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October 22, 2014

Watt announces changes to Representation and Warranty Framework

Washington
LAS VEGAS (10/22/14)--Mortgage lenders soon will be provided with more certainty about requirements for covering losses on loans sold to Fannie Mae and Freddie Mac, according to Federal Housing Finance Agency (FHFA) Director Mel Watt. Speaking at the Mortgage Bankers Association convention in Las Vegas Tuesday, Watt outlined upcoming revisions and clarifications to the agency's Representation and Warranty Framework.
 
He noted the agency is also working to develop new guidelines for mortgages with loan-to-value ratios between 95% and 97%, which Watt said will "responsibly serve a targeted segment of creditworthy borrowers with lower down payment mortgages by taking into account 'compensating factors.'"
 
Representations and warranties provide assurances that allow Fannie and Freddie to purchase loans efficiently without checking each loan individually or being at each closing. They also provide both entities remedies to address situations when lenders' obligations to meet purchase guidelines have not  been fully met.
 
Credit Union National Association Deputy General Counsel Mary Dunn said CUNA is encouraged by Watt's comments.
 
"This will ensure that any lender outliers will manage their risk, and it is not targeted at those which comply and have already adopted efficient and responsible lending practices," she said. "While we will be reviewing the details as available, this proposal will mitigate some of the concerns that credit unions have regarding their need for more flexibility on mortgages."
 
Dunn added that CUNA is pleased the agency is working to allow the purchase of home loans with a 3% down payment, which she called "a move that will open doors to home loans to creditworthy borrowers."
 
Critics have said that the FHFA framework did not originally provide enough clarity to enable lenders to understand when Fannie or Freddie would exercise their remedy to require repurchase of a loan. Lenders also reported credit overlays that drove up the cost of lending and restricted lending to certain borrowers.
 
"To address this problem, FHFA and the enterprises (Freddie and Fannie) have worked to revise the Framework to ensure that it provides clear rules of the road that allow lenders to manage their risk and lend throughout the enterprises' credit box," Watt said in his remarks.
 
The upcoming changes identified by the FHFA head include clearly defining six categories of life-of-loan exclusions:
  • Misrepresentations, misstatements and omissions;
  • Data inaccuracies;
  • Charter compliance issues;
  • First-lien priority and title matters;
  • Legal compliance violations; and
  • Unacceptable mortgage products.
The agency also clarified that only life-of-loan exclusions can trigger a repurchase under the framework for loans that have already earned repurchase relief.
 
Watt said more details about the updated definition for each life-of-loan exclusion, as well as the new lower down payment mortgage guidelines, will be announced in the coming weeks.
 
Use the resource link below for the full text of Watt's remarks. ReadMore

Regulators approve final QRM rule

Washington
WASHINGTON (10/22/14)--Federal regulators Tuesday approved a final qualified residential mortgage (QRM) rule, which requires investment banks to hold at least 5% of a loan's risk on their books when securitizing loans unless the loans meet the definition of a QRM.

The rule more closely aligns the definition of QRM with the Consumer Financial Protection Bureau's (CFPB) qualified mortgage (QM) definition than did the original proposal. The Credit Union National Association strongly advocated for a closer alignment .

"CUNA has advocated strongly for the important step of aligning the Qualified Residential Mortgage with the existing Qualified Mortgage definition," said Mary Dunn, CUNA's deputy general counsel and senior vice president. "Doing so encourages lenders to work with creditworthy borrowers to make home loans that will continue to drive the country and our economy forward."

Thomas Curry, Comptroller of the Currency, said the rule is an important milestone.

"The rule we are approving today will require lenders to retain some of the risk for the loans that go into securitized pools except for home mortgages that meet the standards necessary under the qualified residential mortgage, or QRM, exception," he said in announcing his agency's adoption of the definition.

Curry added, "Under this rule, QRM is equivalent to QM, that is, the qualified mortgage rule approved by the Consumer Financial Protection Bureau."

Federal Housing Finance Agency (FHFA) Director Mel Watt called it "a major step forward" to providing certainty to the housing market.

"Aligning the qualified residential mortgage standard with the existing qualified mortgage definition also means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers," he said.

CUNA supported aligning the definition of a QRM more closely with the definition of a QM in commenting on the proposal last year. However, CUNA does not support a 43% debt-to-income ratio a borrower must meet for a QM.

The new rule also states that regulators will review the QRM standards in four years.

"By then, we should have enough experience with the standards to know whether they strike the right balance between long-term financial stability and the home-financing needs of American families, and we can adjust them if necessary," Curry said.

The joint rule was proposed by the Federal Reserve Board, Federal Deposit Insurance Corp., U.S. Department of Housing and Urban Development, FHFA, Office of the Comptroller of the Currency and the Securities and Exchange Commission.

Use the resource link below to access the complete rule. ReadMore

Other Resources

Staples investigates possible breach

CU System
FRAMINGHAM, Mass. (10/22/14)--Staples Inc. is investigating a possible breach of payment card data, the company announced Monday.
 
Although the office supply retail giant has 1,800 locations nationwide, it appears fraudsters have stolen data from a subset of Staples locations in Pennsylvania, New York City and New Jersey.
 
The breach appears to have occurred in a pattern of fraudulent transactions on a group of cards that had previously been used at a small number of Staples locations in the Northeast, according to information security Brian Krebs.
 
Fraudulent charges occurred at other businesses, such as supermarkets and other big-box retailers, an indication that the cash registers in at least some Staples locations may been infected with card-stealing malware that lets thieves create counterfeit copies of cards that customers swipe at compromised payment terminals, Krebs reported on his KrebsOnSecurity.com blog.
 
Staples told Krebs it has contacted law enforcement about the matter.
 
Also on Monday, the FBI reported nearly 519 million financial records have been stolen in the past year, with 439 million  stolen in the last six months ( USA TODAY Oct. 21). About 35% of the thefts were from website breaches, 22% were from cyber-espionage, 14% occurred at the point of sale when a purchase was made at a retail store, and 9% when someone swiped a credit or debit card, the FBI said.
 
The Credit Union National Association continues to press national lawmakers to pass legislation that would require merchants to meet the same strict payment data security standards imposed upon financial institutions. Credit unions nationwide saw 4.6 million of their cards compromised as a result of last year's Target breach, leading to about $30.6 million in breach-related costs.

CUNA also is collecting information on the financial and operational impact the Home Depot breach has had on credit unions. Completed surveys from credit unions affected by that breach are due Friday. ReadMore

Bank disgust not only factor driving CU millennial membership: Inc.

CU System
NEW YORK (10/22/14)--It might be easy to state that millennials don't like big banks, Vince Passione, columnist for Inc. magazine wrote in a recent article, given that polls show a handful of the largest U.S. banks consistently rank at the top of the generation's most-hated brands.

But it's not only animosity that's driving millennials toward credit unions and away from banks.

Credit unions, explains Passione, CEO/founder of LendKey, a cloud-based technology platform for lenders and investors, have evolved into the types of tech-savvy and versatile financial institutions that appeal to millennials.

For example, South Carolina FCU, North Charleston, with $1.3 billion in assets, has created fee-free deals for those age 25 and under that act as "Oops Refunds," according to Passione.  

The product allows the young members to have one free-fee refund per quarter, a service that acknowledges the growing pains associated with learning about personal financial management.

Passione also noted PSCU's recent KnockOut event, which fosters tech-innovation in the credit union industry through a daylong challenge that pits teams in a competition to create the best technology-based financial services product ( News Now Oct. 15).

And even some larger credit unions have already adopted the recently introduced Apple Pay.

"Innovative tech products and creative programs like these are drawing millennials away from big banks," Passione wrote. "And as community-based, member-owned businesses, credit unions are perfectly positioned to appeal to millennials."

As millennials are estimated to number 86 million, which is 7% larger than the baby-boomer generation, the up-and-coming generation will have a substantial impact on the financial services industry, Passione said.

Fortunately, credit unions excel in the ways that are important to millennials: service, ease, convenience, value and education.

According to Passione, 81% of millennial credit union members say their institution offers an "outstanding customer experience" compared with only 59% of bank customers.

"By focusing on millennials, credit unions are learning and adapting to ensure they are on the cutting edge of banking technology," Passione said. ReadMore

CUNA Attorneys Conference: Existing regs apply to social media activity

Washington
DANA POINT, Calif. (10/22/14)--Credit unions are often encouraged to engage their members through the channels of social media, but once they fully enter that world they also need to make sure they "get their arms around" where all social media is coming from within the organization, according to a panel discussion held Tuesday at the Credit Union National Association Attorneys Conference.

Ross Hansen and Jennifer Kraus of CUNA Mutual Group addressed the compliance challenges that come with maintaining a presence on social networks.

Most importantly, they said, a credit union must be fully aware of all its social media activities at all times, including who is posting them and where they are coming from.

Existing regulations for advertising, privacy and lending also apply to social media messaging. For example, an advertisement may show differently on a mobile device than it does on a website, which could be a risk if certain required copy is cut off on a mobile platform.

According to Kraus and Hansen, general business liability insurance does not cover lawsuits for hosted website activities. Those activities generally require cyber-specific policies.

In addition, the credit union fidelity bond does not cover member losses incurred due to information mistakenly exposed through a credit union's website, only losses sustained by the credit union itself.

The two also advised that credit unions and other organizations may want to consider third-party vendors that can assist with social media setup, execution and tracking. ReadMore

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Muzzle POODLE vulnerability by updating browsers, SilverSky advises

CU System
MADISON, Wis. (10/22/14)--Keeping operating systems and browsers up to date is key to protecting credit unions and members against a new security vulnerability discovered last week.
 
POODLE (Padding Oracle on Downgraded Legacy Encryption) exploits a flaw in old Secure Socket Layer (SSL) 3.0 encryption protocol. POODLE allows a third party to capture information sent between the user and the website--known as a "man in the middle" attack.
 
"You might not notice anything," said Andrew Jaquith, chief technology officer for SilverSky, a provider of cloud security solutions and a CUNA Strategic Services alliance provider. "They are snapping up the information that you're transmitting. It's insidious--you just won't know."
 
"It affects every browser, every server, because everyone supports backward capability," he told News Now . "Now it needs to be disabled in all these areas."
 
For credit unions, that means they must disable SSL 3.0 on all servers and member-facing sites. "If you're using any systems newer than 2006 or 2007, you should be fine," he said. Credit unions also should make sure they have recently updated versions or patches on their operating systems. "Always turn on automatic updates," he advised.
 
Credit unions can also help protect their employees and members by making sure they are using "slightly more modern browsers," he counseled. Internet Explorer 6 and below are vulnerable so members should be using Google Chrome, Firefox, Safari or Internet Explorer 7 and above.
 
"As a browser user, the nice thing about Chrome and Firefox is that they do silent updates in the background," Jaquith said.
 
Silver State Schools CU, Las Vegas, with $655 million in assets, took a proactive approach in notifying its members about the vulnerability and what it was doing to update its four member-serving systems. "We have begun taking corrective action," it noted on its website. "As a result, you may experience short interruptions in some or all online services."
 
It also suggested members look at their own Web browsers to ensure SSL 3.0 is disabled. ReadMore

CUs get good 1st report card on liquidity rule implementation: NCUA Report

Washington
ALEXANDRIA, Va. (10/22/14)--The October edition of The NCUA Report , the National Credit Union Administration's monthly newsletter, examines the 12 months since the agency passed its liquidity rule.
 
The NCUA adopted a liquidity rule in October 2013 that formalized liquidity policies and plans, as well as ensured larger credit unions have prearranged access to a federal contingent liquidity source. These sources can be the Federal Reserve's discount window, NCUA's Central Liquidity Facility (CLF), or both.
 
Since the rule was adopted, all federal credit unions with more than $250 million in assets have made the appropriate arrangements with a federal liquidity source, an article in The NCUA Report noted. The remaining major and time-sensitive requirement for those credit unions to conduct is advance planning and testing of contingency resources, which must be done by Dec. 31.
 
According to the NCUA, all current CLF members will be considered in compliance with that requirement, and new members will be tested on a rolling basis as they join. Fed discount window users need to successfully pledge collateral before they can run a test transaction.
 
As of June 30, there was a 70% increase in CLF members and a 37% increase in Fed discount window arrangements in a one-year period..
 
Other items in The NCUA Report include:
  • A guest commentary from Small Business Administration Administrator Maria Contreras-Sweet about how SBA loans can help credit unions and their members;
  • A look at how student interns can help low-income credit unions in areas such as Web design or marketing;
  • A recap of the September board meeting, which included an update on the Temporary Corporate Credit Union Stabilization Fund, a charter expansion, and some housekeeping amendments to NCUA rules and regulations; and
  • A guide to managing the credit risk of private student loans.
Use the resource link below to access The NCUA Report . ReadMore

NCUF honors Schumacher with Wegner award

CU System
MADISON, Wis. (10/22/14)--In recognition of a career that included stints with the Credit Union National Association, state leagues, a credit union service organization, and as the top executive of a credit union, the National Credit Union Foundation (NCUF) will recognize Bob Schumacher, retired president/CEO, MountainCrest CU, as the recipient of a 2015 Herb Wegner Memorial Award for Lifetime Achievement.
 
Schumacher's award will be one of four Wegner awards presented at a special dinner hosted by NCUF March 9 at CUNA's 2015 Governmental Affairs Conference.

"Bob is one of the most dedicated and devoted followers of the credit union philosophy who has worked on all levels of the movement," said John Gregoire, chair of NCUF Wegner Awards selection committee and president of The ProCon Group. "His impact particularly on Foundation programs such as the Community Investment Fund, Biz Kid$ and the Credit Union Development Education Program is beyond belief. Anyone who has had the opportunity to be touched by Bob's contagious energy and enthusiasm comes away a more committed individual."
 
Schumacher's career includes eight years at CUNA, 12 years at the credit union leagues in Washington and Florida, two years at a mortgage CUSO and 15 years at MountainCrest CU, Arlington, Wash., with $87 million in assets.
 
Schumacher worked CUNA's national advertising program (NAP) in the 1970s. He spoke to credit union groups on the importance of marketing, raising money for the NAP, helping create a credit union brand image and increasing public awareness of credit unions.
 
As president/CEO of MountainCrest CU, he not only had a direct impact on the financial lives of his members, but led his staff through a successful merger, relocation and name change.
 
Schumacher has also helped several credit unions and nonprofit foundations, both as a professional senior consultant through The Paragon Group and as a pro bono volunteer. He has served on the NCUF board, the Washington Credit Union Foundation board (including serving as chair), the FSCC shared branching network board, the Northwest Corporate FCU board, the Snohomish County (Wash.) Junior Achievement board, as chair of the NCUF's awards and recognition committee--as well as a member of its fundraising committee--and in many additional leadership roles within the credit union movement.
 
In 2002, Schumacher was recognized with a CUNA Marketing Council's Hall of Fame Award, and in 2006, with the Washington Credit Union League's Ambassador Award. ReadMore
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