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Inside Washington (12/14/2007)

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* WASHINGTON (12/17/07)--On Tuesday, the Federal Reserve board is scheduled to provide a first glance at proposed amendments to Home Ownership and Equity Protection Act of 1994 implementation rules (American Banker Dec. 14). The amendments could require brokers and bankers to underwrite home loans at the fully indexed rate. The Fed is also looking for comment regarding low- or no-documentation loans, prepayment penalty restrictions and a rule requiring borrowers to pay insurance premiums and taxes in escrow … * WASHINGTON (12/17/07)--The Senate Friday approved a measure that would help homeowners delinquent on their loan payments because of climbing interest rates to refinance into loans backed by the Federal Housing Administration (FHA). The legislation was approved 93-1 (Associated Press Dec. 14). The bill also allows the FHA to accept lower down payments on the loans and to improve counseling for homeowners nearing default. About 2 million to 2.5 million adjustable-rate mortgages will reset in 2008, jumping to interest rates that could force many borrowers into foreclosure … * WASHINGTON (12/17/07)--An internal report expected to be released next week indicated that the Federal Deposit Insurance Corp. (FDIC) does not empower “rank-and-file” workers enough (American Banker Dec. 14). The report, which also indicated that the agency’s bank examination and staff performance award system is flawed, was undertaken by a consultant to analyze FDIC employee morale issues. The survey was given to employees in October, and three-quarters of the 4,700 total FDIC employees responded. A spokesman stated that FDIC Chairman Sheila Bair is taking the report seriously but said it’s too early to “draw conclusions” … * WASHINGTON (12/17/07)--Next year, state legislatures likely will shift their focus to preventing foreclosures from predatory lenders. About 40 states created laws that cracked down on predatory lending, including stricter penalties for mortgage fraud and stronger licensing requirements. But because many borrowers’ mortgages will reset to high interest rates next year, the states are expected to look at how they can keep borrowers from foreclosure. California and Maryland legislators have proposed measures to prevent borrowers from losing their homes. The states will be involved with anti-foreclosure measures because the crisis keeps growing, and because the federal government has not provided adequate solutions, said Robert Gnaizda, general counsel of the Greenlining Institute … * WASHINGTON (12/17/07)--Treasury Secretary Henry Paulson will travel to Orlando, Fla.; Kansas City, Mo.; Stockton, Calif.; and Los Angeles this week to discuss efforts to address mortgage market issues and help families avoid foreclosure. He will meet with local officials, community leaders and representatives from local businesses to discuss what has been proposed and what can be done to help more people. More details will be announced this week …

Bush sends Fryzels name to Senate for OK

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WASHINGTON (12/17/07)--The White House has officially nominated Michael E. Fryzel, an Illinois real estate lawyer and former director of the state's Department of Financial Institutions, to become a member of the National Credit Union Administration (NCUA) board of directors, and ultimately to be its chairman. President George W. Bush has sent Fryzel’s name to the Senate for confirmation, but the Senate Banking Committee has not yet scheduled a hearing on his nomination, which is a necessary step to securing the position. Fryzel was with the Illinois Department of Financial Institutions from 1977 to 1989 and headed the agency from 1982 to 1989. Integral to that job, according to his resume, was the licensing and regulation of more than 700 state-chartered credit unions with assets exceeding $4.3 billion. Upon leaving that position, Fryzel founded his private law practice, the Law Offices of Michael Fryzel, which specializes in financial regulatory and real estate law. Listed among his profressional affiliation, Fryzel said he is a member of the Governor’s Board of CU Advisors and has been since 1992. He received his bachelor's degree from Valparaiso University, his MBA from the University of Chicago, and his JD from Loyola University of Chicago School of Law. If confirmed, Fryzel will replace JoAnn Johnson as chairman. Johnson's term expired in August of this year. She has been on the NCUA board since 2002 and has served as chairman since 2004. Johnson has indicated she will likely remain as chairman until her successor makes it through the nominating process.

Community development CU placed into conservatorship

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ALEXANDRIA, Va. (12/17/07)—The National Credit Union Administration (NCUA) announced Friday that $ 4.2 million-asset Zion United Community CU has been placed into conservatorship. The NCUA said that the State of Colorado assumed control of the Denver-based credit union and has appointed “several credit union leaders” as an advisory board for the conservatorship. According to State Commissioner of Financial Services Chris Myklebust, Zions United Community is the state’s only community development credit union. The unusual step of creating a conservatorship advisory board is intended to foster creative ways to help the credit union survive its current problems, Myklebust told New Now Friday. The state regulator said he worked with the NCUA to develop an advisory board whose members “will be active and who will care” about the ultimate outcome of the conservatorship. Service continues uninterrupted at Zion United Community and members may freely make deposits, access funds, and make loan payments. An NCUA release reminds that member funds are safe. Accounts are federally insured up to at least $100,000 per account by the National Credit Union Share Insurance Fund (NCUSIF), a federal fund managed by NCUA and backed by the full faith and credit of the U.S. Government. Zion United Community Credit Union serves approximately 1,300 members. The advisory board group members are:
* Darrell E. Nulan of Trimble Nulan and Evans, P.C., an attorney and community leader; * The Rev. John Thompson, senior minister of Park Hill United Methodist Church and community leader; * Stacey A. Campbell of Baker Hostetler, attorney and community leader; * Valerie A. Harrison, credit union program officer, National Federation of Community Development CUs; * Carla Hedrick, president/CEO, of Denver Community FCU; and * Darrick Weeks, chief business development officer, Westerra CU.

FHA modernization bill moving forward

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WASHINGTON (12/17/07)—The Senate Friday voted 93-1 in favor of legislation intended to modernize the Federal Housing Administration’s (FHA’s) mortgage insurance program. The House passed a version of an FHA overhaul in September, but that bill differs in significant ways from the Senate’s legislation—differences that must be worked out before Congress can approve a final measure. Among the difference, the Senate bill would increase FHA loan limits from the current $362,000 to a level similar to those of Fannie Mae and Freddie Mace, which are $417,000, according to Michele Johnson, director of federal legislative affairs for the Credit Union National Association (CUNA). The House bill, she noted, would raise the loan limit to 125% of an area’s median home price and would include authority for the House and Urban Development secretary to increase that amount by $100,000 in times of crisis in the home-mortgage market. The Senate bill also would lower the minimum down payment for an FHA-insured loan and simplify the down payment calculation. While the bills differ, reform to the FHA insurance program is seen by lawmakers in both houses of Congress as a way to provide for home buyers a low-cost alternative to subprime loan. Greeting news of the Senate’s action, House Financial Services Committee Chairman Barney Frank (D-Mass.) issued a statement noting the agreement in House and Senate that “ this is an important action in dealing with our subprime challenges, and that we should act quickly so that the FHA can be a resource for people who can refinance their loans.” He said he looked forward to working with the Senate, but added that he would work to preserve “important elements” of the House bill that differ from the Senate approach.

CURIA gets backer number 140

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WASHINGTON (12/17/07)—Rep. Robert "Bud" Cramer (D-Ala.) has signed onto the co-sponsor list for the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537) to become the 140 official backer. The bill is now co-sponsored by 97 Democrats and 43 Republicans and 34 of those names are first-time supporters this year. Of those 34, 18 are incumbents signing on in support of CURIA for the first time this session. Last year, a CURIA bill drew the support of a total of 126 co-sponsors from both political parties The 2007 CURIA bill is similar to the 2006 version, but with the addition of two key provisions: One addresses field of membership rules, the other would add more consumer safeguards in the event of a credit union conversion to another form of financial institution. The 2007 bill also contains changes to the National Credit Union Administration's original prompt corrective action (PCA) reform plan, changes crafted specifically to address the Treasury Department's concerns that a credit union risk-based system must more closely resemble the current Federal Deposit Insurance Corp. capital standard for banks. As introduced, H.R. 1537 would:
* 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; and Increase the current cap on loans to members for business purposes (MBLs) from 12.25% to 20% of assets, allowing credit unions to assist more members start and expand small businesses and to promote economic growth. The bill would also exempt loans under $100,000 and those to nonprofit religious organizations from the MBL calculation. Last year, a CURIA bill drew the support of a total of 126 co-sponsors from both political parties

CUNA to join in overdraft case amicus brief

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WASHINGTON (12/17/07)—The Credit Union National Association (CUNA), in concert with national banking and thrift trade groups, intends to file an amicus curiae brief today in the case of Miller v. Bank of America (BofA). The California court case involves Social Security deposits that were tapped for overdrafts and nonsufficient fund (NSF) fees at BofA and is now before the state’s Supreme Court. BofA originally appealed an earlier ruling by the California Superior Court in San Francisco that the bank pay $1.3 billion to the plaintiff and a class of 1.3 million disabled and elderly customers who had overdraft fees withdrawn from their accounts. In November 2006, a California Court of Appeals reversed the lower court's ruling and award, and decided in favor of BofA. The appellate court ruled that BofA's practice of netting government benefit deposits against overdrafts and overdraft fees was not restricted by either the holding in a 1970's case, Kruger v. Wells Fargo Bank, or by California state law, therefore such practices were appropriate. In late 2006 the plaintiff, Miller filed an appeal with the California Supreme Court, which agreed to hear the case. “The case has tremendous importance to credit unions, “said Mike McLain, assistant general counsel and senior compliance counsel at CUNA. Friday. “It could have a huge negative impact on the products and services credit unions could offer to recipients of Social Security benefits if the appellate court ruling is not affirmed by the California Supreme Court.” The amicus brief raises the issue of federal preemption for federally chartered institutions, including federal credit unions , and provides information about the operational problems that would arise in providing accounts to Social Security beneficiaries—especially those with direct deposit. Other parties to the brief are the American Bankers Association, Consumer Bankers Association, Financial Services Roundtable, and Independent Community Bankers of America. . The government issues more than 62 million benefit checks each month, and the Social Security Administration has pushed for direct deposit to ensure beneficiaries receive their funds... The Miller v. BOA lawsuit was filed after the bank mistakenly credited almost $1,800 to plaintiff Paul Miller's account. It later discovered the mistake, and reversed the deposit, emptying Miller's account. The CA Supreme Court next will review the parties’ briefs and all the amicus briefs and perhaps reach a decision based on available information, although there is an unlikely chance the court could schedule the case for oral argument, bur not very likely. This state Supreme Court’s decision should be the end of the years-long case, McLain said.