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Inside Washington (04/08/2009)

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* WASHINGTON (4/9/09)--Rep. Edolphus Towns (D-N.Y.) warned Treasury Secretary Timothy Geithner that the department must follow restrictions on executive pay for companies that receive funds from the Troubled Asset Relief Program (Politico.com April 7). On Saturday, the Washington Post reported that the Treasury was creating special entities to provide funds to banks and companies, Politico said. Towns told Geithner that he opposes any attempt to bypass the pay restrictions. Towns is the chair of the House Committee on Oversight and Government Reform ... * WASHINGTON (4/9/09)--The Federal Housing Administration (FHA), expecting to see a 30% increase in the industry’s volume this year, said it will automate mortgages. The FHA said it has prepared a draft for electronic mortgage signature specifications and will pilot the program (American Banker April 7). Financial industry observers questioned whether adopting the new process would be hard for lenders, but Kim Weaver, vice president of product management for Fiserv, disagreed. FHA will create useable standards, she said. Weaver also said she expects the FHA will act quickly on the automation. Brookfield, Wis.-based Fiserv is a core processor and provider of electronic lending applications for financial institutions, including credit unions ... * WASHINGTON (4/9/09)--Sixty-one housing agencies with poor records of handling government aid will receive more than $300 million in stimulus funds, USA Today reported Wednesday. The stimulus funds aim to create jobs by repairing public housing projects. The newspaper found that the 61 agencies have been challenged for mishandling of government funds with three or more audits since January 2004. Watchdog groups, such as the Citizens Against Government Waste, said taxpayers would have to “steel themselves” if they hear the money goes to waste. The Obama administration was allowed to withhold stimulus funds from agencies listed as “troubled” by the Department of Housing and Urban Development (HUD), but HUD provided money to the agencies because they should receive an opportunity to improve housing, said a HUD spokesman ... * WASHINGTON (4/9/09)--The Treasury is providing support to automakers to help them overcome an industry slump. General Motors will receive $2 billion under the program and Chrysler LLC will receive $1.5 billion. The funds will help stabilize the companies, said Jenni Engebretsen, Treasury spokesman. Originally, $5 billion was available for any U.S. automaker who wanted to participate in the program. Ford declined to participate ...

USDA study defines economic value of CUs coops

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WASHINGTON (4/9/09)—In a first-ever government study of the economic impact of cooperatives in the United States, the U.S. Department of Agriculture (USDA) said the billions of dollars in assets and paid in wages, and the millions of job opportunities provided, tell only a part of the value story. The other part of the story, the report’s executive summary pointed
Click to view larger image Source: USDA report: Research on the Economic Impact of Cooperatives
out, involves complex issues that stem from the fact that cooperative firms are “fundamentally different from other forms of business organization.” “Assessment of economic impact solely in terms of the magnitude of business activity provides an incomplete perspective on the total impact of cooperatives.” The USDA said it will study the more complex economic benefits, as well as social benefits, in a future series of eight discussion papers to explore these “deeper issues.” However, its initial report unveiled this week noted some interesting facts about credit unions:
* The country’s 8,344 credit unions account for about $760B in assets; * There are nearly 100 million credit union memberships, representing approximately one-third of the population; and * Adding indirect and induced impacts, credit unions account for close to $75 billion in revenue, close to 500,000 jobs, $20 billion in wages paid, and somewhat less than $42 billion in valued-added income.
USDA noted that credit unions resemble banks in the financial products and services they offer, but underscored that credit unions are very different from banks. “(Credit unions) have several distinctive legal differences: they are not-for-profit cooperatives with an IRS tax exemption status. “They return earnings to their membership in the form of reduced fee (interest) on loans and increased interest (dividends) on deposits, or they may re-invest earnings into the credit union,” the report noted. According to Bill Hampel, chief economist of the Credit Union National Association (CUNA), that savings on products and services equals approximately $9 billion a year, when compared to the rates and fees consumers would pay and earn at banking institutions. More broadly, the USDA study reported that in the U.S., nearly 30,000 cooperatives operate at 73,000 places of business. They own something less than $3 trillion in assets, and generate nearly $500 billion in revenue and $25 billion in wages. The USDA said if extrapolated to the entire population, the study estimates that cooperatives account for nearly $654 billion in revenue, almost 2 million jobs, $75 billion in wages and benefits paid, and a total of $133.5 billion in value-added income. USDA's Rural Development received a $1.5 million congressional appropriation to develop the project in conjunction with the University of Wisconsin-Madison, the National Cooperative Business Association and other private-sector associations. The NCBA Wednesday called the release of the report a “definitive moment for all cooperatives.” A spokesman said NCBA now anticipates the data produced will support the position that cooperatives are “the better business model when it comes to making economic and social change.” “Cooperatives give consumers and the general public services and products they need at reasonable prices while retaining any 'profits' in the community in which the co-op operates,” the NCBA spokesman said. He added, “Knowing that credit unions account for the largest number of firms, establishments, memberships, and employees, they can use this data to educate consumers about the sustainable power of our model."

Oral arguments delivered in direct deposit case

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WASHINGTON (4/9/09)—The California Supreme Court this week heard oral arguments in Miller v Bank of America (BofA), a case to determine whether overdraft fees can be assessed in California by federally chartered depository institutions against Social Security (SS) funds in a checking account. The lawsuit has broad implications for California credit unions, credit unions doing business in the state, and for direct deposits. Oral arguments were presented on April 7th and the court should issue a decision within 90 days. The case has been winding its way through the California courts for years, and ended up before the state supreme court under appeal by the plaintiff. BofA has argued that federal law and regulation preempt a California law that prohibits tapping SS money in an account. However, in December 2004 a judge for the Superior Court of San Francisco upheld an over-$1 billion-dollar jury award against BofA for violating state law. That court found that the bank's practice of using customers' funds from accounts that may contain SS funds to pay checking account overdrafts and insufficient funds fees violated the California Unfair Business Practices Act. However, in November 2006, a California Court of Appeals reversed the lower court's ruling and award, and decided in favor of BofA. The plaintiff, Paul Miller, then filed an appeal with the California Supreme Court, which agreed to hear the case. During the oral arguments this week, a U.S. Justice Department attorney made a statement on behalf of the Office of the Comptroller of the Currency (OCC), U.S. Treasury Department, and the Social Security Administration. The government lawyer reiterated that a decision in favor of the plaintiff, Miller, would threaten federal policy by making banks less willing to extend banking privileges to recipients of directly deposited public benefits. The government attorney emphasized the additional cost the government would incur if it had to provide benefits by mailed checks instead of by direct deposit. He also argued in favor of preemption under the OCC regulations, stating that “account balancing” is not the same as “debt collection” and, therefore, not within the savings clause of the regulation. The Credit Union National Association and banking associations joined the case in 2007 through amicus briefs that argued banks and federal credit unions are not subject to the court's ruling because of the prevention provisions in the National Bank Act, Office of the Comptroller of the Currency (OCC) regulations, and the Federal Credit Union Act.

Online resources available for Obama loan mod program

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WASHINGTON (4/9/09)—Credit unions and other lenders interested in participating in the Obama administration’s loan modification program should be aware of important online resources available to them, noted Jeffrey Bloch, Credit Union National Association (CUNA) senior assistant general counsel. Bloch, who organized last week’s audio call on the administration’s new Making Homes Affordable Program, noted that the program provides a number of incentives for all parties involved, including lenders, servicers, and borrowers. Also, holders of second mortgages may be given incentives to give up their lien positions. However, Bloch said, details of these incentives have not yet been made public. The speakers on the audio conference call included representatives from the U.S. Treasury Department, Freddie Mac, and Fannie Mae, all of whom gave a detailed overview of the program. Important points included:
* The program is voluntary for loans held in portfolio, however, servicers are required to participate for those loans owned or secured by Freddie Mac and Fannie Mae; * Fannie Mae has been designated the “financial agent” and will be manage the program with the Treasury Department; and * To participate in the modification program, lenders and servicers must execute an agreement with Fannie Mae and the agreements soon will be Fannie Mae’s website.
The Obama program has two main components. One is a refinance option, under which borrowers who are current on their mortgages may refinance their loan if it is owned or secured by Freddie Mac or Fannie Mae. The balance cannot be more than 105% of the home’s market value. The other part is a modification program in which a borrower who is not current on their mortgage may have an opportunity to modify his or her loan in order to lower the payments. Bloch said both Freddie and Fannie have substantial roles in both the refinance and modification programs and have posted extensive information on their websites, along with training opportunities. (Use resource links below.) “Credit unions will want to check both the Fannie and Freddie websites often for the latest information, especially since the requirements for Fannie Mae and Freddie Mac loans will vary somewhat,” Bloch advised. “Fannie Mae has also shared with us email addresses and phone numbers that credit unions may use if they have specific questions,” he added. For loans owned by Fannie Mae or Freddie Mac, call 1-888-326-6435 or send an email to servicing_solutions@fanniemae.com. For other loans, call 1-866-939-4469 or send an email to homeaffordable_modification@fanniemae.com. Use resource links below.