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NEW: NCUA sues Wells Fargo as trustee of mortgage-backed securities

ALEXANDRIA, Va. (12/23/14, UPDATED 12:45 p.m. ET)--The National Credit Union Administration has filed a lawsuit suit in federal court against Wells Fargo Bank National Association, alleging the bank has failed to fulfill its duties as trustee for 27 residential mortgage-backed securities trusts.

The agency is suing in its capacity as liquidating agent for five failed corporate credit unions.

"Like other trustees against whom NCUA is pursuing claims, Wells Fargo neglected its statutory and contractual obligations to certificate holders, including the five corporate credit unions," said NCUA Chair Debbie Matz. "This litigation is intended to hold Wells Fargo accountable for losses caused by that neglect."

The NCUA's complaint states the value of the securities depended on the quality of the pooled mortgage loans the trusts contained, and the bank, as trustee, had contractual and statutory duties to protect the interests of certificate holders.

The complaint states that, despite knowing about defects in the mortgage loans, Wells Fargo failed to provide required notices to certificate holders and other parties. It also failed to take timely action to force the repurchase, substitution or cure of defective mortgage loans or otherwise preserve trust remedies.

"We are gratified the agency continues to take efforts to lessen losses to credit unions. We have been encouraging NCUA to take all reasonable actions necessary to maximize recoveries from the institutions that were responsible for the events that contributed to the corporate failures," said Eric Richard, Credit Union National Association general counsel. "Ultimately, we are hopeful that credit unions will share in the fruits of these efforts when the liquidations of the corporates is complete and all funds owing to the Treasury have been repaid."

Five corporate credit unions--U.S Central, WesCorp, Members United, Southwest and Constitution--purchased approximately $2.4 billion in residential mortgage-backed securities issued from the trusts between 2004 and 2007.

Those securities were faulty and lost substantial value, contributing to the failure of all five corporates.

The NCUA's complaint seeks damages to be determined at trial.

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CUs should be exempt from MLA proposal, says CUNA

WASHINGTON (12/23/14)--A revamped Military Lending Act (MLA) could negatively affect the delivery of high-quality, reasonably priced financial products to servicemembers, reads a joint letter from numerous credit union stakeholders, including the Credit Union National Association.

The Department of Defense (DOD) proposal would place a 36% cap on the military annual percentage rate (APR) of interest for credit products, as well as other protections.

"From our perspective as credit unions' advocates, any changes to the current rules should curtail and eliminate the unscrupulous business practices of organizations targeting our military personnel--and not harm credit unions that are dedicated to the financial well-being of their member-owners," reads the letter, which was also signed by the leaders of the African-American Credit Union Coalition, Defense Credit Union Council, National Association of Federal Credit Unions and the National Association of State Credit Union Supervisors.

The letter goes on to say that the services and products that have been cited as the need for the proposal are generally not offered by credit unions. None of the lenders mentioned in the proposal are credit unions.

This--along with the fact that credit unions face a number of other compliance burdens from the current MLA rule, the Dodd-Frank Act, the National Credit Union Administration, the Consumer Financial Protection Bureau (CFPB) and state regulators--is reason enough that credit unions should be exempt from the proposal.

"The credit union industry strongly urges DOD to exempt credit unions completely from the proposed changes, including new coverage under an expanded definition of 'consumer credit,' which would apply to certain open-end credit products. In this case, credit unions would remain covered by the existing MLA rule," the letter reads.

The letter also urges the DOD to work with the NCUA to ensure the agency's Payday Alternative Loans (PAL) product can continue to be offered, and are "properly excluded" from the proposal changes. NCUA Chair Debbie Matz wrote to the DOD last week with a similar request.

Credit unions support further efforts to educate servicemembers, the letter concludes, and the DOD is encouraged to collaborate with entities such as the CFPB. The letter pledges credit union assistance for financial education outreach at the national and local levels.

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IOLTAs now fully insured by NCUA, Matz announces

ALEXANDRIA, Va. (12/23/14)--The federal credit union regulator has met President Barack Obama's signature of the Credit Union Share Insurance Fund Parity Act with encouragement, declaring that lawyers' trust accounts at federally insured credit unions are now insured to the limit by the Share Insurance Fund.

NCUA Chair Debbie Matz said the agency will make changes to its regulations to fully conform with the act.

"Credit unions now have parity with banks and, effective immediately, can fully insure lawyers' trust accounts up to $250,000 for each owner of the funds, which they could not do before," Matz said. "An attorney who is a member of the credit union where the trust account is opened now has a choice of financial institutions for that trust account. This enhances public confidence in both the banking and the credit union systems now that federal share and deposit insurance programs administered by NCUA and the [Federal Deposit Insurance Corp.] are the same."

Previously, interest on lawyer trust accounts (IOLTAs) could only be held at a credit union if each person involved with the account was a member of the credit union. According to the NCUA, this placed credit unions at a competitive disadvantage because it was impractical to require attorneys to establish multi-client lawyers' trust accounts in different credit unions to ensure full share insurance coverage.

The bill allows IOLTAs and similar accounts to be held at a credit union if either the administering attorney or the escrow agent is a member.

The passage of the bill has been lauded by credit unions, particularly as an avenue to welcome law firms and other businesses who traditionally could not establish a business relationship due to a credit union not being able to offer IOLTAs.

"I would like to thank President Obama for signing this into law and Rep. Ed Royce (R-Calif.) and Rep. Ed Perlmutter (D-Colo.) for their leadership," Matz said. "Sen. Angus King (I-Maine) and Sen. Mark Warner (D-Va.) played important roles moving this through the Senate. I am also pleased Congress adopted NCUA's recommendations regarding this legislation."

The Credit Union National Association was a longtime advocate for the bill, writing several letters urging 113th Congress to pass the bill before it adjourned and addressing the matter in a meeting with White House economic policy staff.

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Senators urge HUD's Castro to lower FHA loan fees

WASHINGTON (12/23/14)--Eighteen senators have written to U.S. Department of Housing and Urban Development Secretary Julian Castro asking for lower fees on Federal Housing Administration (FHA) loans.

The legislators cite the agency's most recent Mutual Mortgage Insurance Fund (MMIF) report, which shows the fund has seen a $21 billion improvement over the last two years, and is on target to meet the congressionally mandated 2% excess reserve by fiscal year 2016.

The improved outlook of the fund has led the legislators to believe that this is the right time to examine premium levels, saying appropriately priced fees may produce greater revenue and restore the capital ratio more quickly.

"While preserving the solid footing of the reserve fund is essential, reducing fees does not necessarily conflict with this goal," the letter reads. "As any business knows, just as a price that is set too high will lead to less profit, not more, lowering the premium on qualified borrowers may actually produce greater revenue and fully restore the capital ratio more quickly."

The FHA has increased the annual premium paid by borrowers for FHA guaranty by 145% since 2010, meaning a borrower taking out a $200,000 loan pays $1,600 more per year in fees.

According to the National Association of Realtors, these higher fees may have priced out as many as 375,000 potential homebuyers from buying a mortgage in 2013.

The letter was signed by Sens. Barbara Boxer (D-Calif.), Robert Menendez (D-N.J.), Charles Schumer (D-N.Y.), Jeff Merkley (D-Ore.), Elizabeth Warren (D-Mass.), Barbara Mikulski (D-Md.), Dianne Feinstein (D-Calif.), Patty Murray (D-Wash.), Richard Durbin (D-Ill.), Ben Cardin (D-Md.), Bernie Sanders (I-Vt.), Jeanne Shaheen (D-N.H.), Kirsten Gillibrand (D-N.Y.), Richard Blumenthal (D-Conn.), Chris Murphy (D-Conn.), Mazie Hirono (D-Hawaii), Edward Markey (D-Mass.) and Cory Booker (D-N.J.).

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3.3M total foreclosure preventions completed since 2008: FHFA

WASHINGTON (12/23/14)--Approximately 72,700 foreclosure prevention actions were taken by Fannie Mae and Freddie Mac in the third quarter, according to the Federal Housing Finance Agency's quarterly report.

That number brings the total foreclosure preventions since September 2008 to more than 3.3 million, which helped nearly 2.8 million borrowers stay in their homes, and includes 1.7 million permanent loan modifications.

The quarterly Foreclosure Prevention Report includes data on Fannie and Freddie home retention actions, delinquencies and real estate-owned inventory.

Highlights include:
  • The number of 60-plus day delinquent loans declined 3% to the lowest level since the start of conservatorships;

  • The serious delinquency rate fell to 2%;

  • Approximately 34% of all permanent loan modifications helped to reduce homeowners' monthly payments by more than 30% in the third quarter;

  • About 22% of borrowers who received permanent loan modifications in the third quarter had portions of their mortgage balance forborne;

  • Nearly 12,900 short sales and deeds-in-lieu were completed in the third quarter, bringing the total to approximately 594,200 since the start of the conservatorships;
  • Third-party sales and foreclosure sales fell 9% to nearly 39,100 while foreclosure starts dropped 13% to approximately 74,600 in the third quarter; and

  • The real estate-owned inventory of Fannie Mae and Freddie Mac declined 9% during the quarter to nearly 120,100 as dispositions continued to outpace acquisitions.

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CFPB files consent order for servicemember debt abuse

WASHINGTON (12/23/14)--Three companies have been accused of using illegal debt collection practices against American servicemembers and are the subject of an enforcement action from the Consumer Financial Protection Bureau (CFPB).

Freedom Stores Inc., Freedom Acceptance Corp. and Military Credit Services LLC and their chief officers are the subject of a consent order that would require them to provide more than $2.5 million in consumer relief and to pay a $100,000 penalty.

"Freedom Stores and its affiliated companies were filing thousands of lawsuits in Virginia against consumers not from there, taking money from some consumers' bank accounts without permission, and using the military chain of command to pressure and humiliate servicemembers," said CFPB Director Richard Cordray in a statement announcing the action.

Freedom Stores, also known as Freedom Furniture and Electronics, is a Virginia-based retailer that sells furniture and electronics. According to the CFPB, Freedom Stores offers credit to consumers purchasing its merchandise and transfers the contract to the affiliated Freedom Acceptance Corp.

The owners of those companies, John Melley and Leonard Melley Jr., also own Military Credit Services, a financing company that primarily caters to servicemembers.

A CFPB investigation found the following illegal practices:
  • Illegally filing more than 3,500 lawsuits in Virginia for out-of-state contracts from July 2011 to December 2013. These were filed against consumers who had not signed their financing contracts in Virginia and did not live there when the suits were filed. Almost all of those lawsuits resulted in garnishment of consumers' wages or liens on their bank accounts;

  • Double-dipping into servicemembers' funds by accepting payment via military allotment, as well as erroneously taking payments from an authorized backup account. This was as a result of the companies relying on reports from a payment processor that were sometimes incorrect;

  • Contacting commanding officers to pressure servicemembers into repayment due to a clause buried in the purchase contract. The companies would contact the officers in writing and by phone to disclose the debts, humiliating the servicemembers and putting their careers and ability to get a security clearance at risk; and

  • Illegally debiting bank or credit card accounts of consumers' family and friends after a one-time payment on a consumer's behalf was authorized. The companies would keep the payment information in their systems, and then debt collectors would later take funds from those accounts without authorization or notification.
The attorneys general of North Carolina and Virginia helped the CFPB bring the action against the companies.

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Inside Washington (12/23/14)

  • WASHINGTON (12/23/14)--Federal regulatory agencies have announced annual adjustments to the thresholds used to define certain institution sizes under Community Reinvestment Act regulations. "Small bank" or "small savings association" means an institution that, as of Dec. 31 of either of the prior two calendar years, had assets of less than $1.221 billion. "Intermediate small bank" or "intermediate small savings association" means a small institution with assets of at least $305 million as of Dec. 31 of both of the prior two calendar years, and less than $1.221 billion as of Dec. 31 of either of the prior two calendar years. The annual adjustments are based on the change in the average of the Consumer Price Index for urban wage earners and clerical workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million ...

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