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NFIP bill awaits Obamas signature

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WASHINGTON (9/27/10)—The House late last week approved legislation that would extend the National Flood Insurance Plan (NFIP) until Sept. 30, 2011. The NFIP legislation passed the Senate last week. The legislation will now move on to be signed by President Barack Obama. The NFIP lapsed for a period of time, beginning on June 1, but was restored in early July when H.R. 5569 was signed into law. The NFIP is now set to expire on Sept. 30. Legislation that would reauthorize the NFIP program until Sept. 30, 2015, and improve the program by adding a Flood Insurance Advocate and raising the maximum coverage limits, passed the House in July. A Senate vote has not been scheduled. The NFIP is important to credit unions because the mortgages they write for properties in a floodplain are required to have flood insurance.

FTC proposal would further limit deceptive mortgage practices

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WASHINGTON (9/27/10)--The Federal Trade Commission (FTC) last week moved to further prevent deceptive mortgage practices by proposing rules that would ban “all material misrepresentations in advertising about consumer mortgages.” The rule would specifically target mortgage lenders, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and other entities under the FTC’s jurisdiction, the FTC said. The proposal does not address advertising disclosure requirements. This proposed rule would apply to state-chartered credit unions, but not federal credit unions. The Credit Union National Association (CUNA), in a response to an advanced notice of proposed rulemaking released earlier this summer, agreed that the FTC should do more to address predatory lending practices. However, CUNA added, any developed rules should not be imposed on state-chartered credit unions that are subject to the FTC’s jurisdiction under the FTC Act as credit unions have not been the source of the problems that these rules would address. CUNA also recommended that the FTC’s rules focus on practices that are not adequately addressed under current law, but not prohibit or favor certain practices. The FTC is seeking comments on the potential costs and benefits of the rule. The proposed rule will be open for a 45-day public comment period. For the FTC release, use the resource link.

Inside Washington (09/26/2010)

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* WASHINGTON (9/27/10)--The National Association of State Credit Union Supervisors (NASCUS) commended the National Credit Union Administration for “completing the enormous and complicated task of stabilizing the corporate credit union system and re-promulgating its corporate rule,” said NASCUS President/CEO Mary Martha Fortney in a statement Friday. Her comments came after NCUA approved its final Part 704, Corporate Credit Unions, and presented its legacy assets plan. “From the start, state regulators and NCUA worked to address corporate credit union issues in an equitable fashion that protects safety and soundness with a focus on enhanced joint federal-state regulator supervision,” Fortney said. “NASCUS and state regulators anticipate continuing their active role as the final rule is implemented. NASCUS has always viewed improving the corporate system as an ongoing effort, and we will continue to work with NCUA on areas that remain of concern to the state system” ... * WASHINGTON (9/27/10)--President Barack Obama is expected to sign into law today a $30 billion small-business lending fund. The Treasury is expected to work with regulators within a week to create the program’s application and term sheet. Program funds could be available within two to three months, said American Banker (Sept. 24). However, it is not yet known how the capital will be treated, what the underwriting rules for small business loans will be, what criteria will be required for approving an application and how banks can convert Troubled Asset Relief Program (TARP) capital to the new program. Under the program, banks with less than $10 billion in assets can apply for capital with a dividend payment of 5%. The capital would be free of TARP-like restrictions, including executive compensation and warrants ... * WASHINGTON (9/27/10)--Lawmakers shared their concerns during a meeting Thursday about the future of the Federal Housing Administration (FHA), said American Banker (Sept. 24). During a Senate Banking Committee hearing, panel members said they weren’t sure the agency would be able to bounce back because of its growing share of the mortgage market. However, David Stevens, FHA commissioner, said the agency’s third-quarter report indicates its Mutual Mortgage Insurance Fund increased by $450 million. It was originally projected to suffer a loss of $2.6 billion during the first three quarters of the year. Stevens said the agency is still vulnerable if prices drop, and that FHA remains cautious. Last month, Congress approved legislation that would allow FHA to raise annual premiums to cover losses in its trust fund and reduce up-front assessments. The reduction aims to make it easier for a borrower to sell a home. Congress also has asked the Government Accountability Office (GAO) to examine FHA’s finances and come up with recommendations. One suggestion was to give FHA a timeline to restore its capital ratio to 2%. For the FHA to reach that goal, Stevens said, it would need to consider discount rates in the market, recovery of defaulted loans and the home price index ...

NCUA acts on Corp. CUs legacy assets

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ALEXANDRIA, Va. (9/27/10)—The National Credit Union Administration (NCUA) on Friday placed three more corporate credit unions into conservatorship, finalized new rules governing the corporates and approved a plan to isolate and securitize the corporates so-called “legacy” assets. NCUA Chairman Debbie Matz called the agency's much-anticipated actions "a comprehensive solution to the problems afflicting the corporate credit union system." The three corporates placed into conservatorship are Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. The corporate credit unions, whose assets totaled $7.4 billion, $9.5 billion, and $1.2 billion, respectively, will join U.S. Central FCU and Western Corporate FCU (WesCorp) under conservatorship. While business at the three credit unions will largely continue unimpeded, NCUA Chairman Debbie Matz did say that the CEOs of both Members United and Southwest had been replaced. Constitution will likely be merged into another existing corporate, she added. As a result of the trio of NCUA actions, the NCUA now holds 70% of all assets held in corporate credit unions and 98% of the distressed, so-called “legacy assets” that have caused the corporate credit union system problems. The legacy assets are made up primarily of private label, residential mortgage-backed securities that were significantly devalued during the turmoil in the overall mortgage market. The NCUA plans to deal with these losses by isolating and funding $50 billion of these assets. The assets will then be reissued as NCUA Guaranteed Notes (NGN), which will then be sold on the open market. The NCUA said that additional information about the securitzation process will be made available as the process moves forward. "There are some positive aspects for credit unions in the actions that NCUA has taken, the biggest being that credit unions will only have to cover the actual, eventual credit losses--and nothing else, including market losses," commented CUNA President/CEO Bill Cheney. "We advocated for that and are gratified the agency listened to us. However: The credit losses will be substantial--in a range now estimated of between $8 billion to $10 billion; but only time will tell exactly how much or how little." The revised corporate rules that NCUA adopted today will implement stronger capital requirements on the corporates, establish concentration limits on investments, revise asset-liability management requirements and change governance standards. The revisions track close to what the agency initially proposed and are generally in line with what CUNA's Corporate CU Task Force has recommended (see related story). CUNA's Cheney noted that the NCUA has put out a great deal of detail that must be pored over. "We’ll have to take the time to cull through everything that the agency has done in order to have a clear picture of its impact on credit unions," he noted. However, Cheney said, the NCUA’s actions "have the potential to move us past this chapter and better position the credit union system for the future--while being invisible to consumers who rely on credit unions for affordable financial services.” The NCUA has developed a web page to provide additional resources on the actions taken Friday. For the NCUA page and a CUNA summary of the NCUA’s actions, use the resource links.

NCUA reveals new corporate CU rule

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ALEXANDRIA, Va. (9/27/10)—The National Credit Union Administration (NCUA) on Friday revealed the final corporate credit union rule. Credit Union National Association (CUNA) President/CEO Bill Cheney said that CUNA is “gratified” that the new corporate rule reflected many of the recommendations of CUNA’s Corporate Task Force. “We firmly believe it offers a solid model for corporate credit unions going forward,” Cheney added. Overall, the NCUA’s corporate credit union final rule mirrors the agency’s proposed rule, which was released earlier this year. The final corporate rule amends Part 704 of the NCUA's rules, adjusting the current corporate capital requirements by replacing the current 4% minimum total capital ratio with a 4% minimum leverage ratio, a 4% tier one risk-based capital ratio, and an 8% total risk-based capital ratio for adequately capitalized corporate credit unions. The new corporate rule will prohibit the purchase of private-label mortgage-backed securities or subordinated securities. So-called "golden parachute" executive compensation packages will not be allowed to be awarded to executives of troubled corporates, and all corporates will be required to disclose their executive compensation packages. Corporate boards must also be comprised of natural person credit union employees that have attained the level of CEO, chief financial officer, or chief operating officer or treasurer/manager at their respective credit unions. The majority of the corporate rules will become effective 90 days after they are published in the Federal Register. However, the rules impacting capital requirements and the activities of credit union service organizations (CUSOs) will have delayed effective dates, the NCUA said. NCUA General Counsel Bob Fenner added that the NCUA would release additional refinements to its corporate rule in the future. The NCUA plans to address corporate membership fees, internal reporting, risk management, and other issues, he added. The NCUA also voted to delegate corporate credit union CUSO authority to the Director of the Office of Corporate Credit Unions (OCCU). The NCUA Board may also play a role in the approval or disapproval of a corporate credit union CUSO’s activities if those activities go “beyond the scope” of activities covered by section 712.5 of NCUA regulations. Potential guidelines for new corporate credit union charters were also released during the meeting. The guidelines will be open to public comment for thirty days. The NCUA also announced plans to bundle portions of the $50 billion in troubled assets currently held by U.S. Central FCU, Western Corporate FCU (WesCorp), and some other corporates into individual securities that could then be sold on the open market. (See related story: NCUA acts on Corp. CUs, legacy assets)