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CUNA brings CU reg burden and more to CFPB

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WASHINGTON (8/25/11)—While Washington has remained quiet for most of August, the Credit Union National Association (CUNA) has continued its work on the regulatory front, meeting this week to discuss the credit union regulatory burden with Consumer Financial Protection Bureau (CFPB) Assistant Director for Community Banks and Credit Unions Elizabeth Vale.
Click to view larger image CFPB Assistant Director for Community Banks and Credit Unions Elizabeth Vale, right, was joined by CUNA Deputy General Counsel Mary Dunn, CFPB Assistant Director for Card Markets David Silberman, and NCUF Executive Director Bucky Sebastian during a Wednesday meeting in Washington. (CUNA photo)
CUNA Deputy General Counsel Mary Dunn, accompanied by National Credit Union Foundation Executive Director Bucky Sebastian, met with Vale and others at the agency’s offices in Washington. During the discussions, they again called on the CFPB to consider ways to help minimize regulatory burden for credit unions. CUNA continues to advocate that the agency establish an Office of Regulatory Burden Monitoring to help track, consider, and mitigate the cumulative regulatory burden under which credit unions and others must operate. Financial literacy, the pending Truth-in-Lending proposal on the ability of the borrower to repay, as well as issues with the Qualified Residential Mortgage (QRM) rule under the credit risk retention proposal were discussed. Regarding the QRM proposal, CUNA has strongly criticized provisions that would set a 20% minimum down payment threshold for mortgages that would be exempt from certain credit risk retention requirements, stating it could create unnecessary barriers for qualified borrowers, limit credit unions' ability to tailor loans to their members' needs, and could potentially make it difficult for small financial institutions like credit unions to make non-QRM loans. CUNA has also criticized the proposed 20% down payment threshold as “too high,” adding that high minimum down payments alone “are not always a significant factor in reducing defaults compared to underwriting and other mortgage product features." CUNA representatives also participated in a call yesterday with the CFPB on its project to combine Truth-in-Lending and Real Estate Settlement Procedures Act mortgage disclosure forms. In this call, the CFPB indicated that it is continuing its efforts to draft the “right” disclosure for consumers, adding that it is the agency’s intent to ensure that consumers can understand the forms and make informed decisions concerning mortgage lending. CFPB representatives indicated that a fourth round of draft disclosure forms will be issued in September, and that additional roundtable calls would be held to further discuss and revise the forms at this time, as well. Vale continues to encourage credit unions to submit comments and concerns regarding these future drafts via the agency’s Web site as the CFPB moves forward with the disclosure revision process, and CUNA plans to remain an active party in this and other CFPB initiatives. CUNA is also working with credit unions to compile a comprehensive list of credit unions' regulatory burdens to send to federal regulators. For more on this regulatory effort, use the resource link.

FHFA sees quarterly home value slide continue

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WASHINGTON (8/25/11)--U.S. home prices fell by 0.6% between the first and second quarters of 2011, continuing a trend that has seen home prices fall by 5.9% over the past four quarters, the Federal Housing Finance Agency (FHFA) reported. The 0.6% drop is based on the FHFA’s seasonally adjusted purchase-only house price index (HPI), which the FHFA said is calculated from home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages. When adjusted for inflation, the average price of a home fell by 10% over the past year, the FHFA added. Home-price declines were not consistent nationwide, however, as the New England and West South Central regional census divisions saw 0.7% increases in home values. The FHFA said that the Mountain census division saw the largest decline in home values during the quarter, with prices declining by 2.3%. The Mountain region covers Arizona, Colorado, Idaho, New Mexico, Montana, Utah, Nevada and Wyoming. The greater Atlanta, Ga.-area showed the greatest decline in home values among major metropolitan areas, with prices dropping by 14.1% over the past year. Home prices increased by 3.7% in Pittsburgh, Pa., over that same time period. This was the largest increase among top 25 metropolitan areas. A piece of relatively good news came earlier this week when Standard & Poor's Rating Services reduced its estimate of the time needed to sell off the housing market’s “shadow housing inventory” to just under four years. The ratings agency last quarter estimated it would take around 52 months to sell off these homes. S&P defines these so-called “shadow inventory” homes as foreclosed properties, real-estate owned properties, or homes with mortgages that are 90 days or more in arrears. S&P's Diane Westerback added that home prices “are likely to fall further as servicers clear the shadow inventory backlog and the properties under the distressed loans crowd the already weak housing market." (American Banker, August 24). For more from the FHFA, use the resource link.

Native CUs related group awarded CDFI program funds

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WASHINGTON (8/25/11)—Three credit unions and one credit union-affiliated organization were among the recipients of the $11.8 million in funds distributed in the 2011 round of the Community Development Financial Institution (CDFI) Fund’s Native American CDFI Assistance (NACA) Program. The CDFI Fund this year awarded:
* $150,000 in technical assistance grants to Honolulu, Hawaii’s Aloha FCU; * $279,000 in financial assistance to Naalehu, Hawaii’s Ka’u FCU; * $149,560 in technical assistance grants to Kyle, South Dakota’s Lakota FCU Steering Committee; and * $24,950 in technical assistance grants to Honolulu, Hawaii’s The Queens FCU.
The Lakota FCU Steering Committee is working to establish a credit union to serve the more than 40,000 members of the Sioux tribe living on South Dakota’s Pine Ridge Reservation. The Queens FCU was approved as a CDFI Fund-eligible institution last month. The NACA program is designed to encourage the creation and strengthening of certified CDFIs that primarily serve Native American, Alaskan Native and Native Hawaiian communities. NACA funds may be used to finance capital or may be provided to financial institutions in the form of technical assistance grants. CDFI Fund Director Donna Gambrell said that the 2011 awards “clearly demonstrate the successful growth of the Native CDFI movement across the country." A total of 31 Native CDFIs received funding this year, and the NACA program saw an application increase of nearly 50% between 2011 and 2010. The amount of funds requested also increased by nearly 50%. Credit unions represented 13% of the total number of NACA applications for this round, the highest rate of any group of financial institutions. The CDFI Fund has provided more than $58 million in funds through this program since 2004. For more on the 2011 round of the CDFI Fund’s NACA program, use the resource link.

Military CU virtues overlap Fryzel tells DCUC

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NEW YORK, N.Y. (8/25/11)--The shared military and credit union values of discipline, cooperation, and long-term planning are among the reasons that defense credit unions remain some of the most successful credit unions in the country, National Credit Union Administration (NCUA) board member Michael Fryzel said before the Defense Credit Union Council’s annual conference in New York, N.Y. this week. “Credit unions take only enough money to stay in business and thereby assure that they are delivering the best products and services to their members at the lowest possible prices,” he added, also thanking defense credit unions for supporting their communities through hardship and deployment. Military families “should not have to worry about high fees, or high loan rates, or lenders looking to enrich themselves at military families’ expense” while their loved ones are in harm’s way or simply dealing with “the daily struggles of military life,” Fryzel said. While the nation, and credit unions, have faced unprecedented economic issues in recent years, Fryzel said that “we need to remember not a single credit union member lost a penny of insured funds, credit unions took care of their problems without a taxpayer bailout, and every wire transaction, payment and transfer was accomplished without interruption.” Fryzel in his remarks also credited defense-based credit unions, and credit unions in general, for working “with members to help them stay in their homes, hold onto their cars, and keep paying their loans.” For the full speech, use the resource link.

Derivatives a good rate-risk tool CUNA says

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WASHINGTON (8/25/11)—The Credit Union National Association (CUNA) commended the National Credit Union Administration (NCUA) for its plan to allow credit unions to hedge their interest-rate risk (IRR) with financial derivatives saying credit unions need many tools to facilitate their operations as possible, provided they are consistent with vigilant risk management on the credit union’s part and reasonable supervision from regulators. CUNA SVP and Deputy General Counsel Mary Dunn, in CUNA’s comment letter on the agency’s advance notice of proposed rulemaking on derivatives, wrote that CUNA agrees that products, such as derivatives, can allow credit unions to maintain margins on their fixed-rate loan portfolios and, therefore, facilitate credit unions’ ability to continue making loans to their members. “We support this proposal and offer some recommendations concerning issues to be addressed in a subsequent proposed regulation,” Dunn wrote. Currently, the NCUA allows a limited number federal credit unions to engage in derivatives to hedge IRR through an investment pilot program. “Should NCUA choose to regulate in this area, which we would support, we believe the existing investment pilot program, either through a third-party or if the credit union has independent authority, should be grandfathered,” CUNA recommended. (Use the resource link to read CUNA’s more extensive comments regarding the pilot program.) CUNA also suggested the following:
* A final derivatives rules should provide a sufficient number of eligible derivatives counterparties to provide credit unions with greater access to products and more competitive pricing; * Derivative products used by credit unions should include access to over-the-counter (OTC) derivatives that are currently allowed under the investment pilot program. In addition, certain exchange-traded derivatives may be appropriate for well-managed credit unions as long as they comply with any counterparty requirements, as applicable, as addressed in a regulation; * Credit unions should be allowed to seek independent authority to engage in derivatives that do not involve a third-party, subject to meaningful but not overly burdensome qualifications the credit union would be required to meet.
CUNA also recommended that credit union size should not be the determining factor to gauge a credit union’s eligibility to participate in the derivatives markets. “We do not think that small credit unions should be eliminated from participation as access to third-parties and aggregation of smaller contracts could be very beneficial to their operations, when managed properly, and consistent with safety and soundness,” Dunn wrote. Also, the CUNA letter noted that if federally insured, state-chartered credit unions have legal authority for derivatives activities based on state laws and regulations, then NCUA’s regulations should not seek to generally override such authority. A federal preemption should apply only, the CUNA letter suggests, if there are material, demonstrable safety and soundness concerns. In the absence of state requirements, federally insured, state-chartered credit unions should be allowed to conduct their derivatives activities consistent with NCUA’s regulation, according to CUNA. Use the resource link for CUNA’s complete comments.

Inside Washington (08/24/2011)

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* WASHINGTON (8/25/11)--The Federal Deposit Insurance Corp. (FDIC) will face a $10 billion lawsuit brought by the Deutsche Bank National Trust Co. over bad mortgages and the failure of Washington Mutual Bank (Reuters Aug. 24). A federal judge refused the FDIC’s motion to dismiss the lawsuit Tuesday. The Office of Thrift Supervision seized WaMu in September 2008 in the biggest bank failure in U.S. history. After being named receiver of WaMu, the FDIC sold the bank to JPMorgan Chase & Co for $1.9 billion. Deutsche Bank National Trust Co. filed its lawsuit in 2009, claiming the securitized mortgages failed to meet the promised underwriting standards, causing huge losses for investors … * WASHINGTON (8/25/11)--Federal Deposit Insurance Corp. (FDIC) in a lawsuit filed Tuesday alleged that executives at a failed Georgia bank bought two airplanes, built a hangar in which to store them and hired eight private pilots to transport directors and prospective clients to corporate retreats (American Banker Aug. 24). The FDIC is seeking $71 million in losses from the former executives of Silverton Bank. The bank’s failure, the largest in Georgia history, cost the FDIC $386 million. The lawsuit charges Silverton’s board, made up of CEOs or presidents of other community banks, with gross negligence, breach of fiduciary duty and waste … * WASHINGTON (8/25/11)--While loans grew during the second quarter for the first time since 2008, loss provisions continued to drive earnings, and lower revenue indicated that banks remain risk-averse in the midst of the sluggish economy, according to the the Federal Deposit Insurance Corp.’s Quarterly Banking Profile (American Banker Aug. 24). “Recent events have reminded us that the U.S. economy and U.S. banks still face serious challenges ahead,” said Acting FDIC Chairman Martin J. Gruenberg. Overall, banks and thrifts reported a $28.8 billion profit in the second quarter, a $7.9 billion improvement from the $20.9 billion in net income the industry reported for the same period in 2010. It was the eighth consecutive quarter that earnings registered a year-over-year increase. The profits were primarily a result of lower reserves for loan losses. Second-quarter loss provisions totaled $19 billion, less than half the $40.4 billion that insured institutions set aside for losses in the second quarter of 2010. However, net operating revenue (net interest income plus total noninterest income) was $3 billion or 1.8% lower than a year earlier, and realized gains on securities declined by $1.3 billion, or 61.1% …