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Yellen expresses optimism to Joint Economic Committee

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WASHINGTON (5/8/14)--Federal Reserve Chair Janet Yellen addressed Congress's Joint Economic Committee Wednesday, expressing reserved optimism about the country's current economic situation.
She admitted that 2014 has seen a pause in gross domestic product (GDP) growth in the first quarter, but said that transitory factors, including an unusually harsh winter, were the likely cause.
"With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter," she said.
Several factors, most notably improving unemployment numbers, were a primary cause for her positive outlook.
"The unemployment rate was 6.3% in April, about 1.25 percentage points below where it was a year ago. Moreover, gains in payroll employment averaged nearly 200,000 jobs per month over the past year," she said. "During the economic recovery so far, payroll employment has increased by about 8 1/2 million jobs since its low point, and the unemployment rate has declined about 3.75 percentage points since its peak."
This optimism was tempered by disappointment in the housing market, in recovery since 2011, which she said has "remained disappointing" this year.
"[T]he recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery," she said.
One of the reasons she highlighted for the flattening of growth was less household formation, which began to flatten in 2007 after two decades of growth, according to Thomson Reuters DataStream.
Yellen said for housing growth to continue, household formation numbers needed to be on the rise again. With an increasing number of young people graduating from college with student debt, it means they would be less likely to qualify for mortgages and more likely to live with their parents, meaning fewer new households.
Overall, Yellen said she believed that 2014 would see faster growth than 2013, and expressed optimism that unemployment numbers would fall and inflation will move closer to 2%, a stated goal of the Federal Reserve.
"A faster rate of economic growth this year should be supported by reduced restraint from changes in fiscal policy, gains in household net worth from increases in home prices and equity values, a firming in foreign economic growth and further improvements in household and business confidence as the economy continues to strengthen," she said.

CUNA names Hampel as interim president/CEO

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WASHINGTON (5/8/14)--The Credit Union National Association announced Wednesday that its Chief Economist, Bill Hampel, will serve as interim president/CEO, effective June 11. That is the same day that Bill Cheney, current CUNA president/CEO, returns to California to become president/CEO of Santa Ana-based SchoolsFirst FCU, the largest credit union in that state.
Hampel, a senior member of CUNA's credit union advocacy team in Washington, is one of the longest-tenured executives at CUNA, having joined the association as an economist in 1978, promoted to vice president in 1985 and to senior vice president and chief economist in 1992.
An expert on the economy and credit union issues, he is regularly interviewed by major national television, radio and print media. Hampel also presents the results of the annual holiday spending survey, which is conducted by CUNA and the Consumer Federation of America.
He has also testified numerous times before Congress and is a registered lobbyist, advocating on behalf of credit unions on a wide variety of issues.
"Bill has deep and broad knowledge and understanding of CUNA's top advocacy issues and operations of the organization. He has demonstrated an ability to bring that background to bear in making decisions in the best interests of our members," said CUNA Chairman Dennis Pierce, president/CEO of CommunityAmerica CU, Lenexa, Kan. "During this interim period between CEOs, I expect CUNA and its members will have a steady hand at the helm."
Cheney noted Hampel's nearly four decades of experience in credit union policy issues and with Congress, regulators, state associations, credit unions and the press. "I've worked with Bill on a host of issues affecting the credit union system at large and policy issues specifically," Cheney said, adding, "Bill understands intuitively what credit unions need and want; I fully endorse his selection to oversee CUNA's efforts during the interim period."
Prior to joining CUNA, Hampel was an assistant professor of economics at the University of Montana-Missoula. Before that he was an instructor of economics at Iowa State University at Ames.
During a one-year sabbatical in 1989, Hampel served as a staff member at Navy FCU, Vienna, Va., where he studied credit union operations and carried out a variety of consulting projects.
He was on the board of directors for Madison, Wis.-based Great Wisconsin CU (formerly CUNA CU) from 1991 to 2003, serving as board chair from 1999 to 2001. He served on the board of the National Cooperative Bank, which supports America's cooperatives and their members, especially in low-income communities, by providing innovative financial and related services.
Hampel is a member of the American Economic Association and the National Association for Business Economists. He holds a doctorate in economics from Iowa State University.
CUNA's search for a permanent CEO will continue throughout the summer; the CUNA Board hopes to make a hire by this fall.
Meanwhile, CUNA Vice President of Economics and Statistics Mike Schenk has been named acting chief economist for the association.

FSOC annual report notes 'significant risks' remain

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ALEXANDRIA, Va. (5/8/14)--The Financial Stability Oversight Council (FSOC) released its annual report for 2013, citing seven themes throughout the 195-page document.
The council noted that the U.S. financial system has seen positive developments and continues to grow stronger. However, "significant risks to the financial stability of the U.S. remain," the council said.
Practices by nonbank financial firms, such as mortgage-servicing companies, is one area that is coming under scrutiny ( The Wall Street Journal May 7).
The themes of the council's fourth annual report are:
  • A vulnerability to runs in wholesale funding markets and destabilizing fire sales;
  • A housing finance system that relies heavily on government and agency guarantees;
  • Operational risks such as technological failures, natural disasters and cyberattacks from internal or external sources;
  • Reliance on reference interest rates
  • Resilience to interest rate risk;
  • Long-term fiscal imbalances; and
  • The sensitivity to possible adverse development in foreign economies.
"It is important for us to be continually reconsidering and evaluating risks to the credit union system," said National Credit Union Administration Board Chairman Debbie Matz, who is a voting member. "Participation in FSOC and the annual report are valuable components of that process."
She urged credit unions to read the report, "Because financial stability and the health of a growing economy are critical to the success of the industry."
Matz pointed out the following items:
  • The council recommends that agencies continue to promote forward-looking capital and liquidity planning. She noted that "NCUA recently finalized a stress testing and capital planning requirement for credit unions with more than $10 billion in assets, and we are receiving public comment on a modernized risk-based capital rule."
  • The council also identifies the risk of increased interest rate volatility. "Over the last several years, many credit unions increased their exposure to fixed rate real estate and more recently have dramatically lengthened the tenor of their investments. These changes have exacerbated exposure to interest rate movements," she said. "The council recommends that supervisors continue to monitor and assess the growing risks resulting from the continued search-for-yield behaviors, as well as the risks from potential severe interest rate shocks. I can assure you this is a high priority area for NCUA."
  • The council identified operational risks such as cybersecurity issues. "Credit unions are not immune to this threat, and this will be an area of continued emphasis and guidance," Matz said.
Among the council members are representatives from the Treasury Department, Federal Reserve System, Comptroller of the Currency, Consumer Financial Protection Bureau, Securities and Exchange Commission; Federal Deposit Insurance Corp., Commodity Futures Trading Commission and the Federal Housing Finance Agency.

CFPB data security changes introduced in House

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WASHINGTON (5/8/14)--A five-part bill that aims to address security flaws in the Consumer Financial Protection Bureau's data collection processes has been introduced in the U.S. House.

The CFPB Data Collection Security Act, which was released by Rep. Lynn Westmoreland (R-Ga.), would:
  • Create a consumer opt-out list for CFPB data collection;
  • Limit the length of time that data can be held by the CFPB to 60 days after an investigation has been completed;
  • Require the bureau to provide one free year of credit monitoring to consumers whose data is used for investigative purposes;
  • Require the bureau to be run by a Senate-confirmed director; and
  • Create a "confidential" security clearance for certain CFPB employees.
"The CFPB Data Collection Security Act is a simple bill to address a huge problem in protecting your information from not only internal abuse, but from hackers as well. It improves the ability to know what they have and the right to have it removed from their system," Westmoreland said in a release.
Under the Dodd-Frank Act, the CFPB is permitted to gather information on organizations, their business conduct, markets, and activities of covered persons and service providers. This information is filed to the CFPB by financial institutions and other service providers. The CFPB has stressed that any personal information collected is stripped from the agency records. CFPB Director Richard Cordray has said the data is used to examine overall trends, not individual transactions.
The CFPB's data collection practices could increase the risk of identity theft and fraud for consumers, the Credit Union National Association warned in a letter to the bureau earlier this year. CUNA also said it is particularly concerned by the resulting obligations that these data collection efforts may create for credit unions.

'Ability to repay' rule passes committee, other votes pushed back

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WASHINGTON (5/8/14)--Legislation that addresses some credit union concerns regarding points and fee definitions in the Consumer Financial Protection Bureau's amended final "Ability to Repay" rule was passed, and votes on other financial services bills were delayed, during a Wednesday House Financial Services Committee markup.
Lead sponsor Bill Huizenga (R-Mich.) said his Mortgage Choice Act of 2013 (H.R. 3211) aims to "help low- and middle-income borrowers as well as prospective first-time homeowners realize a portion of the American Dream: owning their own home."
The bill, Huizenga said, is "narrowly focused to promote access to affordable mortgage credit without overturning the important consumer protections and sound underwriting required under Dodd-Frank's 'ability to repay' provisions."
Huizenga said he hopes his bipartisan bill will receive a vote "in a timely manner."
Votes were postponed on three other bills that the Credit Union National Association supports:
  • The Portfolio Lending and Mortgage Access Act (H.R. 2673), which would treat mortgages held in portfolio at credit unions and other mortgage lenders as qualified mortgages for purposes of the Consumer Financial Protection Bureau mortgage lending rules;
  • The Financial Regulatory Clarity Act (H.R. 4466), which would fight duplicative federal rules; and
  • The Community Institution Mortgage Relief Act (H.R. 4521), which would exempt credit unions under $10 billion in assets from a Dodd-Frank Act requirement that mortgage lenders must hold an escrow account for five years for higher-priced, first-lien mortgages secured by borrower's principal dwelling.
CUNA has stated its support for these bills which would help chip away at the regulatory burden that confronts credit unions on a daily basis.
A vote on these and other bills is expected to be held after the upcoming House District Work Period.

Seniors' mortgage challenges examined by CFPB

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WASHINGTON (5/8/14)--The Consumer Financial Protection Bureau released a report Wednesday spotlighting the mortgage debt challenges faced by a growing number of older Americans. These challenges include more mortgage debt, less affordable housing and a greater risk of foreclosure.
"A home can be a place of security for older Americans in their retirement years--a roof over their heads as well as a valuable asset," said CFPB Director Richard Cordray. "But as more seniors carry significant mortgages into retirement, they put themselves at risk of losing their nest eggs and their homes."
Approximately 80% of the 41 million Americans age 65 and older own their home, the highest homeownership rate among all age groups. But while their rate of homeownership has remained constant over the last decade, the percent of older homeowners holding mortgages has increased.
The report's highlights include:
  • More senior homeowners with mortgages: For homeowners age 65 and older, the percentage carrying mortgage debt increased to 30% from 22% from 2001 to 2011. Among those aged 75 and older, the rate more than doubled during that same time period, to 21.2% from 8.4%.
  • Median mortgage debt for seniors increased by 82%: From 2001 to 2011, the median amount older homeowners owed on mortgages increased 82% from about $43,300 to $79,000. In addition to carrying increased mortgage debt, many older Americans have also accrued less home equity than their age group did a decade ago.
  • Less affordable housing: More than half of the 4.4 million retired homeowners with mortgage debt spend 30% or more of their household income in housing related costs. Housing affordability is threatened when housing costs exceed 30% or more of a homeowner's income.
  • Senior delinquency and foreclosure rates increased after financial crisis: From 2007 to 2011, the percentage of homeowners age 65 to 74 who were seriously delinquent in paying their mortgage, meaning more than 90 days late or in foreclosure, increased to 4.96% from 0.85%. For those over 75, it increased to 5.87% from 1.01%. Older consumers have greater difficulty recovering from foreclosure than their younger counterparts due to their increased incidences of health problems, cognitive impairment and difficulties returning to the work force.
The CFPB also issued an advisory highlighting three issues that older Americans should consider while managing mortgage debt in retirement: determining their mortgage pay-off date, the risks of getting home equity loans or refinancing and what less income during retirement will mean while still paying a mortgage.

New radio ad touts consumer benefits of CU membership

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WASHINGTON (5/8/14)--In light of increasing attacks on the credit union tax status, the Credit Union National Association developed a new radio advertisement designed to show the credit union difference when it comes to member benefits.
The new 30-second ad, which is intended to be used as a resource, reminds current and potential credit union members that "credit union services are based on members' needs, not profit margins."
"Highlighting the ways credit unions serve their members is a key part of our advocacy efforts," said Richard Gose, CUNA senior vice president of political affairs. "And a critical part of those efforts is incorporating that message into our ads."
As not-for-profit, member-owned financial institutions, credit union earnings are returned to members through services such as surcharge-free ATMs, better rates and lower fees. With banks, those earnings go to outside bond and stockholders through dividends.
While credit unions pay state, payroll and sales taxes, they are exempt from federal income taxes. This was established in 1937, and upheld in 1951 and 1998, through the Credit Union Membership Access Act.
"Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means," reads the act.
The tax status of credit unions has come under attack s in several states, including New Hampshire, Maine, Connecticut, Vermont, South Dakota and Nebraska.
On April 15, the New Hampshire Bankers Association announced a resolution in which they urged Congress to repeal the federal tax exemption for credit unions, accusing credit unions of failing to work for underserved populations. The New Hampshire Credit Union League has repeatedly refuted those claims.
CUNA's award-winning grassroots advocacy campaign #DontTaxMyCU encourages credit unions to contact state and federal lawmakers with the unified message of "Don't Tax My Credit Union." In February, more than 5.3 million users of Twitter and Facebook were exposed to the hashtag #DontTaxMyCU. CUNA and state leagues spearheaded two similar events in July and September 2013.

Boston Fed cutting 160 employees in treasury services

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BOSTON (5/8/14)--The Federal Reserve Bank of Boston will cut 160 staff members who are part of its treasury services unit, reports the Boston Business Journal . The reduction will remove the entire department over the next several years.
According to the May 6 report, the move is part of consolidation efforts and will save taxpayers about $117 million over the next 10 years.
The Boston Globe reports that the reductions will take place over a three- to four-year period and represent the largest layoff in more than a decade. In the early 2000s, the bank cut the number of offices that handled paper checks down to one from 54.
Currently the services offered by the Federal Reserve banks are spread across 10 regional banks. After the restructuring, those services will be provided by four regional banks in Kansas City, St. Louis, Cleveland and New York.
Services such as cash management, invoice processing and stored value debit cards used on military bases will be phased out in Boston, reports the Globe . A study completed by the Treasury searching for ways to save money resulted in the decision to reduce the workforce.
Approximately 1,100 people work at the Boston location. Employees were told of the cuts May 2.