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Inside Washington (11/09/2009)

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* WASHINGTON (11/10/09)--The Federal Housing Administration’s (FHA) move to delay releasing an audit of its capital reserves has prompted fears in the financial services industry that the fund is in the red and that the FHA will increase mortgage insurance premiums to make up the difference. The FHA has nearly depleted its reserves, and financial industry observers expect that the Department of Housing and Urban Development will try to raise more money as soon as it can. FHA lenders currently charge a borrower 165 basis points at closing plus another 50 basis points each month. The points are financed and the borrower cannot recoup the premium (American Banker Nov. 9). FHA hasn’t released information about its reserves, but the industry expects the ratio of cash to mortgages will be lower than 2%. Jim Pair, president of the National Association of Mortgage Brokers, said raising the mortgage premium would hurt the housing market ... * WASHINGTON (11/10/09)--The Federal Home Loan Bank of Seattle is undercapitalized, said the Federal Housing Finance Agency Friday (American Banker Nov. 9). The bank cannot redeem or repurchase stock or pay dividends, the agency said. While the institution has met its minimum capital requirements, the agency maintains that it is undercapitalized because of declines in the value of private-label mortgage-backed securities. Also, the bank is in danger of exhausting its retained earnings if credit losses on the securities in the fourth quarter matched losses in the third quarter. Last week, the bank said it lost $144.3 million in the first nine months of the year--$93.8 million of which was during the third quarter ... * WASHINGTON (11/10/09)--Lawmakers are debating the concept of “living wills” for financial institutions as a way to resolve systemically significant firms. Under a bill that would also create a new regulator for systemic firms, companies would be required to submit wind-down plans to the government to guide regulators so they can take apart an institution without damaging the financial system. The goal is to help the firms and the government prepare for a crisis. Rep. Barney Frank (D-Mass.) is sponsoring the bill. Several observers question if the guide would actually be followed, because the government would not be obligated to use the plan during a resolution. Harvard University Professor Kenneth Rogoff noted that firms would have to change their wills “all the time” (American Banker Nov. 9). He said the exercise wouldn’t be “bad to go through” but another line of defense is needed. Douglas Elliott, Brookings Institution fellow, said the benefits of a “living will” may be small but “still worth it” ...

Matz urges better settlement for CU fraud victims

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ALEXANDRIA, Va. (11/10/09)—National Credit Union Administration (NCUA) Chairman Debbie Matz sent a letter Monday to the Federal Housing Finance Agency encouraging that regulator to get Fannie Mae to offer a more reasonable settlement to credit unions defrauded by CU National Mortgage. Matz noted that approximately two dozen credit union were scammed by CU National to a tune of more than $125 million in potential losses. CU National sold mortgage loans to Fannie Mae but did not remit sale proceeds back to the originating credit unions. The credit unions received monthly principal and interest payments and did not become suspicious of the fraud, according to the NCUA letter. Fannie Mae offered a settlement equal to approximately 15% of potential losses in August and raised that in a second offer to closer to 25%, with a 3% bonus if at least 18 credit unions agreed to the offer. The NCUA said only two have signed on for it. “The outcome seems especially egregious considering Fannie Mae’s status as a government-sponsored enterprise, and doubly so in light of the fact that it is currently in conservatorship and receiving billions of dollars of taxpayer assistance,” wrote Matz to FHFA Acting Director Edward DeMarco. Matz noted that one credit union has filed suit against Fannie Mae and others are considering similar action, but added that the cost of such litigation further jeopardized the financial health of these victim cooperatives. “(T)he financial impact of CU National’s frauds on these member-owned cooperatives is significant. Indeed, for some of the credit unions, their losses will be so great as to force out agency to take drastic action under the prompt corrective action rules,” Matz informed her fellow regulator. She concluded by offering the help of her staff to work with FHFA to bring about “a rapid and cost-effective resolution.”

Fed attorney says rule will reflect 21-day fix

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WASHINGTON (11/10/09)--Even before President Barack Obama signed the CARD Act Technical Corrections Act (H.R. 3606) into law on Friday, staff from the Federal Reserve had confirmed with the Credit Union National Association that Fed staff will include this change in the CARD Act final rule that will be issued by the end of the year, or January at the latest. These rules will address the provisions that were effective as of Aug. 20 and that will be effective as of Feb. 22, 2010. Fed attorney Ben Olson also indicated that the Fed staff has no objection to the correction, telling CUNA Senior Assistant General Counsel Jeff Bloch that the correction "makes a lot of sense." The CARD Act change fixes portions of the act that implied that a 21-day late notice requirement applied to all open-end credit by clearly stating that late-notice provisions apply to credit cards only. CUNA consistently argued that lawmakers had always intended to apply the provision to credit cards only, and worked closely with lawmakers and their staffs to inform them that the CARD Act drafting error prevented credit unions from granting biweekly payment plans or sending consolidated billing statements to their members and would force them to change payment due dates for members that had previously chosen due dates based on their specific financial circumstance. CUNA President/CEO Dan Mica hailed the quick and decisive work by the House, Senate, and President, saying that the to-be-enacted legislation “gives credit unions the opportunity to go back to doing what they do best: Serving their members with affordable and needed financial services.” Use the resource link below for comprehensive compliance information about "un-complying" with the 21-day requirement now that the fix has been enacted.

Fed to transfer Phila check processing to Cleveland branch

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WASHINGTON (11/10/09)--The Federal Reserve late last week announced that on December 12 it will transfer its check processing operations from the head office of the Federal Reserve Bank of Philadelphia to the Federal Reserve Bank of Cleveland. The Fed earlier this year announced that it would transfer the check processing operations of its Dallas branch and its Los Angeles branch of the Reserve Bank of San Francisco to Cleveland, effective November 14. The moves reflect an overall restructuring of the Fed's check processing operations, and are a response to consumers' and businesses' shift from using paper checks toward electronic payments. According to the Fed, all check processing will be handled by the Cleveland office by early next year. For the full Fed release, use the resource link.

Congress this week After brief recess overdraft to take Senate stage

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WASHINGTON (11/10/09)--While the Senate will go into a brief Veterans' Day recess beginning on Tuesday afternoon, the Senate Banking Committee will resume business with a hearing on overdraft protection legislation on Tuesday, Nov. 17. The hearing, which will address S. 1799, The FAIR Overdraft Coverage Act, will feature testimony from Pentagon FCU President/CEO Frank Pollack as well as the Consumer Federation of America's Travis Plunkett and the Center for Responsible Lending's Eric Halperin. The Credit Union National Association will submit a statement for the hearing record, but will not testify at the hearing. S. 1799, which was introduced by Senate Banking Chairman Sen. Chris Dodd (D-Conn.), would limit the fees that financial institutions can charge on overdraft protection services. There will be no action on the House side this week, as the House will be in recess until Nov. 16. However, there was significant news in the House at the end of last week, with the House Financial Services Committee on Friday approving an amendment to H.R. 3996, the Financial Stability Improvement Act of 2009, that would reduce some of the risk monitoring powers of the Federal reserve Board. As reported in American Banker, the committee chairman, Rep. Barney Frank (D-Mass.), on Friday said that while he favors maintaining the Federal Deposit Insurance Corporation’s oversight of state-chartered banks and opposes a single regulator, he would consider moving some of the Federal Reserve Board’s current authority to a new national bank overseer. While legislation offered by Frank would make the Fed responsible for systemic risk regulation while stripping it of some consumer protection powers and merge the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision, a pending proposal from Dodd would move all Federal bank oversight ability to the OCC.