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Inside Washington (02/18/2010)

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* WASHINGTON (2/19/10)--The Community Development Financial Institutions (CDFI) Fund will host conference calls on its Community Development Capital Initiative. The initiative will make capital available to certain CDFIs to increase lending to small businesses and other community development projects. The calls will be held March 4, March 18 and April 1, all at 3 p.m. E.T. Each call will be a question-and-answer session to help CDFIs understand the certification and application process. Uncertified financial institutions must submit an application for certification by 5 p.m. E.T. April 16 to participate in the initiative ... * WASHINGTON (2/19/10)--The Obama administration and the Senate are moving toward an agreement to form a council of regulators that would identify systemic risk to the nation’s financial system, according to officials. If enacted, the council would be led by Treasury Secretary Timothy Geithner (The New York Times Feb. 18). The council would in essence diminish the Federal Reserve Board’s authority over banks. Some Fed officials have protested this, but Chairman Ben Bernanke has said he would support a Treasury-led council, the newspaper said. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said that with the Treasury secretary as chair and the Fed chairman as vice-chair, there will be “an early-warning system.” A senior administration official, who spoke to the Timeson condition of anonymity, said there may some danger in reducing the Fed’s power. It’s critical the Fed has hands-on supervision of the largest firms in the economy, he told the newspaper ... * WASHINGTON (2/19/10)--The Federal Family Education Loan Program (FFELP) may dissolve soon, according to American Banker (Feb. 18). The House approved a bill last year to end the program, and the Senate may follow suit soon, the newspaper said. The program allows lenders to offer student loans at low rates with partial government guarantees. If dismantled, FFELP would save the government $87 billion over 10 years. Sen. Robert Casey (D-Pa.), who has not yet taken a stance on eliminating FFELP, said that the impact on student lending and the availability of lending to help people attend college need to be examined. According to, 183 student lenders have suspended or exited from participating in the FFELP program. While talk of ending FFELP continues, a temporary measure--the Ensuring Continued Access to Student Loans Act--passed in 2008 that allows the U.S. Department of Education to buy student loans from lenders on the secondary market expires July 1. The department estimated that its liquidity program covered about 57% of FFELP loans, or about $112 billion. The department has said the program should not be extended ... * WASHINGTON (2/19/10)--More than 116,000 homeowners have permanent mortgage modifications, nearly double the number from December, according to a Home Affordable Modification Program (HAMP) report the Treasury Department and Department of Housing and Urban Development (HUD) released Wednesday. Roughly 76,000 permanent modifications have been offered and are waiting for borrowers’ signatures. More than one million homeowners have started trial modifications. Also, about 1.3 million homeowners have received offers for trial modifications have been extended to homeowners. More than 940,000 homeowners reduced monthly mortgage payments with a median savings of $500--an aggregate savings of more than $2.2 billion, the report said. The program is on pace to meet its goal of providing three to four million homeowners the opportunity to stay in their homes, Treasury and HUD said ...

NCUA briefed on LICU secondary capital plan

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ALEXANDRIA, Va. (2/19/10)--The National Credit Union Administration (NCUA) at its Feb. 18 board meeting was fully briefed on an interim final rule addressing secondary capital accounts for low-income credit unions. The interim final rule, which was approved by the NCUA earlier this month via notational vote, allows a low-income credit union (LICU) to redeem all or part of government-funded secondary capital, along with its matching secondary capital at any time after it has been on deposit for two years. This rule follows the U.S. Treasury Department's announcement of the Community Development Capital (CDC) Program, an initiative intended to enable LICUs, banks and thrifts to increase lending in low-income areas. NCUA Chairman Debbie Matz said that the Board adopted the interim final rule early to comply with application deadlines imposed by the Treasury. LICU’s have been given until April 2 to apply for secondary capital under the CDC Program, and the NCUA will review the LICU applications before providing their recommendations to the Treasury. These recommendations will include the NCUA’s judgments regarding an LICU’s suitability for the program, whether that LICU should acquire privately funded, matching secondary capital before it receives secondary capital through the CDC Program, and the amount funding that the Treasury should provide to the LICU through the CDC Program. The NCUA will also confer with state regulators before it issues any recommendations regarding state-chartered credit unions. The interim final rule is effective immediately upon its publication in the Federal Register and will be subject to a 30 day comment period. The NCUA may provide further details for credit unions via a webinar, Board Member Gigi Hyland said.

NCUSIF equity ratio holds at 1.24 NCUA reports

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ALEXANDRIA, Va. (2/19/10)--While the most recent National Credit Union Share Insurance Fund (NCUSIF) report showed an equity ratio of 1.24% through this January, the National Credit Union Administration’s (NCUA) Chief Financial Officer Mary Ann Woodson explained that that 1.24% equity ratio does not include the billing associated with the 1% deposit, which if included would result in a 1.26% equity ratio. Staff indicated that, in the aggregate, CAMEL 4 and 5 credit unions hold approximately $42 billion of insured shares—up slightly from the previous month. There are currently 357 CAMEL 4 and 5 credit unions, a 2.67% increase from the number reported last year. Woodson also updated the NCUA board on the status of CAMEL 3 credit unions, of which there are currently 1,665, representing 13.69% of total insured shares. Insured shares in CAMEL 3, 4, and 5 credit unions currently represent 19.5% of total insured shares. The number of CAMEL 3, 4 and 5 credit unions is a source of concern for the NCUA, and Chairman Debbie Matz reiterated her stance that the NCUA will closely monitor credit unions for potential red flags to “mitigate” any potential effects on the NCUSIF. Although Woodson reported a loss expense estimate of $750 million for 2010, she said that this amount is being used solely for budgeting purposes and does not represent expected losses. However, Woodson said that she expects 2010 to be as financially challenging as 2009 was for the NCUSIF.

750 participate in final NCUA town hall

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ALEXANDRIA, Va. (2/19/10)--National Credit Union Administration (NCUA) Chairman Debbie Matz said that more than 750 participated in the agency’s "virtual" Town Hall Thursday, the final session planned to focus on the agency’s proposed corporate credit union rule, as well as supplemental capital, proposed chartering and field of membership changes, and member business lending. The agency noted that the 90-minute session concludes its six-month series of “interactive open forums” between the credit union community and the NCUA. More than 2500 credit union representatives participated either at one of the five in-person or two web-based NCUA Town Hall events, according to NCUA figures. “Today's concluding session of this round of Town Halls was in many respects emblematic of the kind of serious, constructive conversation that we have been having with the credit union community," Matz said in a release. "The discussions were both candid and thoughtful and signal an impressive degree of commitment to work in the best cooperative tradition on the important issues we have at hand. The financial difficulties in general, and the corporate situation in particular, have called upon us all to work harder and smarter, toward solutions. Given the tone at the Town Halls, everyone involved should have reason for optimism about the challenges that lie ahead." The comment period for the proposed corporate rule ends March 9.

FFIEC FinCEN take up mortgage fraud issues

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WASHINGTON (2/19/10)--The Federal Financial Institutions Examination Council on Thursday released an updated version of its white paper on mortgage fraud detection and deterrence. The white paper, which aims to “help examiners understand, identify, and detect mortgage fraud schemes and elements,” provides details on several types of mortgage fraud methods, including builder bailouts, buy and bail schemes, double selling, equity skimming, fictitious loans, and short sale, loan modification, refinancing, mortgage servicing, property flip, and reverse mortgage frauds. The paper also details methods used to perpetrate these schemes, including asset rental, fake down payments, fraudulent documentation and appraisals, and identity theft. While the white paper “does not establish any new examination policies or procedures” and does not “impose new requirements on regulated financial institutions,” it substantially updates the information contained in a 2005 edition of the white paper, “gives examples of how individuals commit fraud, provides a list of red flags, and outlines best practices” that can be used to “detect and prevent mortgage fraud at regulated institutions and avert the losses that can result.” In related news, the Financial Crimes Enforcement Network (FinCEN) on Thursday advised financial institutions to be more aware of activities that may potentially trigger a suspicious activity report, including trade-based money laundering methods such as “misrepresenting the price and quantity of goods and services” and “double invoicing.” Other methods for obscuring the origin or destination of illegally-obtained funds include “third party payments for goods or services made by an intermediary,” and this activity may be signaled by “amended letters of credit without reasonable justification,” the inability of a customer to “produce appropriate documentation to support a requested transaction,” or “significant discrepancies between the descriptions of the goods on the transport document, the invoice, or other documents. Financial institutions should also be wary of the potential for black market funds to be transferred via money orders or wire transfers, especially when the “ordering party of the wire does not live in the country from which the wire originated.” Funds that are transferred into U.S.-based accounts and “subsequently transferred out of the account in the same or nearly the same amounts” are another potential warning sign, according to FinCEN.

House business lending hearing rescheduled for Feb. 26

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WASHINGTON (2/19/10)--The House Financial Services Committee has rescheduled for Feb. 26 a previously postponed hearing on the state of small business and commercial real estate. The hearing will also feature members of the House Small Business Committee, which is chaired by Rep. Nydia Velazquez (D-N.Y.). Also, for a second time this year, the House Financial Services Committee will scrutinize financial industry compensation. The committee announced yesterday it will conduct a hearing entitled “Compensation in the Financial Industry – Government Perspectives” next week on Feb. 25. The hearing will focus on the pay practices of both private and public financial entities including AIG, Fannie Mae and Freddie Mac where the federal government plays a role in reviewing and/or approving compensation, the committee announcement said. The House has voted on two financial industry compensation bills. Last April the body approved legislation that would have regulated compensation at Fannie Mae, Freddie Mac, and TARP recipients. In July it passed a bill intended to executive compensation, The Wall Street Reform and Consumer Protection Act. Witnesses will be announced at a later date.

Lawmakers to regulators Minimize CRE impact

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WASHINGTON (2/19/10)--Reps. Paul Kanjorski (D-Pa.) and Ken Calvert (R-Calif.) have contacted federal credit union, bank and thrift regulators asking them to work together to minimize the impact of the growing instability in the commercial real estate (CRE) market. In their letter, Kanjorski and Calvert refer to a Feb. 11 report by the Congressional Oversight Panel (COP) entitled "Commercial Real Estate Losses and the Risk to Financial Stability." The report noted that nearly $1.4 trillion in CRE loans will reach the end of their terms between now and 2014. Close to half of those, according to the COP report, are currently underwater as property values have continued to decline. Because of tough CRE market conditions in the current economy, regulators must “act proactively to address these issues before they get worse. We must work to protect our small businesses operating throughout the country as well as the nine million jobs that depend on the commercial real estate industry,” Kanjorski said in the letter. “The commercial real estate market does not need a bailout, but it is begging for a coordinated response by its financial regulators to restore stability," Calvert added. The letter to financial regulators closely follows one sent by Kanjorski and Calvert and 77 of their House colleagues to U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke regarding troubles in the commercial real estate sector, considered to be $6.7 trillion in size. The COP was established in conjunction with the Treasury’s $700 billion Troubled Asset Relief Program—known as TARP. The congressional panel was charged with review of the current state of financial markets and the regulatory system. COP can conduct hearings, review official data, and write reports on actions taken by Treasury and financial institutions and their effect on the economy.