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NCUA warns CUs of environmental loan issues

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ALEXANDRIA, Va. (7/16/10)--National Credit Union Administration Chairman Debbie Matz on Thursday encouraged credit union lenders to “understand the implications” of Property Assessed Clean Energy (PACE) loan programs which could potentially “usurp a lender’s senior lien position on a mortgage, undermine the underwriting decisions made by the lender at the time of mortgage origination, and bypass consumer protections required prior to the extension of credit.” Matz recommended that credit union executives make “appropriate adjustments” to their credit union’s underwriting criteria and collateral monitoring practices in the event that the PACE loans available in their service areas present potential safety and soundness concerns. Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco also released a statement on Thursday, saying that the FHFA would “defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac.” “Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections. Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage,” he added in a statement. The FHFA last week said that some energy retrofit lending programs, including those that are presented as PACE programs, represented “significant safety and soundness concerns.” As explained in The New York Times on July 1, the program works by having local governments issue bonds or borrow money that can then be used for home loans that cover the upfront costs of solar installations or other energy improvements. Homeowners who take part in these loans can then repay them over time through their property-tax bills. The PACE programs aim to ease the lending process for energy-saving property retrofitting projects, but can, according to the FHFA, "pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors." The FHFA has previously directed Fannie, Freddie and the Federal Home Loan Banks to waive their uniform security instrument prohibitions against senior liens and adjust their loan-to-value ratios, loan covenants, and borrower debt-to-income ratios to adapt to the needs of PACE program loans, and the Obama administration has tagged $150 million in stimulus money for the program. The U.S. Department of Energy is also working to expand the PACE program. The Credit Union National Association (CUNA) is also concerned by these energy loans, which can ultimately result in higher property tax bills and increased payments for borrowers, as well as corresponding risks for credit unions involved in the lending process. For the full NCUA and FHFA releases, use the resource links.

Inside Washington (07/15/2010)

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* WASHINGTON (7/16/10)--Now that the regulatory reform bill has passed, the Federal Reserve Board will have more power to assert systemic threats. Under the legislation, the Fed would write 54 rules and requirements for liquidity and risk-based capital. It also would conduct annual stress tests for systemically significant institutions, publish a results summary, implement the Volcker Rule and write rules that would require large financial firms to draw “living wills” (American Banker July 15). The Volcker rule bans proprietary trading and limits what commercial banks invest with private-equity and hedge funds ... * WASHINGTON (7/16/10)--The consumer financial protection bureau, included in the financial regulatory reform bill that passed Thursday, will have “a lot of teeth,” said Elizabeth Warren, who was a part of the Congressional Oversight Panel of the Troubled Asset Relief Program and is credited with coming up with the consumer financial protector regulator. The bureau will have the ability to reshape the consumer credit market, she said (American Banker July 15) ... * ALEXANDRIA, Va. (7/16/10)--The National Credit Union Administration (NCUA) on Thursday confirmed that it has formally terminated former Arrowhead CU CEO Larry Sharp, chief financial officer Daniel Marciante, senior vice president of lending Gene Shabinaw, and senior vice president of strategic development Ray Messler after the four executives were placed on administrative leave by the NCUA last month. Arrowhead CU, an $876 million asset credit union based in San Bernardino, Calif., was placed into conservatorship by the NCUA last month due to its declining financial condition. Following the June 25 announcement that the credit union was being placed into conservatorship, the NCUA named Kay Woods, a former CEO at Las Vegas-based Weststar CU, to serve as interim CEO of Arrowhead Central. Arrowhead Central continues to operate without interruption, the NCUA added in a release… * VIENNA, Va. (7/16/10)--The Financial Crimes Enforcement Network (FinCEN) has approved a 30-day extension to the comment period for a recently proposed revision to Bank Secrecy Act regulations applicable to money services businesses with regard to definitions of stored value and prepaid access. The new comment deadline is Aug. 27. The proposal would also delete the terms “issuer and redeemer” of stored value; impose suspicious activity reporting, customer information and transaction information recordkeeping requirements on both providers and sellers of prepaid access and, additionally, impose a registration requirement on providers only; and exempt certain categories of prepaid access products and services posing lower risks of money laundering and terrorist financing from certain requirements… * WASHINGTON (7/16/10)--The Office of the Comptroller of the Currency (OCC) has appointed Carolyn DuChene as deputy comptroller for operational risk policy. She will oversee all activities related to operational risk and bank information technology. She joined OCC in 1984 and works as assistant deputy controller in the Cleveland field office ...

CUNA Final reg reform has some CU improvements

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WASHINGTON (7/16/10)—Following the Senate's 60 to 39 vote approval of comprehensive financial regulatory reform legislation, Credit Union National Association President/CEO Bill Cheney said that credit unions would work with regulators to ease the impact that interchange provisions could have on their operations and members. The financial reform legislation includes provisions that will allow the Federal Reserve to intervene in the setting of debit card transaction fees. While the “extraordinary grassroots and lobbying efforts” of credit unions did not result in the removal of the interchange legislation, these efforts did help secure significant improvements to the provisions, Cheney said. One such improvement is a carveout that would exempt financial institutions with under $10 billion in assets from the interchange legislation. The improvements, “while certainly not a panacea,” will give credit unions “a better chance” to ensure that the rate set by the Federal Reserve accurately reflects the true costs of card programs for credit unions, Cheney said. CUNA will continue to address credit union concerns with the proposal in future discussions with the Fed, he added. Cheney noted that while much of the legislation is not aimed at, and does not affect, credit unions, the actions of CUNA, the leagues, and individual credit unions have also helped credit unions with under $10 billion in assets avoid the oversight, examination and enforcement of the Consumer Financial Protection Bureau. Credit unions also will not pay for the the funding of the consumer bureau, and the National Credit Union Administration will maintain a seat on that board. The legislation also addresses thrifts, deposit insurance reforms, hedge funds, credit rating agencies, executive compensation, and investor protections, among other items. CUNA will also work to "ensure that the consumer provisions extend the protections that are intended without limiting the benefit that credit unions already offer to their members," Cheney added. CUNA is currently planning a series of audio conferences to examine the provisions of this legislation that are of greatest concern to credit unions. Those audio conferences are set to take place in August.