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Inside Washington (11/28/2007)

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* WASHINGTON (11/29/07)--Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he expects the decline in housing activity to “bottom out” by the end of the second quarter in 2008. Plosser spoke Tuesday before the University of Rochester’s graduate school of business administration in Rochester, N.Y. He also noted that he expects the U.S. economy to “go through a brief period of sluggish growth before returning to a sustained expansion,” and inflation to remain about the level I view as consistent with price stability. “We will have to remain vigilant on the inflation front and prepare to act as necessary to avoid the risk of undermining the public confidence in the central bank’s commitment to price stability,” he said … * WASHINGTON (11/29/07)--The National Association of Affordable Housing Lenders (NAAHL) supports legislation, introduced by Sen. Jack Reed (D-R.I.), that would reform the affordable housing goals of Fannie Mae and Freddie Mac. The Government Sponsored Enterprise (GSE) Mission Improvement Act of 2007 “is another strong statement from a key member of Congress that any GSE legislation passed by Congress should be comprehensive, not piecemeal,” said NAAHL President/CEO Judy Kennedy. The bill would direct GSEs Fannie Mae and Freddie Mac to set aside $500 million to $900 million every year for an affordable housing fund. About 65% of the fund would go to a housing program operated by the Department of Housing and Urban Development, while the remaining 35% would be placed in a fund operated by the Treasury Department (News Now Nov. 20) … * WASHINGTON (11/29/07)--Keith Hennessey will replace Al Hubbard as the director of the National Economic Council, President Bush announced Wednesday. Hennessey, who has served as Hubbard’s deputy and deputy to two other council directors, began his career at the White House in 2002. He also has worked for the Senate Budget Committee (Associated Press Nov. 28). Hubbard stated in a letter to the president that he resigned to spend more time with his family. The National Economic Council was created under the Clinton Administration to coordinate economic policy…

Sen. Dodd announces bankruptcy bill plans

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WASHINGTON (11/29/07)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) announced Wednesday that he plans to introduce bankruptcy reform legislation that would affect five changes in the country’s bankruptcy code. The bill is intended to establish a safety net for families who have fallen on hard times and offer those who file for bankruptcy a second chance at establishing financial security, Dodd said in a release. Dodd said his bill would:
* Allow judges to consider debtors individual circumstances when determining their ability to pay to ensure that families have enough to meet their children’s needs; * Ensure that child support and alimony payments are settled first and are not eligible for distribution to creditors; * Ensure that medical debts can always be discharged in bankruptcy; * Treat mortgages like other secured debt so that bankruptcy courts can restructure mortgages to help borrowers stay in their homes; and, *Make private student loans dischargeable.
“Financial hardship can strike even the most diligent and hardworking Americans,” said Dodd. “Most often, individuals are forced into bankruptcy by a devastating medical event or the loss of a job. Our bankruptcy laws should not punish these vulnerable members of our society, but instead should help them get back on their feet while protecting them and their families from added suffering at the hands of creditors.” The Credit Union National Association (CUNA) has urged Congress to use the care and precision of a good surgeon in pursuing efforts to address the current subprime mortgage crisis through changes in nation's bankruptcy laws. CUNA President/CEO Dan Mica told lawmakers recently that CUNA has "considerable concerns" with any legislation that would open the Bankruptcy Code to amendment so soon after major revisions were enacted through the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. That law went into effect in October of that year. The CUNA leader sent the credit union letter to Capitol Hill as the House Judiciary Committee was wrestling with a bill to allow mortgage restructurings under the bankruptcy code. The Emergency Home Ownership and Mortgage Equity Protection Act (H.R. 3609) would also give judges power to modify certain terms in existing mortgages.

Foreclosure risk field hearing announced

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WASHINGTON (11/29/07)—The House Financial Services Committee has announced its housing and community opportunity subcommittee will conduct a field Friday on mortgage issues. The hearing will examine foreclosure prevention and intervention, as well as the importance of loss mitigation strategies to help homeowners hang onto homes. Witnesses were not yet announced. The hearing will be convened at the California Science Center in Los Angeles. It will be lead by the subcommittee chair, Rep. Maxine Waters, a Democrat from California. Another hearing, tentatively scheduled by the full committee for Dec. 6 to study ideas for supplementing the mortgage reform bill passed 291-127 by the House before Thanksgiving recess, has been postponed, according to American Banker (Nov. 28). No new date has been set.

Mica Bank strain not from CUs

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WASHINGTON (11/29/07)—Credit Union National Association (CUNA) President/CEO Dan Mica noted that even with the impact of mortgage-related losses banks continue to post substantial profits. And, banker rhetoric aside, any strains they're feeling are certainly not the result of credit union competition, he said. "As credit unions work to help members of their communities survive the credit crunch caused by the real estate bust, banks clearly need to stop their anti-credit union rhetoric and false claims of unfair competition,” the CUNA leader said. The Federal Deposit Insurance Corp. (FDIC) announced that federally insured commercial banks and savings institutions reported net income of $28.7 billion for the third quarter of 2007. The net income level was a $9.4 billion drop (24.7%) from the third quarter of 2006, according to the FDIC. However, in 2006 banks---for the sixth consecutive year-- scored record-breaking profits. They earned $146 billion last year, up 6.6% from the previous year’s record. According to FDIC Chairwoman Sheila Bair, the banking industry’s performance this quarter was hurt by asset-quality problems and volatility in financial markets. “Almost half of all insured institutions reported year-over-year declines in earnings. Residential mortgage loans were the focal point of asset-quality problems. But delinquency and loss rates were up across all major loan categories," said Bair in a release.

NASCUS toTreasury Dual chartering should remain

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WASHINGTON (11/29/07)—The National Association of State Credit Union Supervisory (NASCUS) sent a Nov. 21 letter to the Treasury Department commenting on Treasury’s review of the regulatory structure associated with financial institutions. The letter noted that the topic of revamping the regulatory framework has been debated for many years and conceded that if the system had been “created by design,” the current system would not have been “deliberately engineered.” “(H) owever, the current system has provided competition, innovation and diversity. One cannot overlook the benefits offered by the current system,” wrote Sandra Troutman, executive vice president of government relations for NASCUS. NASCUS focused the body of its comments on three main areas: the dual chartering system, state charters, and what the group considers to be the optimal role of a deposit insurer. The letter argued that today’s regulatory system is strengthened by dual chartering which, it said, provides for “diversity, innovation and healthy competition. “Charter choice creates healthy competition and provides an incentive for regulators (both state and federal) to maximize efficiency in their examinations and reduce costs. It also allows regulators to take innovative approaches to regulation while maintaining high standards for safety and soundness,” the letter said. The state chartering option, NASCUS said, improves consumer protections and economic vitality. Responding to a specific request for comment issued by the Treasury, NASCUA said it believes “the roles and responsibilities of the insurer and the primary regulatory should be separate, distinct and well defined” as exemplified in the banking system with the Federal Deposit Insurance Corp. That system, according to NASCUS, limits conflicts of interest between the regulator and the insurer and allows an insurer to be independent.”