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Inside Washington (12/16/2008)

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* WASHINGTON (12/17/08)--Sen. Christopher Dodd (D-Conn.) applauded a recent move by Fannie Mae to help tenants stay in their foreclosed homes if the tenants can pay the rent (American Banker Dec. 16). The policy will go into effect before a moratorium on evictions and foreclosures expires Jan. 9. The decision will bring relief to renters in the “wrong place at the wrong time,” Dodd said ... * WASHINGTON (12/17/08)--House Speaker Nancy Pelosi (D-Calif.) is pushing the Bush administration to help homeowners by not releasing more money to the Treasury Department’s bailout effort (The Washington Post Dec. 16). The administration has ignored the bailout’s intent to stop foreclosures, Pelosi said. She also has asked Rep. Barney Frank (D-Mass.), House Financial Services Committee chairman, to work on legislation that requires the provisions of the law to be followed before more funds are released. Frank also supports using the bailout money to help homeowners. So far, the Treasury has spent $335 billion of the $700 billion program.... * WASHINGTON (12/17/08)--Mark-to-market accounting rules’ application could be refined after Securities and Exchange Commission Chairman Christopher Cox rejected a reversal of the rules (American Banker Dec. 16). Changes for the application include: allowing greater flexibility in valuing assets without buyers, slow the impact of fair-value accounting on regulatory capital and smaller write downs on assets that are distressed. Some bankers want the rules scrapped because they believe the rules have caused some institutions to fail. In a speech last week, Cox signaled that the agency would retain mark-to-market accounting, but said the application needs to be clearer. Industry representatives hope there will be changes to make the standard more flexible when accountants write assets down to fair value ...

Bank failures spur FDIC premium increase

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WASHINGTON (12/17/08)—A higher level of bank failures have increased the Federal Deposit Insurance Corp.’s (FDIC’s) resolution costs significantly and spurred the agency to increase risk-based assessment rates for its insured banks by seven basis points on an annual basis. The FDIC voted Tuesday for the higher fee, which is set for the first quarter of 2009. Currently, banks pay between 5 and 43 basis points of their domestic deposits for FDIC insurance. Under the final rule, risk-based rates would range between 12 and 50 basis points on an annualized basis. The FDIC said most institutions would be charged between 12 and 14 basis points. “This assessment increase creates a path for the fund to return to its statutorily mandated level," said FDIC Chairman Sheila Bair. Calling the banking system “the bedrock of our economy,” Bair said deposit insurance has plays a vital role in providing stability to the system. “Maintaining a strong fund positions the FDIC well to handle future challenges," she added. When the FDIC announced its “restoration plan” last October, National Credit Union Administration (NCUA) Chairman Michael Fryzel said his agency did not have similar intentions to raise fees for share insurance. As of today,” he said Oct. 7, “everything looks fine in terms of the share insurance fund.” At the agency’s November open board meeting, staff reported that the National Credit Union Share Insurance Fund’s equity level is now at 1.27% and is expected to be at that level at the end of this year--precluding the possibility of an NCUSIF dividend to federally insured credit unions. Agency staff noted that its 1.27% estimate for yearend is .01% below October's projection. There are currently 246 CAMEL 4 and 5 credit unions, up from 211 at the end of last year. The total insurance loss expense for 2008 is estimated to be approximately $176.5 million.

New SBA rule could help CU participation says CUNA

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WASHINGTON (12/16/08)—A proposed rule change by the U.S. Small Business Administration (SBA) would help establish rates that would make increased credit union participation in SBA loans possible, according to the Credit Union National Association (CUNA). Credit unions will be able to get important information on this and other SBA topics by participating in a Dec. 22 CUNA audio call. Regarding the proposed rule change, CUNA said in a Dec. 15 comment letter to the agency that the SBA interim final rule to adjust loan pricing would help offset current economic conditions that have limited the availability of business loans. Specifically, the rule would allow loans to be priced based on the 30-day London Interbank Offered Rate (LIBOR) plus 300 basis points. The plan would also permit secondary market loan pools to be priced based on the weighted average coupon rate for SBA loans under Section 7(a). CUNA said the option to better price loans would help alleviate the problems caused by the narrowing of the spread between LIBOR and the prime rate. “Our only concern with this proposal would be that small businesses may not be comfortable with having loans that are based on the LIBOR as they may not be familiar with LIBOR and may be concerned that these rates will fluctuate more than the prime rate,” the CUNA comment letter said. “However,” it added, “we believe these concerns will be alleviated to some extent both because using the LIBOR will now be an option in addition to using the prime rate and the use of the prime rate should become more prevalent as the spread widens between the LIBOR and the prime rate.” Regarding the change to the pricing of secondary market loan pools, CUNA noted that now the interest rate on a loan pool is the lowest net rate of all the loans in the pool. The interim final rule, CUNA Wrote, would be successful in its intent to improve liquidity in the secondary market. CUNA also reiterated its support of another government effort to improve liquidity in the secondary market, such as the Term Asset-Backed Securities Loan Facility (TALF) that was recently established by the Federal Reserve Board and the U.S. Department of the Treasury. Under the TALF, loans will be made to investors who purchase asset-backed securities, and this will include small business loans guaranteed by the SBA. Use the resource links below to access the complete CUNA comment letter letter and to register for the CUNA audio call.

NCUA answers CU HARPSIP questions

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WASHINGTON (12/17/08)—The National Credit Union Administration (NCUA) said 1,396 individuals tuned in to a Tuesday audio conference detailing its two new initiatives: CU HARP and CU SIP. The call-in session reiterated the details of the two programs—one to help troubled borrowers keep their homes, the other to shore up the liquidity of the corporate credit unions. It also underscored some important upcoming deadlines for credit unions interested in participating. The audio conference was hosted jointly by the NCUA, the Credit Union National Association and the National Association of Federal Credit Unions. J. Owen Cole, Jr, of the NCUA’s Central Liquidity Facility (CLF), reminded that CU HARP is a one-time, two-year, $2 billion program intended to assist homeowners who are facing delinquency, default, or foreclosure of their mortgages. The CLF will make CU HARP advances for a maximum term of one year, renewable for one year. Initial requests for CU HARP advances must be submitted on Dec. 19. Approved advances will be funded on Jan. 2, 2009 and mature on Dec. 31, 2009. Rollover CU HARP advances will be made on Dec. 31, 2009 and will mature on Dec. 31, 2010. Privately insured credit unions may be eligible for the program. However, as of September only about 600 credit unions have $1 million in first mortgages in default, which is one of the criteria for CU HARP eligibility. CU HARP stands for the Credit Union Homeowners Affordability Relief Program. CU SIP stands for the Credit Union System Investment Program. Under CU SIP, participating creditworthy credit unions would borrow from the CLF and invest the proceeds in participating corporate credit unions. Cole said that in order to enable the CLF to offer a program to make an advance for purposes other than liquidity needs, the NCUA under Section 725.23 of its Rules and Regulations had to determine that such a program under the CLF was in the “national economic interest.” The initial monthly funding amount for the CU SIP is $500 million, but that may be increased at the discretion of the CLF is the offering is oversubscribed, according to NCUA documents. Corporate credit unions interested in participating in the first monthly funding must provide notice to U.S. Central at or before 2 p.m. Dec. 19. CU SIP is designed to complement CU HARP by enabling the CLF to lend to credit unions to invest in NCUSIF guaranteed notes, the proceeds of which will be used to retire external system debt, the NCUA explained in its initial release. It added that the program will free collateral pledged by corporate credit unions and thereby provide increased contingent borrowing capacity. CU SIP will be funded on a monthly basis from January through June of 2009. The NCUSIF guarantee is provided under the Temporary Corporate Credit Union Liquidity Guarantee Program announced in October. The program guarantees senior corporate credit union debt for a 75 basis point fee. The NCUA noted it will archive the CU HARP-CU SIP audio conference and it will be accessible through the agency website soon.

Progress reported on FannieFreddie loan workouts

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WASHINGTON (12/17/08)—The Federal Housing Finance Agency (FHFA), regulator of Fannie Mae and Freddie Mac, reported progress is being made on mortgage workout and loss mitigation efforts have improved since the end of 2007. The FHFA Tuesday released its monthly Foreclosure Prevention Report September. The numbers show that while the number of loans 60-days or more delinquent have increased, loans for which foreclosure was initiated has decreased. According to the agency, loss mitigation actions have increased for all workout types and short sale and deed-in-lieu volumes increased significantly in September 2008. Compared to 2007, the government-sponsored enterprises’ loss mitigation performance ratio showed considerable sustained improvement with the year-to-date ratio at 54.6% versus 43.5% for 2007. The FHFA also noted that as of Sept. 30 of the GSE’s 30.7 million residential mortgages:
* Loans 60 or more days delinquent (including those in bankruptcy and foreclosure) as a percent of all loans increased from 1.46% as of March 31 to 1.73% as of June 30 to 2.21% percent as of Sept. 30; * Loans for which foreclosure was started as a percent of loans 60 or more days delinquent declined from 8.29% for the first quarter and 7.81 % for the second quarter to 7.12% for the third quarter; * Loans for which foreclosure was completed as a percent of loans 60 ore more days delinquent increased from 2.41% for the first quarter to 2.55 % for the second quarter and stabilized at 2.55% for the third quarter; and * Modifications completed declined from 15,636 for the first quarter to 15,372 for the second quarter to 13,450 for the third quarter. However, loans reinstated through Fannie Mae’s HomeSaver Advance (HSA) Program increased from 1,244 in the first quarter to 16,658 in the second quarter and 27,277 in the third quarter.