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Inside Washington (06/23/2010)

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* WASHINGTON (6/24/10)--The Congressional Oversight Panel of the Troubled Asset Relief Program has said the Obama administration’s efforts to slow foreclosures have not been effective. A report released Monday by Treasury indicates that 350,000 homeowners received a permanent loan modification, but another 430,000 were removed from the Home Affordable Modification Program (American Banker June 23). Treasury Secretary Timothy Geithner, who testified before the panel, defended the program, arguing that homeowners were eliminated from the program because they could not verify their income. Initially, Treasury allowed trial modifications with little or no income verification but later changed that policy, Banker said ... * WASHINGTON (6/24/10)--House and Senate conferees of the regulatory reform bill were expected Tuesday to approve language to make it tougher for federal regulators to pre-empt state consumer protection laws, but did not tackle the issue, said American Banker (June 23). Financial observers expected Senate conferees to agree to language noting that the Office of the Comptroller of the Currency (OCC) can only pre-empt state laws that interfere with banking. The Senate offer countered language House conferees sought, which would have forced the OCC to prove that a federal standard already existed before pre-empting a state law. At the end of the conference, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) rejected the House language and left the issue hanging ... * WASHINGTON (6/24/10)--The Federal Deposit Insurance Corp. (FDIC) adopted a final rule that extends the Transaction Account Guarantee (TAG) program for six months, from July 1 through Dec. 31. Under TAG, customers of participating insured depository institutions are provided full coverage on qualifying transaction accounts. FDIC Chairman Sheila Bair said that while the program “has proven to be critical to ensuring our financial system’s stability, it was established as a temporary program. Ultimately, it should be up to Congress to determine our insurance limits. Adoption of this final rule allows the opportunity for Congress to conclude its current deliberations relative to this program.” The rule--almost identical to an interim rule adopted on April 13--requires that interest rates on qualifying negotiable order withdrawal accounts offered by banks in the program can be reduced to 0.25% from 0.5%. It requires TAG assessment reporting based on average daily account balances but makes no changes to the assessment rates for participating institutions. It also provides for another extension for a period of time not to exceed Dec. 31, 2011 ...

NCUA guides CUs through NFIP lapse

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WASHINGTON (6/24/10)—The National Credit Union Administration (NCUA) on Wednesday said that while the National Flood Insurance Plan (NFIP) remains inactive due to the lack of a congressional response, credit unions may continue to make loans without flood insurance. Making these loans are not considered violations of the NCUA’s Part 760: Loans in Area Having Special Flood Hazards, but the NCUA in its guidance stressed that credit unions should “continue to make flood determinations, provide timely, complete, and accurate notices to borrowers, and comply with other parts of the flood insurance regulations.” Credit unions must also “evaluate safety and soundness and legal risks and prudently manage those risks” while the NFIP continues its inactive period. “Lenders need to have a system in place so that policies are obtained as soon as available following reauthorization for properties subject to mandatory flood insurance coverage,” the NCUA guidance added. The NFIP is vital to many credit unions, as the mortgages they write for properties in a floodplain are required to have flood insurance. Since flood insurance is unavailable in many parts of the country, the NFIP is an important resource to credit unions and other lenders. The NFIP and certain other government programs lapsed on June 1, when Congress again failed for the third time this year to extend the authority of the NFIP. However, legislation that would extend the authorizations for the NFIP and certain other programs is pending in Congress. For the full NCUA release, use the resource link.

NCUA should mirror FDICs flexible approach CUNA says

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WASHINGTON (6/24/10)—The rate of the insurance assessments that are charged to banks covered by the Federal Deposit Insurance Corp. (FDIC) will remain steady through the end of this year, the FDIC has announced. The FDIC plans to apply a uniform three basis-point increase in assessment rates beginning on Jan. 1. The FDIC current assessment rate will return its deposit insurance fund to a positive balance by 2012. The Credit Union National Association's (CUNA) senior vice president and deputy general counsel, Mary Dunn, said that the FDIC’s decision “indicates its recognition of the economic realities that many banks it insures are facing and its willingness to hold off inflicting more pain on those banks through increased premiums at this time.” “This is the kind of flexibility that credit unions encourage the National Credit Union Administration (NCUA) to use, such as by allowing the National Credit Union Share Insurance Fund’s (NCUSIF) normal operating level to be set closer to 1.2%, as CUNA has advocated,” Dunn said. “This would help to mitigate credit unions' NCUSIF costs, without going under the 1.2% statutory benchmark under which more premiums would be triggered,” she added. The NCUA expects to levy an assessment to replenish the NCUSIF later this year. CUNA has estimated that this assessment could be somewhere between five and 10 basis points (bp), bringing the total amount assessed by the NCUA , including the 0.134% of insured shares assessed this month for the corporate credit union stabilization program, this year to between 18 and 23 bp of insured shares.

Geithner backs CUs CDCI program as aid to small businesses

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WASHINGTON (6/24/10)--U.S. Treasury Secretary Timothy Geithner this week promoted credit unions and other community development financial institutions as one of many ways that the Treasury is helping improve the availability of credit to small businesses. A total of 111 community development credit unions (CDCUs) have applied for the Treasury’s Community Development Capital Initiative (CDCI), which makes secondary capital investments of up to 3.5% of assets in eligible low-income credit unions. The applicants are being reviewed for financial soundness by the National Credit Union Administration, and could receive a portion of $100 million in total funding. The Treasury has received some of those applications and “expects to begin funding by next month," Geithner said. The National Federation of Community Development Credit Unions' board also pledged to make an additional $1 million in secondary capital available as matching funds for member CDCUs that might not be immediately eligible for CDCI investments. Commenting on Geithner’s remarks, federation President Cliff Rosenthal said that the inclusion of CDCUs in the CDCI program “is a recognition of the vital work credit unions and other community-based lenders are having on Main Streets nationwide,” and a major victory for the credit union movement.

With interchange CUs oppose fin reg reform bill

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WASHINGTON (6/24/10)--Saying that debit interchange provisions “would not only adversely affect how credit unions provide access to members’ accounts,” but would also “increase costs to credit union members,” Credit Union National Association (CUNA) President/CEO Dan Mica and affiliated credit unions urged legislators to vote no on the current financial regulatory reform package. CUNA’s executive committee on Wednesday also agreed that CUNA and credit unions should oppose the regulatory legislation as long as the interchange language was included. If the interchange provisions were not part of the bill, CUNA would not oppose H.R. 4173, the Restoring American Financial Stability Act of 2010, Mica added. The interchange changes, which were agreed to by both branches of the legislature on Tuesday, would allow the federal government to impose controls on the fees paid to use electronic payment networks. Mica said that while the increased consumer costs that the interchange changes would represent are not what proponents of H.R. 4173 originally intended, those costs “will be the reality for consumers unless the debit interchange provision is removed or modified significantly.” CUNA and credit union leagues are encouraging their member credit unions to write, call and request meetings with lawmakers in their home districts both over the coming weekend and in the near future to discuss the interchange provisions and the legislation in general. In a letter to Congress, Mica said that credit unions did not cause the financial meltdown and have “worked with Congress over the last year in an attempt to minimize the adverse impact that this legislation will have on credit unions and their members, while at the same time recognizing that consumers of financial products, especially those provided by currently unregulated entities, need greater protection.” That letter also reiterated CUNA’s previous claims that the under $10 billion of assets carveout, while well intentioned, “will not work” because there is no mechanism in the legislation that requires payment card networks to operate a two-tier interchange rate system. “Because of this, we believe the interchange rate received by credit unions would converge on the large-institution rate,” the letter adds. For the full letter, use the resource link.