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GAO recommends increased SCRA exams

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WASHINGTON (7/23/12)--The Credit Union National Association (CUNA) has warned that the National Credit Union Administration (NCUA) could soon step up its efforts to review credit union compliance with the Servicemembers Civil Relief Act (SCRA).

The U.S. Government Accountability Office in a report issued last week recommended that the NCUA and other federal financial regulators "conduct more extensive loan file testing for SCRA compliance."

To determine the frequency of SCRA compliance examinations, the GAO selected a random sample of 160 depository institutions, including credit unions, and reviewed their own examination files. The GAO's sample included only institutions that hold mortgages in their loan portfolios and service those loans themselves, or institutions that service mortgages for other institutions.

Federal regulators' oversight of SCRA compliance has been limited, the GAO found. The GAO noted that the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve all examined higher percentages of institutions for SCRA compliance than did NCUA.

Overall, the GAO report estimated that federal financial regulators only examined 48% of the financial institutions they oversee for SCRA compliance between 2007 and 2011. And, the GAO added, around half of these examinations featured loan file reviews. The GAO also noted that these loan reviews only featured examinations of loans that the financial institution identified as involving servicemembers.

Independently selecting a statistical sample of loan files would have provided greater assurance of SCRA compliance, the GAO said.

The GAO report recommended that "regulators and other agencies that oversee mortgage activities should also explore opportunities for information sharing on SCRA compliance oversight."

The SCRA protects active duty members of the military from civil claims and default judgments.

Legislation that would make it easier for active-duty military personnel to claim SCRA protections, and extend foreclosure protections offered under the SCRA to the surviving sponsors of military members, was introduced earlier this year by Sen. Jack Reed (D-R.I.). The bill, known as the Servicemember Housing Protection Act (S. 3179), has been referred to the Senate Committee on Veterans' Affairs. Similar legislation has also been introduced in the U.S. House.

Student lending needs fixes CFPB DOE say

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WASHINGTON (7/23/12)--Revising the Truth in Lending Act to clarify the definition of "private student loan" is one of many steps that Congress could take to improve the educational lending market for students, families, schools and financial institutions, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray said in a recent report.

The recommendation is one of many made in a joint CFPB/U.S. Department of Education (DOE) private student lending industry report that was released last week. The report was mandated by the Dodd-Frank Wall Street Reform Act.

The report found that loosened lending standards between 2005 and 2007 made private student loans risky for many consumers, and led to many students borrowing more than they needed to finance their educational expenses. The private student loan market grew to $20 billion in 2008, and private student loan default rates "have spiked significantly" since that time. More than 850,000 individual student loans are in default, the report noted. This adds up to $8 billion in unpaid loans.

While federal student loan terms are usually more favorable than private loan terms, the CFPB/DOE examination found that many students did not exhaust their federal Stafford Loan limits before they took out private student loans. Borrowers also lacked an understanding of key differences between private and federal student loans.

Congress could require lenders to work more directly with educational institutions during the student loan origination process. The report suggested that lenders verify that the loan amount requested by a student does not exceed the student's needs, and said private lenders could also be required to examine a borrower's federal loan eligibility before they take out a student loan.

Schools and lenders could also do more to inform borrowers of student loan costs before they take them out, and Congress could also examine recent bankruptcy law changes that make student loans non-dischargeable debt in bankruptcy proceedings.

Six colleges and four state university systems last month agreed to work with the CFPB and DOE to provide key financial information to incoming students. The information, which includes details on college costs, financial aid options, grant and scholarship information, and estimated loan repayment rates, will be provided to students starting in 2013.

The CFPB and DOE are also working together on an online student financial aid comparison tool. The agencies hope to officially launch the tool during the next school year.

The Credit Union National Association estimates that around 300 credit unions currently offer student loans to their members. Credit unions also provide financial education and seminars relating to student lending generally, and encourage students to attend. The website also provides extensive financial education regarding student lending, through both written information and webinars. The site is powered by Fynanz, a CUNA Strategic Services provider.

Conventional mortgages ARMs reach record lows

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WASHINGTON (7/23/12)--Interest rates for 30- and 15-year fixed-rate mortgages, as well as those for five-year adjustable-rate mortgages, fell to record lows during the week ended July 19, Freddie Mac reported.

Thirty-year fixed-rate mortgages averaged 3.53%, down from the 3.56% average reported last week, and the 4.52% average rate reported this time last year.

Fifteen-year fixed-rate mortgages averaged 2.83%. Those mortgages averaged 2.86% last week, and 3.66% this time last year.

Both five-year and one-year Treasury-indexed, hybrid ARMs averaged 2.69% during the week. Five-year ARMs averaged 3.27% and 1-year ARMs averaged 2.97% this time last year.

"Fixed mortgage rates are remaining low and helping to stir the housing market," Freddie Mac Chief Economist Frank Nothaft noted.

New single-family home construction increased for the fourth-straight month in June, and homebuilder confidence for the next six months recently reached its highest level since March 2007, he noted.

For the full report, use the resource link.

Inside Washington (07/20/2012)

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  • WASHINGTON (7/23/12)--In the two years since the Dodd–Frank Act became law, federal regulators have heard overwhelmingly from the nation's biggest banks, according to a new Sunlight Foundation analysis of financial regulatory agency meeting logs. Since July 21, 2010, when Dodd-Frank was signed into law, regulators at three major banking regulatory agencies--the U.S. Treasury Department, the Federal Reserve and the Commodities Futures Trading Commission have reported meeting with 20 big banks and banking associations on average a combined 12.5 times per week compared with an of average 2.3 weekly meetings with reform-oriented groups. The top 20 banks show up 1,298 times in meeting logs at the three agencies. Groups favoring tighter regulations of the financial markets show up 242 times. Goldman Sachs appears 181 times. JP Morgan Chase is close behind with 175 total meetings, followed by Morgan Stanley with 150, and Bank of America with 122 …