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Administration backs higher SBA guarantee in new TARP

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WASHINGTON (2/11/09)—The Obama administration Tuesday backed a statutory change that would increase the federally guaranteed portion of Small Business Administration (SBA) loans, a change that could take some pressure off the credit union member business lending (MBL) cap. As expected, U.S. Treasury Secretary Timothy Geithner Tuesday detailed the administration’s new strategy for executing its Trouble Asset Relief Program---or TARP. Under the original TARP, the Treasury was authorized to spend $700 billion to buy troubled assets from financial institutions, although the department had been criticized for how it has spent the money thus far. Others criticized TARP as a misnomer, claiming it did little to reach troubled assets—and Geithner said Tuesday that the administration will scrap that name and call its new approach the “Financial Stability Plan.” Regarding SBA loans, Geithner said “because small businesses are so important to our economy, we're going to take additional steps to make it easier for them to get credit…” “By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months,” he added. The Credit Union National Association (CUNA) has noted that an increase in the guaranteed portion of an SBA loan could benefit credit unions engaged in SBA 7(a) and 504 lending because the guaranteed portions of such loans do not count towards the credit union 12.25% of assets MBL cap. CUNA also backs an improved timeframe within which SBA would be required to approve applications for loan guarantees. The House economic stimulus plan passed early this month carried both provisions. Another element of Geithner’s announcement of potential importance to credit unions was the creation of a public-private investment fund. Treasury, in conjunction with federal bank regulators and the private sector, will create an “aggregator” of bad assets—already labeled a “bad bank”--to help financial institutions take pressure off their balance sheets. CUNA General Counsel Eric Richard said the investment fund seems to hold some potential for credit unions, including corporates. “We will have to wait for details on who will be eligible to sell assets to this fund, how prices will be set, and so on. CUNA will be pushing for standards and procedures that will give credit unions some long-overdue options," Richard said. Two other primary elements of the Financial Stability Plan outlined by the Treasury secretary briefly are:
* Financial Stability Trust: Requires rigorous “stress test” examinations of institutions applying for new capital investments from the Treasury under the plan; and * Consumer and Business Initiative: To include an expansion of the Federal Reserve’s announced, but not yet implemented, Term Asset-Backed Securities Loan Facility (TALF).
Geithner noted that the Obama administration intends to have its plan for a restructured U.S. financial regulatory system ready to present at the G20 Summit in London April 2. After introducing the Financial Stability Plan in the morning, Geithner testified before the Senate Banking Committee reiterating and expanding his remarks.

Inside Washington (02/10/2009)

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* ALEXANDRIA, Va. (2/11/09)--The National Credit Union Administration (NCUA) has appointed Region V Director Melinda Love as its new director of the Office of Examination and Insurance (OEI) at agency headquarters here. The appointment is effective March 16. Love has served as Region V director for five and a half years, and she also served as director of the former Chicago regional office. Love is a past NCUA deputy executive director. She also has served as deputy director of OEI. Her NCUA career began in 1986 as an examiner in northern California. She is a former principal examiner, problem case officer, supervision analyst, supervisory examiner and acting director of special actions. NCUA Chairman Michael Fryzel said Love’s experience in supervising, assessing and mitigating problems encountered by credit unions in some of the most volatile markets in the country will serve NCUA and the credit union system well … * WASHINGTON (2/11/09)--The Credit Union National Association’s (CUNA) final analysis of Regulation Z is now available. The comprehensive analysis provides additional information on amendments the Federal Reserve Board issued to open-end credit rules under Reg Z. The changes apply to credit cards and merchant-specific credit plans. The final rule includes changes to the format, timing and content requirement for five types of open-end credit disclosures under Reg Z, the Truth in Lending Act ... * WASHINGTON (2/11/09)--The Obama administration met with regulators last week on a plan to provide guidance for a national standard on loan modifications, with details expected to be released later this week (American Banker Feb. 10). President Barack Obama met with Sheila Bair, Federal Deposit Insurance Corp. chairman; James Lockhart, Federal Housing Finance Agency director; John Dugan, Comptroller of the Currency; and Ben Bernanke, Federal Reserve Board chairman. Treasury Secretary Timothy Geithner also is expected to meet with banking companies and Housing and Urban Development Secretary Shaun Donovan Wednesday ...

CDCUs call for stabilization funding options

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WASHINGTON (2/11/09)—The cost and structure of federal regulators’ current plan to stabilize corporate credit union liquidity could wreak havoc on community development credit unions (CDCUs), according to a national group representing those low-income credit unions. The National Federation of Community Development Credit Unions (Federation) said this week that CDCUs are concerned that the plan could result in reduction of their services, loss of staff, and “the outright demise of many low-income credit unions.” Writing to the National Credit Union Administration (NCUA) about its intention to fund its corporate stabilization plan by assessing a share insurance premium, President/CEO Clifford Rosenthal of the Federation said his members recognize the gravity of the corporate’s situation. However, he argued that CDCUs are particularly vulnerable to the cost of the NCUA’s plan because they serve “those hardest hit by the recession…people who under the best of circumstances have meager financial reserves, few resources, and limited access to affordable credit from the banking system.” The Federation said it favors allowing corporate credit unions to access the Cental Liquidity Facility (CLF) directly but suggested better solutions may yet be devised. According to Federation analysis, under the NCUA’s funding plan:
* Approximately 62% of CDCUs would have negative income in 2009; and * An estimated 18% would fall below the “well capitalized threshold of 7% net worth, while 10.1% would fall below the “adequately capitalized” threshold of 6%.
“While the economic impact of the NCUA proposal is not unique to CDCUs, damage that would be sustainable for other credit unions could prove irreparable or fatal for many CDCUs,” Rosenthal wrote. “Unless and until a better solution can be devised – one that can avoid the harm to low-income and small credit unions -- the Federation supports the effort to allow corporate credit unions to access the Central Liquidity Facility directly,” Rosenthal wrote. The Federation maintained that the lack of access to the CLF seems “an anomaly that can no longer be sustained.” “Infusing funds into the corporates directly from the CLF is a wholly appropriate use of the federal financing system, and is likely to prove far more effective than the indirect method that NCUA has employed recently,” he added. The Credit Union National Association (CUNA) has underscored that the credit union system must pursue a range of viable solutions to address the corporate credit union problem. (See related story: Mica tells CUs range of solutions needed on corporates) CUNA recognizes a legislative solution centered on the CLF is one possibility, but advises that it is necessary to look at whether a regulatory as well as a legislative solution would address the problem. Use the resource link below to access a compilation of CUNA corporate credit union information.

Mica tells CUs range of solutions needed on corporates

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WASHINGTON (2/11/09)--Pursuing a range of viable solutions makes more
CUNA President/CEO Dan Mica gestures as he answers questions from the audience during his appearance Feb. 9 at the Washington, D.C.-based Metropolitan Credit Union Management Association's (MACUMA) monthly meeting. Mica's topics included the NCUA's Corporate Stabilization Program, congressional and administration efforts to deal with the economic and financial crisis, and CUNA priorities in the upcoming year.
Mica (left) listens to the ideas of one of the MACUMA meeting participants following the CUNA leader's remarks. (CUNA Photos).
strategic sense than focusing only on one single approach to mitigate the cost to credit unions of the National Credit Union Administration’s (NCUA’s) corporate stabilization program, Credit Union National Association (CUNA) President/CEO Dan Mica told a group of Washington, D.C.-area credit union executives this week. Mica recognized some are calling solely for a legislative solution centered on the Central Liquidity Facility (CLF) and said CUNA has also identified that as one possibility. But he advised against “putting all your eggs in one basket.” On CLF, for example, CUNA is looking at whether a regulatory as well as a legislative solution would address the problem. The CUNA leader was the featured speaker Tuesday at the Metropolitan Area Credit Union Management Association (MACUMA) monthly membership meeting. The session took the form of a Q&A with Credit Union Times Executive Editor Sarah Snell Cooke. Mica highlighted the series of solutions CUNA is exploring that would provide needed support to corporates while mitigating the costs of NCUA’s stabilization plan, including:
* Long-term deposits from CUs into corporates; * Use of Central Liquidity Facility (CLF) funds to loan to the National Credit Union Share Insurance Fund (NCUSIF), and seek legislation to allow funding directly to the corporates; * Tap the U.S. Treasury Department's Troubled Asset Relief Program (TARP) for back-up assistance to the NCUSIF; * Assess the premium assessment in stages; * Expand the "CU System Investment Program (CU SIP) to make it more attractive to credit unions; * Address accounting issues that could allow the NCUSIF to recognize the premium expense over time, thus giving credit unions some flexibility on when they must accent for these expense: and * Allow natural person CUs to purchase corporates' troubled assets.
On long-term deposits as an added corporate liquidity source, Mica said the NCUA has indicated that credit unions channeling $15 billion into corporates would do much to mitigate the problem. “I know of several CEOs who, if convinced of the data plus knowing the funds are guaranteed, would put in close to $15 billion,” he added. Explaining TARP back-up assistance to NCUSIF as a possible solution, Mica likened it to an insurance policy deductible: TARP expenditures would occur only in the event losses in the corporates exceeded a certain level, such as $500 million. It would not take the form of an infusion of TARP funds into the corporates. “We feel we would probably never have to actually use TARP under that scenario,” Mica added. Asked by CU Times’ Cooke about discussions resurfacing among credit unions of a possible merger between CUNA and the National Association of Federal Credit Unions, Mica reiterated his view that having a single trade association speaking with one voice would benefit credit unions economically and politically. “I am absolutely convinced that credit unions will never reach their full potential divided with two trade associations,” Mica stated. “You can’t have a house divided against itself with only 7% of the (financial services) market.” He also said the single association did not have to be either CUNA or NAFCU. "Have it be America's Credit Union Association--take the best of both, and move on for the good of the system."

Registration opens for NCUA corporate update

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ALEXANDRIA, Va. (2/11/09)--Registration is open for Thursday’s National Credit Union Administration (NCUA) webinar on NCUA’s corporate stabilization plan. Participants can register on NCUA’s website until 1:45 p.m. ET on Thursday. The two-hour webinar, scheduled to begin at 2 p.m. ET, will include a discussion of the National Credit Union Share Insurance Fund reserving methodology and exploration of some alternatives presented by corporate system stakeholders. Speakers will include NCUA Executive Director Dave Marquis, Acting Examination and Insurance Director John Kutchey, and Loss/Risk Analysis Officer Steve Farrar. Participants can submit questions during the webcast via the Internet. Instructions will be provided at the beginning of the webcast. Presenters will address as many of the questions as possible, NCUA said.

CUNA continues fight against cramdowns

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WASHINGTON (2/10/09)—The Credit Union National Association wrote two lawmakers regarding mortgage bankruptcy provisions that potentially enable any dissatisfied mortgage borrower to walk away from a loan—and maybe even keep the house. CUNA has been working for more than a year against “cramdown” provisions in pending legislation that would allow bankruptcy courts to modify the terms of existing mortgages. In a letter sent Monday to Sen. Evan Bayh (D-Ind.), CUNA expressed appreciation of recent comments in which Bayh stated he would seek improvements to pending legislation that would permit courts to modify the mortgages of debtors in bankruptcy. This legislation has been introduced in both the Senate (S. 61) and the House (H.R. 200). CUNA has urged that if lawmakers proceed with “cramdown” legislation at all, it must be limited specifically to loans determined to be “subprime,” with large re-sets of interest rates, loans with negative amortization, or loans a court determines were fraudulent or abusive. Adopting a limited provision would “not only provide relief to certain debtors, but would serve the important purpose of helping to ensure that these types of lending products do not re-emerge,” CUNA said in its letter to Bayh. For any loan falling within the category described above, CUNA believes a bankruptcy court could have the authority to:
* Cancel prepayment penalties; * Lower the interest rate to the current conventional fixed market rate; * Extend the maturity of the loan; and * Adjust the principal balance to no lower than the current market value of the house if, when the house is sold by the debtor – whether the sale occurs before or after discharge – the debtor and creditors share in the appreciation of the property.
However, the CUNA letters warned, H.R. 200 contains language that could encourage borrowers’ gaming of the mortgage lending system. “We have heard from credit union executives about borrowers who are not even delinquent on their mortgage loans and who have not lost their jobs, suddenly stopping payments and triggering foreclosure because they just no longer want to make large mortgage payments on houses which have dropped notably in value. “If the bankruptcy law is changed to allow modification of all loans, these borrowers could seek to have their mortgage restructured by the bankruptcy court,” the CUNA letter to Senator Bayh warned. In its letter to Rep. John Conyers (D-Mich.), CUNA identified a critical flaw with language added by the Judiciary Committee during its recent consideration of H.R. 200 with respect to the bill’s approach to “right of rescission.” According to the letter, the bill, as amended by the Committee, would allow even a nonmaterial, technical and unintentional violation of Truth in Lending rules to result in a debtor getting to keep a house with a lender being paid “absolutely nothing.” "This is clearly an unfair result, and we question if this was truly the intent of the supporters of this provision," the letter stated. CUNA indicated it was willing to assist supporters of this provision perfect the language to avoid any unintended consequences. Use the resource link below to read the complete letters.