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Senators Unveil Important First Step To GSE Reform

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WASHINGTON (6/26/13)--Tuesday's introduction of legislation that would wind down government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and replace them with a new mortgage guarantor, the Federal Mortgage Insurance Corporation (FMIC), "is an important first step to creating a secondary mortgage market that focuses on ensuring access to all financial institutions in need a functioning mortgage market, including credit unions," Credit Union National Association President/CEO Bill Cheney said.

The bill, known as the Housing Finance Reform and Taxpayer Protection Act, was introduced by Sens. Bob Corker (R-Tenn.), Mark Warner (D-Va.), Mike Johanns (R-Neb.), Jon Tester (D-Mont.), Dean Heller (R-Nev.), Heidi Heitkamp (D-N.D.), Jerry Moran (R-Kan.) and Kay Hagan (D-N.C.).

The winding down of Fannie and Freddie, and the Federal Housing Finance Agency, would be accomplished within five years of the bill's potential passage. GSE assets would be sold off, and their charters would be revoked once the FMIC is established.

Under the terms of the bill, private entities would purchase mortgages from lenders. Those mortgages would then be reissued as securities and sold on to investors. Investors would need to maintain a 10% interest of equity for every dollar of risk.

New loans would not be required to go through the FMIC. Only those that wanted the government guarantee would be processed by the agency.

Sen. Warner in a release said the FMIC "replaces the failed 'housing goals' of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient affordable housing available for lower and middle-income buyers." The fund would not be paid for with taxpayer funds, but rather through a small FMIC user fee that only those who choose to use the system would pay, the Warner release added.

The bill would ensure that credit unions and other small institutions have direct access to the secondary market. CUNA has repeatedly said that any changes to secondary mortgage market structure must allow credit unions and other small issuers to maintain full and unrestricted access to that market. CUNA has also highlighted the importance of preserving 30-year, fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity.

Cheney in a release thanked the senators for introducing the bill, and for fully considering credit union concerns as it was developed. "We recognize that the legislative process of housing finance reform will be a considerable effort, and credit unions are ready to work with lawmakers to enact changes that will ensure that smaller institutions continue to have fair and affordable access to a vibrant, well-regulated and affordable housing market," Cheney added.

For more on the bill, use the resource link.

Senate Banking Chair Calls On Regulators To Monitor Student Loans

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WASHINGTON (6/26/13)--As concerns over a potential student loan debt crisis grow nationwide, Consumer Financial Protection Bureau Assistant Director and Student Loan Ombudsman Rohit Chopra examined the parallels between the student lending and mortgage markets during a Tuesday Senate Banking Committee hearing.

During the committee hearing, entitled "Private Student Loans: Regulatory Perspectives," Chopra said the issues that student loan borrowers face are similar to those that some mortgage borrowers are still dealing with, and a potential student loan crisis could impact the economy at large. Origination of non-traditional products increased in both industries in the years before the financial crisis. Chopra said higher-risk loans with high interest rates were originated as documentation requirements and other checks that ensure high-quality loans fell by the wayside.

Adding fuel to the nation's student loan market concerns is the fact that the federal student loan rate, currently capped at 3.4%, will double for future loans to 6.8% on July 1 if Congress does not take action. Legislators are reportedly working to craft a solution.

In a statement opening the hearing, Senate Banking Committee Chairman Tim Johnson (D-S.D.) urged regulators "to be vigilant in monitoring growth in the private student loan market that may result from changes to the federal student loan market."

"It is critical that regulators respond quickly to marketplace changes, and that consumer protections are safeguarded when demand rises," Johnson said.

A comprehensive CFPB student debt report released last month found that Americans hold approximately $1.1 trillion in outstanding student loan debt. Former students that find themselves without a job after graduation can run into more trouble when they cannot repay their loans, Chopra said.

"For struggling homeowners and student loan borrowers, the consequences of being unable to find an affordable repayment option are severe," Chopra told members of the banking panel. Future purchasing power, including the ability to buy a home, could be impacted by student loan debt issues, he said.

Developing a robust student loan refinancing market could help alleviate some of these issues, Chopra suggested. "Even if such a program required public funds, or sharing the costs between the public sector and the owners of the loans, the economic benefits of facilitating restructuring activity at a scale might outweigh program costs," Chopra said.

Chopra noted that the CFPB has "been continuously collaborating with financial institutions, consumers, investors, and other policymakers" to improve the student lending market. The CFPB earlier this year asked the Credit Union National Association and credit unions to help address student loan issues.

CUNA in a meeting with the CFPB said credit unions could do more to help debt-saddled grads if the maximum credit union student loan maturity of 15 years was increased.

CUNA has also suggested that giving credit unions greater leeway to work with student loan borrowers and adjust the terms of their loans, as needed, could make monthly payments more manageable for borrowers and help credit unions minimize delinquencies or even charge offs.

NEW: Loan Participation Rule Goes Into Effect July 25

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WASHINGTON (6/26/13, UPDATED 10:30 a.m. ET)--July 25 is the effective date of the National Credit Union Administration's final rule on loan participations, which implemented a number of improvements, sought by the Credit Union National Association, from the original proposal.

CUNA President/CEO Bill Cheney welcomed the agency's changes to its original plan and said it gave credit unions a "much more workable framework" to utilize loan participations.

"The original proposal had strict limitations and we are pleased to see that NCUA has taken into consideration the majority of CUNA's recommendations and worked with the system to make significant improvements in the final rule," Cheney said of the rule.

The NCUA last week approved the final rule and set a limit on loans from one originator of 100% of a credit union's net worth. This is up from the proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower.

The NCUA also approved a grandfather provision so that credit unions pushed over the limit by new rule can move their loans into line: such credit unions would not have to sell loans immediately to come into compliance.

The rule was published in the June 25 Federal Register, and that document sets the July 25 effective date.

Use the resource links to read more.

CUNA Reviews Overdraft Issues At CFPB Meeting

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WASHINGTON (6/26/13)—The Credit Union National represented member credit unions Tuesday at a roundtable discussion on overdraft issues at the Consumer Financial Protection Bureau headquarters here.

In a report released last month, the bureau expressed concern about the ability of consumers to avoid overdraft costs, but did not recommend regulatory changes or changes to business practices. CUNA Senior Assistant General Counsel for Regulatory Advocacy Luke Martone represented CUNA at yesterday's meeting.

Current checking account issues, information on opt-in rates and disclosures were among the issues also discussed in the CFPB report, which was compiled from more than 1,000 consumer-submitted comments and other data research.

The report focuses on large bank practices and that no credit unions were directly studied by the CFPB. However, the report does include information voluntarily submitted by credit unions or their vendors in response to the bureau's request for information preceding the report.

CUNA has repeatedly stressed that overdraft protection and 'courtesy pay' are designed by credit unions to be a service to their consumer members, who have asked that they have continued access to such programs.

"Given that credit unions are member-owned financial services providers, credit unions strive to develop these programs in such a way the costs can be covered for the programs, but at reasonable fees for the members requesting the service. We believe credit unions should continue to have that flexibility to meet their members' needs," CUNA President/CEO Bill Cheney said last month.

CUNA Backs More NACHA Changes To Ease Compliance Burdens

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WASHINGTON (6/26/13)--The Credit Union National Association generally supports clarifications proposed by NACHA--The Electronic Payments Association regarding operational issues relating to third parties in the Automated Clearing House (ACH) network, and encouraged NACHA to do even more to clarify its operating rules in ways that minimize compliance burdens on credit unions and other financial institutions that must follow NACHA standards.

NACHA's changes, proposed May 20, would clarify the definitions, roles, and responsibilities of service providers and senders that are third parties, and are intended to strengthen NACHA operating rules compliance among ACH participants. The proposal addresses five areas:
  • Clear identification of the originator in consumer debit authorizations;
  • Third-parties and receiver authorizations;
  • Definition of "third-party sender;"
  • Definition of "third-party service provider;" and,
  • Third-party audit requirements.
CUNA Assistant General Counsel Dennis Tsang wrote that the NACHA clarification sand technical changes should be helpful for third-parties as well as for other entities in the ACH network, including  credit unions that use such entities for processing.

He said CUNA backs NACHA's plan to provide supplemental information in the operating guidelines, which should provide examples regarding the new rules. CUNA also encouraged the development of additional resources that would be directed to smaller financial institutions for compliance and implementation purposes, and offered to collaborate on that effort.

Use the resource link to access all CUNA comment letters.

Derivatives Rule Included In NCUA YouTube Update

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ALEXANDRIA, Va. (6/26/13)--A review of the National Credit Union Administration's recently proposed derivatives rule is one of many topics featured in a new two-part economic update video.

NCUA Chief Economist John Worth is joined by J. Owen Cole, Jr., director of capital and credit markets for the NCUA's Office of Examination and Insurance, in one of the new YouTube videos.

Other topics of discussion include:

  • Housing markets;
  • Labor markets;
  • Consumer confidence statistics; and
  • How interest rate increases could challenge credit unions.
The videos are the latest in a series of YouTube videos to inform the public and credit unions about general economic and credit union specific developments.

The videos can also be viewed on the NCUA's YouTube page by using the resource link below.