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Inside Washington (12/27/2009)

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* WASHINGTON (12/28/09)--The Financial Crisis Inquiry Committee plans to have its first public hearing Jan. 13 and 14. The hearing will focus on the state of the financial crisis and its causes (American Banker Dec. 23). Top leaders of private and public-sector entities that played critical roles in the crisis will testify, but no names were announced ... * WASHINGTON (12/28/09)--Federal Reserve tests of tri-party reverse repurchase agreements have gone well, according to Thomas Wipf, chairman of the Treasury Market Practices Group, which is working with the Fed on the transactions. The Federal Reserve Bank of New York drained $990 million in reserves from the banking system this month through five trials of the repo program. The tests are not a change in policy, but are a way to take stimulus money out of the economy. Fed policymakers are considering how to withdraw emergency programs used to help the economy, and may use the repos to withdraw or neutralize cash in the system. In a reverse repo, the Fed lends securities for a set period, taking cash from the banking system (Bloomberg News Dec. 23). * WASHINGTON (12/28/09)--The amount of money the Federal Reserve and U.S. agencies have lent, guaranteed or spent has dropped 15% since September to $8.2 trillion--the lowest in a year (Bloomberg News Dec. 23). The drop--an ease in taxpayer burden--signals a change in the economy. But the government’s $4.2 trillion contribution still complicates future strategies for exiting from economic stimuli. It might be tough for elected officials to stop spending, which prolongs the bailout. Fiscal stimulus programs be dangerous, said David Wyss, chief economist for Standard and Poor’s. The Fed can print money, but the government has to raise taxes or borrow more money, he added. The House increased the government’s debt ceiling to $12.4 trillion last week and also passed a $154 billion economic aid package to pay for unemployment benefits, infrastructure and help for state governments ...

CUNA opposes some HELOC changes

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WASHINGTON (12/28/09)--The Credit Union National Association (CUNA) in a recent comment letter opposed some of the proposed amendments to Regulation Z that would make changes to the content and timing of disclosures related to home equity lines of credit (HELOCs). While CUNA said that it understands that the Federal Reserve Board has amended HELOC in response to abusive loan practices, “credit unions have not engaged in these practices, primarily because their mission and incentives are to serve their members, not to achieve and maximize profits.” While the Fed has proposed requiring that borrowers be given an early HELOC disclosure three days after the application is submitted and an account-opening disclosure at the time that the account is opened, CUNA has suggested that the Fed not require the account-opening disclosure “if the terms and conditions have not changed since the borrower was given the early HELOC disclosure.” However, the Fed’s proposal to increase the notification period for a change-in-terms from 15 to 45 days is a positive step that CUNA said would “benefit consumers” and would not impose significant burdens on credit unions. The mandatory compliance deadline should also be extended to at least 18 months after the proposed changes are made final, CUNA added. For the full comment letter, use the resource link.

Closed-end mortgage disclosure rule excessive--CUNA

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WASHINGTON (12/28/09)--Commenting on the Federal Reserve Board’s proposed revisions to Regulation Z requirements for closed-end mortgage loans, the Credit Union National Association (CUNA) said it “generally supports disclosures that are helpful for consumers,” but added the disclosure requirements under this proposal are excessive and “would be overwhelming for consumers.” CUNA noted that providing more streamlined information “may actually be preferable if it is carefully targeted to the needs of consumers who apply for mortgage loans.” Portions of the new Fed rule would require changes in the format and timing of the required disclosures and would prohibit certain payments to mortgage brokers and loan officers that are based on the loan’s terms or conditions. However, CUNA argued, these rules should not apply to credit unions because “compensation systems for credit union employees have worked well, without abuse, and credit union employees were not the cause of the problems that these provisions are intended to address.” The Fed rules would seek to address many questionable lending practices, including instances where lenders have provided high-cost and abusive loans to unsuspecting borrowers. CUNA is also concerned about provisions that would require more finance charges and fees to be included within the annual percentage rate (APR) calculation. This would increase the overall annual percentage rate (APR) attached to a loan and may cause consumers to believe that the increase is due to a change in credit union business practices, rather than a change in how the APR of a given loan must be disclosed. “The preferable approach would be to require disclosure of the interest rate and disclosure of the finance charge in dollar terms, which will be easier for borrowers to understand and easier for lenders for purposes of complying with these requirements,” CUNA added. “Based on their relationships with their members, credit unions strongly believe these additional and enhanced disclosures are for the most part unnecessary, and the resulting confusion will actually thwart the goal of this proposal, which is to provide useful information for consumers,” the comment letter added. CUNA urged the Fed to “substantially revise the proposal” and “conduct additional consumer research as part of this process prior to issuing a rewritten proposal.” For the full comment letter, use the resource link.

Tinker FCU CEO to serve on Feds TIAC

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WASHINGTON (12/28/09)--The Federal Reserve Board last week announced that Tinker FCU’s President/CEO Michael Kloiber is one of five newly added members of its Thrift Institutions Advisory Council (TIAC). Kloiber, who heads the Tinker Air Force Base, Oklahoma-based credit union, will join Home Savings Bank President/CEO Howard Boyle, American Federal Savings Bank President/CEO Peter Johnson, Northampton Co-Operative Bank President/CEO William Stapleton, and First Clover Leaf Bank President/CEO Dennis Terry as first-time members of the TIAC. Randy Smith, President/CEO of Universal City, Texas’s Randolph-Brooks FCU, will also remain on the TIAC through 2010. The TIAC, an advisory group, was established by the Fed in 1980 and meets three times per year with the Fed's Board of Governors to discuss developments relating to thrift institutions, mortgage finance, and regulations.

Treasury urged to investigate potential mortgage fraud

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WASHINGTON (12/28/09)--The Credit Union National Association (CUNA) on Wednesday encouraged U.S. Department of the Treasury General Counsel George Madison to “undertake an expeditious investigation into a troubling matter that involves the fraudulent conveyances of residential mortgage loans to the Federal National Mortgage Association (FNMA).” The letter, which was also sent to Sen. Charles Schumer (D-N.Y.), Rep. Barney Frank (D-Mass.), Rep. Paul Kanjorski (D-Pa.), National Credit Union Administration (NCUA) Chairman Debbie Matz, Treasury Assistant Secretary for Financial Institutions Michael Barr, and Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, said that FNMA “has not handled” this potential fraud situation “in a manner that is appropriate for the federal government,” adding that the FHFA has not required FNMA to take any action. CU National/U.S. Mortgage, a third party mortgage processing specialist that purchased many loans originated by credit unions, “defrauded at least 26 credit unions” over a number of years “by conveying the loans to FNMA without the authorization of the credit union and retaining the proceeds.” CU National, which filed for bankruptcy in February and whose former CEO is awaiting sentencing after being found guilty of embezzlement, was a FNMA seller/servicer. While FNMA continues to hold these proceeds, CUNA said that “FNMA has not offered, nor has the FHFA required them to offer, a settlement” to defrauded credit unions that may be currently facing “severe prompt corrective action sanctions (PCA) from NCUA as a result of the losses.” The lack of a financial resolution may also create issues for the NCUA, as the agency may be required to draw funds from its National Credit Union Share Insurance Fund “if the affected credit unions are subject to harsh PCA sanctions as a result of their FNMA losses, NCUA may need to draw upon the to deal with the losses,” CUNA added.