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FHFA may convert GSE-held homes to rentals affordable homes

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WASHINGTON (8/11/11)--The Federal Housing Finance Agency (FHFA) is seeking outside opinion on how best to maximize value to taxpayers and increase private investment in the housing market while disposing of single-family real estate owned (REO) properties held by Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac and the Federal Housing Administration (FHA). The U.S. Department of the Treasury and Department of Housing and Urban Development (HUD) are also participating in the initiative. FHFA Acting Director Edward DeMarco in a release said that the GSEs will still market REOs for sale for the time being, but will investigate other opportunities that would reduce GSE credit losses and help stabilize home prices and neighborhoods. HUD Secretary Shaun Donovan added that with “half of all renters spending more than a third of their income on housing and a quarter spending more than half,” the government must “find and promote new ways to alleviate the strain on the affordable rental market.” Among the approaches being considered are converting government-held homes into rental units or affordable housing. The FHFA calls for approaches that achieve the following objectives:
* Reduce the REO portfolios of the GSEs and FHA in a cost-effective manner; * Reduce average loan loss severities to the GSEs and FHA relative to individual distressed property sales; * Address property repair and rehabilitation needs; * Respond to economic and real estate conditions in specific geographies; * Assist in neighborhood and home price stabilization efforts; and * Suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.
For the full FHFA release, use the resource link.

Nine of 12 debt reduction committee members named

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WASHINGTON (8/11/11)--Six senators and three Republican House members have been appointed to a 12-member Congressional Joint Select Committee on Deficit Reduction charged with creating more than $1 trillion in deficit reductions. The so-called “super committee” was created as part of the debt ceiling lift/deficit reduction agreement that was signed into law last week. It will examine tax policy and government spending priorities in a bid to reduce the national deficit. The super committee’s recommendations will be subject to votes in the House and Senate. If both congressional bodies fail to approve the cuts, automatic spending cuts will be made. The Republican Senate picks for the super committee, which were announced by Senate Minority Leader Mitch McConnell (R-Ky.) on Wednesday, are Jon Kyl (R-Ariz.), Pat Toomey (R-Pa.) and Rob Portman (R-Ohio). Senate Democratic Leader Harry Reid (Nev.) appointed Sens. Patty Murray (D-Wash.), Max Baucus (D-Mont.) and John Kerry (D-Mass.). Murray will serve as co-chairman of the committee, Reid said. House Speaker John Boehner (R-Ohio) has named Jeb Hensarling (R-Texas) as the other co-chairman. House Ways and Means Committee Chairman Dave Camp (R-Mich.) and energy and commerce committee Chairman Fred Upton (R-Mich.) have also been appointed. House Minority Leader Nancy Pelosi had not announced her selections at press time. Credit Union National Association (CUNA) Vice President of Legislative Affairs Ryan Donovan has said that CUNA will closely follow events surrounding the super committee and continue to emphasize the positive impact that the credit unions have on the members and communities that they serve. Donovan has said that debate could ensue over whether the Joint Committee has the ability to look at tax expenditures as part of its role. He added that Boehner recently said there is "no appetite" among House lawmakers to look at increasing tax revenues. "We'll keep a close eye on this and will engage with the Joint Committee as appropriate," Donovan said, adding that "preserving the credit union tax status is absolutely the most critical issue CUNA works on."

NCUA to CUs Ease member downgrade fears

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ALEXANDRIA, Va. (8/11/11)--The National Credit Union Administration (NCUA) has encouraged credit unions to assure their members that Standard & Poor's recent U.S. credit rating downgrade will have no impact on federal credit union deposit insurance, adding that the credit union system remains “strong and well capitalized.” In a development Wednesday night, NCUA learned that S&P's has also downgraded the NCUA Guaranteed Notes (NGNs) to AA+ status from AAA as a direct result of the S&P's downgrade of U.S. long-term sovereign debt. NCUA reassured that this would involve no new negative impact on Corporate Stabilization costs. The agency in a letter to credit unions (11-CU-11) added that member concerns related to the U.S. credit downgrades “may lead to unusually large deposit inflows or draws on existing lines of credit.” The NCUA recommended that credit unions contact the agency or state credit union regulators “if significant balance sheet growth leads to a temporary decline in regulatory capital levels.” Credit unions should also “consider all reasonable and prudent actions” to aid members who are enduring financial troubles, and should “maintain a dialogue with their examiners as they assess risk management challenges,” the NCUA added. As was also reported in Wednesday’s News Now, the agency advised credit unions that the downgrades of credit ratings of the U.S. government and a number of government programs this past week will have little effect on credit unions and the Corporate Stabilization program. According to the NCUA, the current risk-weights for Treasury securities will not change. This includes other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored enterprises. However, the NCUA noted, if a credit union or other entity bought NGNs and wants to sell them in the marketplace now rather than hold to maturity, the price or value may or may not be affected by S&P's action. While S&P did downgrade four NCUA unsecured debt guaranteed issues from two corporate credit unions the agency had guaranteed under the Temporary Corporate Credit Union Liquidity Guarantee Program from AAA to AA+, the downgrade does not affect the costs to NCUA of these debt obligations. There will be no increase in corporate credit union debt obligation costs for the NCUA or credit unions, the agency added.

CUNA seeks comment on possible NCUA derivatives proposal

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WASHINGTON (8/11/11)--Should the National Credit Union Administration (NCUA) allow federal credit unions to use derivatives--such as interest-rate swaps--on a case-by-case basis, or invest in derivatives independently or via a third party? The Credit Union National Association (CUNA) is seeking credit union comment on these and other derivatives-related issues. CUNA has asked for recommendations regarding NCUA‘s Advanced Notice of Proposed Rulemaking on derivatives regulations, including the accounting and financial reporting of derivatives. CUNA is also asking credit unions if current investment pilot programs that allow credit unions to engage in derivatives purchases for interest rate risk (IRR) management should be continued. The NCUA currently allows federal credit unions that meet certain net worth ratio and earnings requirements to invest in derivatives through an investment pilot program. These transactions typically involve interest rate swaps and caps to hedge IRR on fixed-rate investments such as mortgages. Using interest rate swaps and caps in this manner can effectively convert a fixed-rate loan into a variable-rate loan for the duration of the swap or cap contract, and reduce IRR. According to the NCUA, nine credit unions had outstanding derivatives contracts at the end of 2010. Two additional credit unions are approved to independently engage in derivatives for IRR. State-chartered credit unions may have derivatives authority based on state laws and regulations, although the number of state-chartered credit unions that invest in derivatives is unknown. CUNA is accepting comments until Aug. 16. For the full comment call, use the resource link.