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Inside Washington (12/12/2007)

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* WASHINGTON (12/13/07)--Progress reports on the Treasury Department’s loan modification plan are scheduled to be released to the public in January, but details regarding how that information will be reported are unclear. Some industry representatives have stated they will report data on a monthly basis. But they haven’t decided who will report or how the reporting will take place (American Banker Dec. 12). When the Treasury announced its plan encouraging loan servicers to report loan modifications, the American Securitization Forum recommended 28 metrics to guide servicers. The Hope Now alliance, which is leading the data collection, is using the forum’s criteria. The progress reports will likely center on how many people did or did not receive help with their modifications, and what happened to those who didn’t, said William Longbrake, a Washington Mutual vice chairman and policy adviser to the Financial Services Roundtable …

Dodd bill targets subprime lending practices

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WASHINGTON (12/13/07)—Sen. Christopher Dodd (D-Conn.) Wednesday introduced his anticipated mortgage reform bill, The Homeownership Preservation and Protection Act of 2007. In an announcement, Dodd said the bill is intended to “help put an end to the abusive and predatory lending practices that have sent thousands of Americans into foreclosure and put thousands more in danger of losing their homes.” Provisions of the bill would:
* Establish new protections for all borrowers, such as prohibiting brokers from steering prime borrowers to more expensive subprime loans, create a fiduciary duty for mortgage brokers towards borrowers, and provide for a duty of good faith and fair dealing toward borrowers for all lenders; * Establish new protections for subprime borrowers and borrowers who get nontraditional mortgages, in part by requiring a “real analysis” of the borrowers’ ability to repay the loan.; * Provide remedies to make sure such standards are met. The bill would allow state attorneys general to enforce the provisions of the law, and does not preempt state law; and * Provide for limited liability for holders of a mortgage made in violation of law, whether it is the original lender or a subsequent investment trust. Unlike current law, which puts the burden on the borrower to find the party responsible for causing the harm, the legislation would allow borrower to go directly to the current mortgage holder for a cure.
In November the House voted 291-127 in favor of the Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), a comprehensive bill also intended to combat abuses in the mortgage lending market and to provide basic protections to mortgage consumers and investors. That bill would”
* Establish a federal duty of care, prohibit steering, and call for licensing and registration of mortgage originators, including brokers and bank loan officers; * Create a licensing system for residential mortgage loan originators, * Set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay; and * Attach limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. The bill would not make individual investors in the securities liable.

Reynolds signs on as CURIAs 139 supporter

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WASHINGTON (12/13/07)—Rep. Thomas Reynolds (R-N.Y.) is the newest co-sponsor of the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), bringing the total number of official backers to 139. The addition of Reynold’s name to the co-sponsor list also brings the number of House co-sponsors from New York to 15. CURIA provisions are intended to help credit unions better serve their members. Two key proposals in CURIA would: implement a risk-based capital approach for credit unions to make it more closely resemble the current Federal Deposit Insurance Corp. capital standard for banks, and; raise the current threshold on credit unions' member-business lending to 20% of assets from the current 12.25%. The bill also proposes to clarify the 1998 Credit Union Membership Access Act to allow all credit unions, regardless of charter type, to serve those in underserved areas. The bill would also update the definition of an underserved area, incorporating definitions from the Community Development Financial Institutions Act and the New Markets Tax Credit. For information about other CURIA provisions and to access the official co-sponsor list, use the resource links below.

No more delays FASB biz combo statement done

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WASHINGTON (12/12/07)—The often-delayed, much-awaited final accounting rule for mutual business combinations has been issued by the Financial Accounting Standards Board's (FASB's) and it reflects a different approach to accounting for business combinations than credit unions used previously, according to Scott Waite, chairman of the Credit Union Natrional Association's Accounting Task Force and an advisor to the FASB. Years in the making, the merger accounting guidance was designed jointly by FASB and the International Accounting Standards Board (IASB) and eliminates the pooling-of-interests method of accounting for business combinations. In effect, it prohibits the continuing institution in a merger from simply combining the balance sheet and retained earnings. The revised final FASB/IASB Statement No. 141 applies to mergers, involving business entities including credit unions, transacted in fiscal years beginning on or after Dec.15, 2008. The 2006 Financial Institutions Regulatory Relief Act, in anticipation of FASB's final rule, amended the definition of net worth under the Federal Credit Union Act to eliminate a concern that, under the purchase method, a surviving credit union couldn't count the merged credit union's acquired retained earnings in its own net worth calculation. That would, in turn, lower its net-worth classification under Prompt Corrective Action. It is based on the conclusion that such business combinations are acquisitions and, should be treated the same way that other asset acquisitions are accounted for, which is based on the values exchanged, said Waite, who is also SVP-CFO of Patelco CU, San Francisco. Waite said also of note in the FASB/IASB rule are the following points:
* FASB clarified that it does not apply to combinations involving not-for-profit organizations but credit unions were not included under that term; * The new statement requires that certain asset acquisitions be recognized apart from goodwill. To assist in identifying such acquired intangible assets, the statement provides a list of intangible assets that meet those criteria; and * Credit unions involved in mergers after the effective date of the statement must be mindful of its directives, as all business combinations in the scope of the statement are to be accounted for using one method, the purchase method.
The statement retains current disclosure requirements and requires disclosure of the primary reasons for a business combination as well as the allocation of the purchase price paid for the assets acquired and liabilities assumed. According to Waite, the new statement also contains some changes in how acquisition costs are determined for an acquired entity and how such costs should be expensed or capitalized. Some expenses previously capitalized would have to be expense at the time of the merger. Waite also noted that although the result may not please many credit unions, our issues and concerns were certainly taken seriously and considered by the FASB during the long process. “We certainly made our presence felt. Credit Unions are specifically mentioned 15 times in the final standard. That’s more than any other industry”, said Waite. “They definitely know who credit unions are now.

Court dismisses conversion suit against NCUA

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WASHINGTON (12/13/07)—A federal court ruled Wednesday that the Coalition for CU Charter Options lacked standing to bring suit against the National Credit Union Administration (NCUA) and dismissed the case challenging the agency’s rules on credit union conversions to banks. Credit Union National Association (CUNA) President/CEO Dan Mica proclaimed the court’s decision “good news for consumers” and said his group was not surprised by the outcome of the lawsuit. The U.S. District Court for the Eastern District of Virginia found that the Coalition failed to show that any of its members were directly damaged or affected by the NCUA’s new conversion rules and thereby the group had no “standing” to bring a lawsuit challenging the agency’s actions. The ruling, Mica said, “ensures that the federal agency that best understands credit unions and their commitment to their members continues to have authority over the conversion process of credit unions to another type of financial institution.” “We had been optimistic that this challenge to the agency’s rule and authority would fail given the fact that the case did not provide evidence of injury to the plaintiffs. “We concur with this outcome, commend NCUA for its rulemaking, and continue to believe that credit union members deserve transparency and openness when they are faced with a tough decision about whether their credit union should convert to another form of financial institution,” Mica added. The CCUCO lawsuit was brought against the NCUA in July and the plaintiff sought to have the court overturn the agency’s conversion rule as invalid and arbitrary. The coalition challenged the rule on the grounds that it was inconsistent with the Federal Credit Union Act which requires that the NCUA's conversion regulation to be consistent with that of other financial regulators, such as the Office of Thrift Supervision and the Office of the Comptroller of the Currency. In its short published opinion, the court concluded that NCUA has authority to regulate conversions. It also stated that the Coalition had not shown that any of its members were harmed by the regulations or that any of its members have immediate plans to come under the rules through a conversion application.

NCUA backs coordinated consumer hotline

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WASHINGTON (12/13/07)—The National Credit Union Administration’s (NCUA’s) current consumer complaint system works well but the regulator supports a plan to establish a single, toll-free hotline number for all consumers complaints associated with any financial institution, NCUA Executive Director Leonard Skiles testified Wednesday. However, Skiles stressed the importance that the NCUA continue to have direct responsibility over inquiries regarding credit unions. The agency, he said, is the authority on the unique nature of credit unions, and especially the use of a credit union’s independent supervisory committee to resolve disputes. He was testifying before the House Financial Services subcommittee on financial institutions and consumer credit on the "Financial Consumer Hotline Act of 2007." While underscoring the NCUA’s belief that its present system works, Skiles also acknowledged that the multitude of regulators, the distinction between federal and state regulatory responsibility, and the increasing complexity of financial institution ownership structures can make it difficult for consumers to know which regulatory agency can assist them. "Frankly, consumers just want the problem fixed, and Congress' proposal would improve the process to do just that," Skiles said. Skiles represented the NCUA as part of the subcommittee’s first panel of witnesses, comprised of federal and state financial institution regulators. A second panel of witnesses featured consumer groups, Consumers Union and U.S. Public Interest Group. Use the resource link below to access Skiles' complete testimony.

CUNA warns bankruptcy deal has unseen pitfalls

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WASHINGTON (12/13/07)—Almost 500 credit unions, representing 36% of all credit union assets, could be adversely affected by a “manager’s amendment” to a mortgage bankruptcy bill that was scheduled for mark up Wednesday by the House Judiciary Committee, warned the Credit Union National Association (CUNA) Wednesday. In a letter to the committee chairman, Rep. John Conyers (D-Mich.), CUNA urged lawmakers to tailor the bill’s broad definition of “non-traditional mortgages” so that carefully underwritten credit union loans are not treated the same as the questionable subprime loans that have caused an upheaval in the subprime and mortgage markets. CUNA said that if such a modification were made, it could support the manager’s amendment to H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act. Under the provisions of the bill, loans falling under the definition contained in the bill could be subject to modification of terms by a bankruptcy judge. “This would impact almost 500 credit unions that have made ‘interest only’ loans in good faith and in response to member requests," CUNA wrote. "These are not subprime loans, but rather loans which were rigorously underwritten with full and clear disclosures. “Members of credit unions in housing markets such as California found these types of loans were necessary to allow them to purchase what, in many cases, would be classified as ‘starter homes.’" CUNA also told Conyers that credit unions appreciate the fact that the manager’s amendment includes provisions that indicate the bill will only apply to mortgages made within a defined time period and bankruptcy courts would only be able to use this temporary authority for seven years. "During our meetings with your staff, we indicated our flexibility with regard to the time period chosen to define loans subject to modification in bankruptcy," CUNA wrote. "Therefore, we can support the January 1, 2000-to-date-of-enactment period specified in the manager’s amendment. These provisions should address concerns about the potential long-term adverse effects of the legislation."
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