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Inside Washington (04/06/2010)

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* WASHINGTON (4/7/10)--Some provisions of proposed regulatory reform bills would give regulators power they already have, said financial observers. Provisions such as creating higher capital requirements, cracking down on risky activities and boosting leverage limits already have been included in laws Congress passed more than a decade ago. John Douglas, former general counsel for the Federal Deposit Insurance Corp., likened the situation to dealing with a “three-year-old” (American Banker April 6). “It’s like, ‘This time I really mean it,’” he said. Many observers said they were skeptical because the pending legislation only creates an appearance of real reform. Rick Carnell, former Treasury official, said Congress is “recycling” the same provisions that failed once already when regulators didn’t “use their discretion” when they should have, he said. The Banker also noted that the pending regulatory reform bills would require the Federal Reserve Board and a council of regulators to set standards for risk-based capital, leverage, liquidity and credit exposure. However, the bills do not say how the standards should be created, leaving it for regulators to decide--which could preserve the status quo, observers said .. * WASHINGTON (4/7/10)--The Federal Housing Administration (FHA) said Monday it will issue regulations to increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the oversight of mortgage brokers. To ensure that FHA lenders are sufficiently capitalized to meet potential need, effective immediately, all new lender applicants for FHA programs must now possess a minimum net worth of $1 million. Since 1993, the agency has required approved lenders to have a net worth of at least $250,000. Current lenders must possess a minimum net worth of $1 million and current FHA-approved small business lenders must have a net worth of $500,000. The changes also require that mortgage brokers or other FHA-approved originators can originate FHA-insured loans through the end of the year without sponsorship of an FHA-approved lender. After Jan. 1, 2011, the origination authority will end. Effective three years following the enactment of the provision: approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million; approved lenders and applicants to FHA multifamily programs must have a minimum net worth of $1 million; multifamily lenders that also engage in mortgage servicing must have an additional 1% of total volume in excess of $25 million; and multifamily lenders that do not perform mortgage servicing must have an additional 0.5% of total loan volume more than $25 million ... * WASHINGTON (4/7/10)--Federal Reserve Board Chairman Ben Bernanke and Governors Elizabeth Duke, Kevin Warsh and Daniel Tarullo met Monday to discuss the interest rate it assesses to banks on emergency loans (American Banker April 6). Analysts had debated whether the rate would be increased, but the Fed did not indicate it was planning to change the rate ... * WASHINGTON (4/7/10)--A panel created by Congress to address the causes of the nation’s financial crisis has been set back by the size of its task--explaining a crisis that still confuses Americans, said The New York Times (April 5). The Financial Crisis Inquiry Commission’s chairman, Phil Angelides, said the panel is working to satisfy its mandate of determining the role of 22 factors in the crisis. It also is working with an $8 million budget--compared with $38 million spent by a federal bankruptcy trustee to analyze the Lehman Brothers collapse, Angelides said in an interview. He said he hopes to come up with some findings to help future policymakers, even though the panel will not give formal recommendations. In interviews with the Times, the 10 commissioners discussed the panel’s work but would not be identified by name. Some said disagreements among panelists signal healthy debate. However, some said Angelides appears to focus on holding hearings instead of selecting a few areas for deep examination. The commission also has not issued subpoenas for bank executives to testify, although it has the power to do so, the newspaper said. Alan Greenspan, former Federal Reserve Board chairman, is slated to testify on Wednesday ...

New credit report ad requirements in effect

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WASHINGTON (4/7/10)--Final rules that prevent deceptive marketing of so-called "free credit reports" by requiring credit report advertisements to contain enhanced disclosures became effective on April 2. Specifically, the new Federal Trade Commission rules, which were required by the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act), will clarify the distinction between the free credit reports available to consumers through and those "free" reports conditioned on the purchase of products and services. While print and web-based advertisements must contain these disclosures as of April 2, the regulations governing disclosures for television and radio advertisements become effective on Sept. 1. The Credit Union National Association has advised credit unions that are bundling free credit reports with other products and services to pay special attention to these new disclosure requirements. For the FTC release, use the resource link.

FHA changes net worth other rules for lenders

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WASHINGTON (4/7/10)--The Federal Housing Administration (FHA) earlier this week announced that lenders that take part in FHA lending programs will need significantly higher net worth. The new FHA rule, which is effective immediately, will require “all new lender applicants for FHA programs” to “possess a minimum net worth of $1 million” within three years of the provision’s enactment. The previous minimum net worth, established in 1993, was $250,000. Approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million. FHA small business-approved lenders “must possess a minimum net worth of $500,000.” Multifamily lenders that also service mortgages “must have an additional 1% of total volume in excess of $25 million,” while multifamily lenders that do not service mortgages “must have an additional 0.5% of total loan volume in excess of $25 million,” according to the FHA. The FHA proposal also has the “potential to increase the number of mortgage brokers eligible to originate FHA-insured loans while providing for more effective oversight of brokers by FHA-approved lenders,” the release added. While “mortgage brokers or other third-party originators” that are previously approved by the FHA are currently permitted to originate FHA-backed loans “without sponsorship of an FHA-approved lender,” that origination authority will end in 2011. For the full FHA release, use the resource link.

NCUA provides risk-concentration guidance to CUs

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WASHINGTON (4/7/10)--In a supervisory letter (Letter to Credit Unions: 10-CU-03) released on Tuesday, National Credit Union Administration (NCUA) Chairman Debbie Matz encouraged credit union officials “to understand the concentration risk in their credit union’s current balance sheet, as well as how strategic plans may affect the level of concentration risk.” In the letter, which reflects guidance that the NCUA recently provided to its own examiners, Matz also asked credit union officials to “ensure” that “their risk management practices are commensurate with the level of risk” found on their balance sheets. Additionally, credit unions should “open a dialogue with examiners to consider the suitability of existing risk management practices given the risks inherent in any concentration,” and should consult regional, district or state credit union authorities if any other questions arise, Matz said. A recent Federal Financial Institutions Examination Council (FFIEC) advisory on Interest Rate Risk Management can also provide additional guidance, if needed, Matz added. For the NCUA guidance and an NCUA supervisory letter on concentration risk, use the resource link.