the increased, $250,000 deposit and share insurance cap. The Dodd amendment also would allow credit unions to spread out the cost of a premium assessment that has resulted from losses at wholesale corporate credit unions. It would reduce from 1% of a credit union’s insured shares to 0.15% of insured shares this year's cost of the National Credit Union Administration’s corporate stabilization plan. In an Action Alert launched today, CUNA encourages credit unions to:
* Send a message today to both Senators urging support for the Dodd amendment to S. 896; and * Call or fax each senator’s district office with the same information. (District office contact information can be found at