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Inside Washington (09/29/2009)

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* WASHINGTON (9/30/09)--Illinois credit union officials attended Thursday’s National Credit Union Administration (NCUA) board meeting in Alexandria, Va., and later met their elected officials. The delegates were in the Washington, D.C., area for the Credit Union National Association’s Hike the Hill event.
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The group also met with NCUA board member Michael Fryzel, who said he was happy to talk with the delegation about issues regarding corporates and member business loans. From left are: Barrie Hendrickson, Cornerstone CU; Carl Sorgatz, Hawthorne CU; Cheri Taylor, Sangamon Schools CU; Ann Duble, NuMark CU; Gail Clore, Cornerstone CU; Fryzel; Geri Burek; South Division CU; John Bratsakis, Baxter CU; Karen Woods, Decatur Earthmover CU; and Don Edwards, Illinois Credit Union League. (Photo provided by the Illinois Credit Union League) ... * WASHINGTON (9/30/09)--The Federal Deposit Insurance Corp. (FDIC) has adopted a notice of proposed rulemaking that would require insured financial institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The assessments will help to replenish the Deposit Insurance Fund, which has dipped to lower levels recently because of several bank failures. So far, 95 have failed this year (Bloomberg Sept. 29). The prepaid assessments are expected to bring in about $45 billion. The board also voted to adopt a three-basis point increase in assessment rates effective Jan. 1, 2011, and extend the restoration period to eight years from seven years. “As of June 30, FDIC-insured institutions held more than $1.3 trillion in liquid balances, or 22% more than they did a year ago,” FDIC said in a statement. “Prepaying assessments will put the industry's liquid balances to good use in conserving capital and helping to maintain the capacity of banks to lend while they rebuild the fund” ... * WASHINGTON (9/30/09)--Ed DeMarco, new head of the Federal Housing Finance Agency (FHFA), said he supports standardized reporting for the Federal Home Loan Banks. The 12 banks have resisted such a move but DeMarco said the goal should be to enhance the “consistency and robustness” of their disclosures to the capital markets. A FHFA proposal that would expand the number of independent directors on the board of the Office of Finance--which issues debt for the banks--is due for comment next week. The proposal also would allow the directors to sit on an audit committee that could establish more standard accounting policies (American Banker Sept. 29). The prospect of the committee has caused some to think the individual bank boards wouldn’t have much say in developing accounting standards. However, DeMarco said that would not be the case ...

NCUA advises CUs on mortgage mods financial trends

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ALEXANDRIA, Va. (9/30/09)--In Letter to Credit Unions 09-CU-19, National Credit Union Administration (NCUA) Chairman Deborah Matz advised credit unions on how best to handle the “unprecedented levels” of mortgage defaults. Matz encouraged credit unions that originate real estate loans to work with their borrowers to modify their loans, if needed. Potential loan modifications suggested by the NCUA supervisory letter include reducing interest rates, extending the maturity date of the loan and/or offering principal forbearance or forgiveness. Credit unions may also waive late fees or reduce or capitalize past due amounts, taxes, accrued interest, insurance, or fees, the agency recommended. According to NCUA, the objectives of loan modification programs are to help financially distressed members stay in their homes and to minimize default and foreclosure costs for credit unions . The NCUA encourages its examiners to “evaluate the effectiveness” of a credit union’s mortgage modification program and “ensure that the program is not masking delinquency or delaying the timely recognition of loan losses." In a separate Letter to Credit Unions (09-CU-18), NCUA notes that the real estate market continues to affect the credit quality of loans . However, the enclosed report on credit union trends found that the majority of loan growth over the first six months of this year came from the real estate sector. The report also found that while the credit union industry "remains sound," the impact of the financial crisis "continues to have a negative impact on credit union trends." Matz noted the crucial role of proper risk and asset-liability management for credit unions given the difficulties of this environment and she advised credit unions that originate real estate loans to "remain vigilant and enforce sound underwriting practices." For the full NCUA letters, use the resource link.

Dodds assurance No single regulator for CUs

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WASHINGTON (9/30/09)—In a financial regulatory reform hearing conducted by the Senate Banking Committee Tuesday, Chairman Christopher Dodd (D-Conn.) made it resoundingly clear that any plan to combine financial institution regulation under a single regulator does not apply to credit unions. The hearing was titled “"Strengthening and Streamlining Prudential Banking Supervision." During the public session, banking panel member Sen. Jeff Merkely (D-Ore.) noted that community banks and credit union are concerned about being rolled into a single regulator. The Credit Union National Association has stated the credit union case that a separate federal regulator is an imperative for credit unions because their structure and, in some ways, operations are so distinct from banks and thrifts. Responding to Merkeley, Dodd said: “I want to make it clear that this does not relate to credit unions. Before I get calls from around the country, I wanted to make that point. Credit unions: you are ok.” Sen. Bob Corker (R-Tenn.) said of the exchange, “You have just given evidence to where the real political clout is.” CUNA Vice President of Legislative Affairs Ryan Donovan said after the hearing, “Now the administration, House Financial Services Committee Chairman Barney Frank (D-Mass) and Chairman Dodd appear aligned on keeping NCUA out of a national banking regulator.”

Fed limits CARD Act minimum payment warnings to credit cards

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WASHINGTON (9/30/09)--Proposed amendments to Regulation Z released by the Federal Reserve today would limit the required minimum payment warning disclosures outlined in the Credit Card Accountability, Responsibility and Disclosure (CARD) Act to credit card accounts. "The Credit Union National Association (CUNA) has urged the Fed to limit these minimum payment warning disclosures to credit cards for weeks," said Deputy General Counsel Mary Dunn. These disclosures must be provided on periodic statements and must describe the affect that making only minimum payments has on the amount of interest that is paid and the time it takes to repay the balance. CUNA Senior Assistant General Counsel Jeff Bloch added that CUNA is “pleased that the Fed is using its authority under the Truth in Lending Act to limit these provisions in this manner.” The proposed rule, which would implement the portions of the CARD Act which come into effect on February 22, 2010, is the second stage of CARD Act implementation. Many of these provisions will be similar to Regulation Z rules that addressed open-end lending, which were issued earlier this year. Under the Fed proposal, credit card issuers would be prevented from increasing a borrower’s interest rate during the first year that an account is open. Consumers that are under 21 years of age will generally require a co-signor to open a credit account under the proposed rules, and the increased fees that can sometimes be associated with so-called “subprime” credit cards will also be limited. The proposal will also require that payments which exceed the minimum payment must now be allocated to balances with the highest interest rate first. While most provisions are currently scheduled to come into effect in February or August of next year, Reps. Barney Frank (D-Mass.) and Carolyn Maloney (D-N.Y.) recently introduced legislation that would accelerate the effective date for some portions of the CARD Act to December of this year. CUNA expects that the Fed’s newly-proposed rules, as well as interim final rules that address portions of the CARD Act that came into effect in late August, will be finalized by the end of 2009. Comments on the 900 page proposal are due within 30 days, and CUNA will issue a comment call soon on the new proposal. CUNA will also file a comment letter, working with its Consumer Protection Subcommittee and the CUNA Lending Council.

As first step toward alternative capital CUNA backs members only

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WASHINGTON (9/29/09)—The Credit Union National Association (CUNA)has reached out to the National Association of Federal Credit Union (NAFCU) in an effort to work together to obtain alternative capital for credit unions. Following the adoption of a resolution by the CUNA board at its most recent meeting in Estes Park, CO, the CUNA board and President/CEO Dan Mica have directed CUNA staff to work with NAFCU on this key issue. CUNA has reviewed draft legislative language from NAFCU and determined it is a good first step toward gaining additional sources of capital for credit unions. However, CUNA has suggested modifications to make the member-only alternative capital legislation as broad as possible, while being consistent with the principle of mutuality. In a memo to NAFCU, CUNA suggested that the legislative proposals be modified to include a number of additional sources for credit unions, including:
* Government assistance, including TARP funds; * Credit union assistance to other credit unions; * Credit union sponsors and select employee groups (SEGs) should be able to provide capital as members of a credit union, including those who have set out to make credit union access available to their employees as an employee benefit; and * There should be exceptions to capital rules for extenuating circumstances – such as in exigent circumstances to help prevent credit unions from going into costly conservatorship or liquidation.
"The modifications CUNA is recommending to the suggested legislative proposals are aimed at helping as many credit unions as possible. We look forward to working with NAFCU on securing alternative capital,” CUNA General Counsel Eric Richard said Monday. CUNA underscored in its communication to NAFCU that, in the long term, credit unions must be allowed to determine for themselves, based on their needs and membership, whether that capital should come strictly from membership or other sources. Drafting a legislative plan is just a first step in the pursuit of alternative sources of capital. The trades groups, once in agreement, will seek National Credit Union Administration backing of the plan. If that is secured, the groups will go on to pursue the U.S. Treasury Department’s support and then seek a sponsor on Capitol Hill.