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Mica assesses NCUA rescue plans

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WASHINGTON (12/10/08)—The Credit Union National Association (CUNA) greeted the televised announcement of the National Credit Union Administration’s (NCUA’s) relief plans as a positive step, but added there are many underlying issues with the agency’s latest effort. CUNA President/CEO Dan Mica Tuesday applauded NCUA Chairman Michael Fryzel’s steps to address challenges presented to corporate credit unions as the result of a frozen mortgage securities market. Earlier in the day, Fryzel outlined his proposed initiatives--the Credit Union Homeowner Affordability Relief Program (CU HARP) and Credit Union System Investment Program (CU SIP)—before national television audiences (see related story, “NCUA Chairman pushes for CU initiatives”). CU HARP is intended to provide relief to credit union members by members to temporarily lowering monthly mortgage payments. CU SIP would bolster corporate credit unions using billions of dollars in new borrowings from the U.S. Treasury Department. Although welcoming the NCUA’s announcement, Mica noted, “However there are many issues underlying this latest effort by the agency, including whether natural person credit unions will participate in a significant way.” The CUNA leader added, “We think it also vital that the agency brings equal inventiveness and flexibility to the burdens weighing on some natural person credit unions, especially in those parts of the country where the mortgage and credit crises have inflicted extensive collateral damage. “CUNA has been urging NCUA to take such action for a number of weeks.” Mica added that CUNA is just now learning of the details of the CU SIP program: “We will be evaluating its usefulness and reporting to our members on our resulting analysis.”

TARP oversight witness list released

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WASHINGTON (12/10/08)—The House Financial Services Committee Tuesday announced the names of the four witnesses slated to testify today as the panel continues its study of how the U.S. Treasury Department has conducted its Troubled Assets Relief Program (TARP) program to date. Rep. Barney Frank (D-Mass.), who heads the committee, has criticized the Treasury for what he termed its “blatant refusal to enforce any lending obligations on individual institutions.” He has said the department’s “continued policy of ignoring the clear intent” of the of the Emergency Economic Stabilization Act (EESA), which authorized the creation of TARP, to “aid in the reduction of foreclosures” puts the Treasury “perilously close to a breach faith with those who responded to the Bush Administration's request to establish the program.” Scheduled to testify:
* Acting Comptroller General of the United States Gene Dodaro, U.S. Government Accountability Office; * Interim Assistant Secretary for Financial Stability and Assistant Secretary for International Affairs Neel Kashkari, Treasury; * Rep. Jeb Hensarling (R-Tex.), Congressional Oversight Panel under the EESA; and * Prof. Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard University, and chair of the Congressional Oversight Panel.

Fannie gives more servicer flexibility

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WASHINGTON (12/10/08)—Credit Union National Association Senior Assistant General Counsel Jeffrey Bloch said Tuesday credit unions should be aware of new Fannie Mae servicer flexibility to help borrowers avoid foreclosure. Fannie Mae said in its announcement this week that it will allow servicers more flexibility and will provide additional loss mitigation options to address potential delinquencies earlier and to help avoid foreclosure for borrowers with loans in mortgage-backed securities (MBS) pools or in the Fannie portfolio. Fannie introduced a new 2009 Single-Family Master Trust Agreement, an amended and restated 2007 Single-Family Master Trust Agreement, a new base Single-Family MBS Prospectus, and issued certain servicing clarifications and changes. The government-sponsored housing enterprise said in its release that significant changes affecting all MBS pools include:
* Authorization for servicers to begin loss mitigation with a borrower facing imminent default—a default that is reasonably foreseeable but has not yet occurred; * Fannie Mae’s new Early Workout program allowing servicers, in one step, to pre-negotiate a loan modification that becomes effective and permanent only after an initial trial period: * Clarification that a loan can stay in a Trust even if it is 24 months past due, as measured by the last paid installment, if repayment arrangements, foreclosure, or certain other actions are proceeding; and * Elimination of the requirement to refer a loan to foreclosure after a specified number of consecutive days in delinquency status.
Use the resource link below for more information.

NCUA chairman pushes for CU initiatives

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WASHINGTON (12/10/08)—National Credit Union Administration (NCUA) Chairman Michael Fryzel made the rounds on television news shows Tuesday to talk up his proposed initiatives; the Credit Union Homeowner Affordability Relief Program (CU HARP) and Credit Union System Investment Program (CU SIP). Fryzel, addressing national audiences on CNBC and then on Fox Business Network, said that while credit unions generally did not participate in the kinds of activities that spurred the housing and mortgage crisis, some are facing liquidity problems due to the current economic turmoil. He outlined two programs he has recently proposed to help troubled homeowners and to add liquidity to the system. Under the former, CU HARP, the NCUA, through its Central Liquidity Facility (CLF), would work with credit unions and their members to temporarily lower monthly mortgage payments. The program would need NCUA Board approval, as well as an okay by the U.S Treasury Department and the Federal Reserve Board. According to an NCUA announcement last month, the CLF would provide credit unions with funds, borrowed from the Treasury, at lower rates than otherwise available through private sources. In turn, credit unions are expected to pass the entire rate reduction to struggling low- and moderate- income borrowers. The credit union, in exchange for the reduced likelihood of borrower default on the mortgage, would also match the rate break, doubling the benefit to struggling homeowners, Fryzel said of the plan. The agency said CU HARP would be administered at no cost to taxpayers: CLF loans are made to credit unions on a fully secured basis, and all advances received by the CLF will be repaid to the Treasury's Federal Financing Bank, with interest. The program will receive initial funding of $2 billion. The second program, NCUA’s 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, said the NCUA in a 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. In the release Fryzel said, “As I have stated previously, I want to use all tools at my disposal to address the difficulties that the larger market problems are presenting for the credit union industry. These new initiatives represent an important avenue for credit unions: both CU HARP and CU SIP employ the existing CLF channel and direct liquidity where credit unions and their members need it most. I encourage credit unions to use these programs constructively as they work through these difficult times.” Use the resource link below to access the CU HARP and CU SIP term sheets.

CUNA unveils comprehensive due diligence guide

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WASHINGTON (12/10/08)—The Credit Union National Association (CUNA) Tuesday unveiled its comprehensive guide to help credit unions successfully negotiate the important and difficult territory of third-party vendor relationships. About nine months in the making, the guide has three core functions: Risk Assessment and planning; a focus on due diligence and contract formation; and risk management monitoring and control. The guide is the product of CUNA’s Due Diligence Task Force, formed by CUNA Chairman Tom Dorety and the CUNA Board of Directors in response to regulatory concern over how to best meet credit unions’ due diligence responsibilities involving third-party vendors without unnecessary duplication of effort. Third-party vendor relationships and strategic planning were identified in January by the NCUA as a key credit union examination issue for 2008. Task Force Chairman Henry Wirz, who is president/CEO of SAFE CU in Sacramento, Calif., identified the following as the top two elements of the extensive due diligence guide:
* First, credit unions must look at their strategic plans and sure whatever service they wish to offer through a third-party relationship is consistent with that plan. “Sometimes a credit union should just say no,” Wirz said: and * Second, once a credit union has determined a new service is consistent with its plan, it must establish a process to manage that service just as it would monitor and evaluate any employee.
The group vice chairman, Bill Raker, noted that the new guide can be considered a template and a set of best practices that will establish consistency in vendor relationships. Raker, president/CEO of US FCU in Burnsville, Minn., added the guide will enable credit unions to proceed with vendor relationships without having to look at each situation in a vacuum. However, Raker also stressed that the guide is not a “formula for making decisions.” “Credit unions must still make their own calls on whether to proceed with a relationship,” he said. The guide was developed by the task force and CUNA staff in consultation with federal and state regulators, credit unions and state leagues. The practices of other federal depository institution regulators were studied to provide a “360-degree view” of due diligence best practices, according to CUNA staff. Mary Ann Clancy, senior vice president and general counsel of the Massachusetts CU League and a Due Diligence Task Force member, noted that the 360-degree review aspect of the guidance is particularly important. “The Guide is applicable to all kinds of credit unions, not just federal charters,” she noted. The guide also includes appendices on SAS No. 70 audits and vendor management software prepared for CUNA by the accounting firm BDO Seidman LLP. Titled simply “Third Party Vendor Management Guide,” the 94-page resource is available online through the CUNA website. Use the resource link below.

Inside Washington (12/09/2008)

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* WASHINGTON (12/10/08)—Comptroller of the Currency John Dugan said this week that data from banks show that more than half of the borrowers who got loan modifications in the first three months of the year were again delinquent by 30 days just six months after their terms were changed. (The New York Times Dec. 9) Dugan said one had to be careful about drawing conclusions from the data and added it was not clear why the re-default rates were so high. He suggested that perhaps some loans are so poorly underwritten that no modification is sufficient to help the borrowers forestay foreclosure…