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Inside Washington (03/03/2009)

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* WASHINGTON (3/4/09)--The Obama administration’s loan modification plan, which was proposed last month, has redefault risk, financial industry observers say. The proposal would lower monthly mortgage payments to 31% of a borrower’s income but would not take into account the borrower’s debt-to-income ratio (American Banker March 3). Mortgages belonging to borrowers with a high ratio--more than 55%--may not be salvageable, according to Laurie Goodman, senior managing director, Amherst Securities Group. President Barack Obama is expected to release more plan details today. The Credit Union National Association is working toward targeted loan modifications to assist borrowers ... * WASHINGTON (3/4/09)--Sen. Richard Durbin (D-Ill.) said he may limit a mortgage cramdown bill to apply only to subprime loans (American Banker March 3). The most recent version of the bill was revised to make borrowers who could afford to repay their mortgages ineligible for judicial modifications, but it would still give bankruptcy judges the ability to determine which borrowers are eligible for modifications. The House is expected to vote on its version of the mortgage bankruptcy bill as early as Thursday ... * WASHINGTON (3/4/09)--The current approach to determining loan loss provision forces financial institutions to build reserves when it is most difficult, Comptroller of the Currency John Dugan told attendees of a banking conference this week. A more counter-cyclical approach allowing provisions to be made earlier in the credit cycle when times are good should be used, he said. Accounting standards for loan loss provisioning are based on an “incurred loss” model, which allows a bank to make a provision to the reserve only if it can document a loss. “We need to do a better job of telling banks and their auditors the degree to which they are permitted to use non-historical, forward-looking judgmental factors to justify provisions to the loan loss reserve,” he said. Disclosures also must be more robust. “If banks believe they need more flexibility to use their expert judgment to recognize losses in the credit cycle, then that judgment should be able to withstand the glare of investor scrutiny as an important check on the process,” he added ... * WASHINGTON (3/4/09)--The Federal Deposit Insurance Corp. (FDIC) and the Washington State Department of Financial Institutions have executed an information-sharing agreement relating to Money Services Businesses (MSB) supervision. The agreement was developed to limit regulatory redundancies by providing relevant supervisory information for MSB customers with relationships at FDIC-supervised financial institutions ... * WASHINGTON (3/4/09)--When Ben Bernanke, Federal Reserve chairman, told lawmakers Tuesday that they need to act on President Barack Obama’s budget quickly despite the anticipated $1.8 trillion deficit, he was met with anger from senators regarding American International Group’s failure (The New York Times March 3). Sen. Ron Wyden (D-Ore.) asked Bernanke when taxpayers will no longer be “on the hook” for AIG. Bernanke said he was upset by AIG’s failure but defended the Fed’s actions, saying that it had to stabilize the system. Bernanke agreed with senators that AIG-type institutions need to be more strictly regulated, but he said helping AIG was the best option. He also said that although economic indicators show little sign of improvement in the near term, the recently approved $787 billion economic stimulus package should help production and demand in the next two years. More will likely need to be done, though, he said ... * WASHINGTON (3/4/09)--If Fannie Mae and Freddie Mac’s conservatorships are permanent, their independence could be hindered, thus setting a precedent for the future nationalization of large banks, industry observers say. For the past few months, Fannie and Freddie have been ordered by regulators to oversee mortgage modifications, purchase more loans and refinance at-risk borrowers (The New York Times March 3). Regulators have said the actions were needed to stabilize the economy, but financial observers indicate the actions have had adverse effects. On Monday, David Moffett, former Freddie Mac CEO, resigned. Both enterprises are expected to announce record losses this week, and observers say policymakers have been able to influence the mortgage market through the takeover. The government’s involvement could lead to the same problems that caused the current economic crisis, according to Rep. Scott Garrett (R-N.J.), who said bad economic decisions are made when mortgage companies are used politically. Rep. Barney Frank (D-Mass.) said the government is committed to restructuring Fannie and Freddie, noting that some of what they accomplished will be returned to the private sector ...

CTR reporting pamphlet issued by FinCEN

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WASHINGTON (3/4/09)--The Financial Crimes Enforcement Network (FinCEN) has released a pamphlet on currency transaction reporting (CTR) as required by the Bank Secrecy Act. The pamphlet, “Notice to Customers: A CTR Reference Guide,” explains why financial institutions must require identification and personal information for transactions that trigger CTR, defines “structuring”--breaking up currency transactions to avoid reporting them to the government--and provides examples of structured transactions. Federal law requires financial institutions to report currency transactions over $10,000 conducted by or on behalf of one person, and multiple currency transactions that aggregate to be more than $10,000 in one day. The federal law requiring these reports was passed to safeguard the financial industry. To see the pamphlet, use the link.

CUs among TALF eligible

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WASHINGTON (3/4/09)—The U.S. Treasury Department and Federal Reserve Board Tuesday announced the launch of their Term Asset-Backed Securities Loan Facility (TALF), which will make up to $200 billion in three-year loans to eligible institutions. TALF is designed to kick-start securitized lending. Based on the eligibility criteria, credit unions will be among those institutions that can apply for TALF loans. TALF is intended to make credit available to consumers and small businesses at favorable terms by facilitating the issuance of asset-backed securities. Under the program, which will be executed through the Federal Reserve Bank of New York, an institution applying for a loan must use one of the following forms of collateral:
* Small Business Administration (SBA) securities; * Student loan securities; * Auto loan securities; or * Credit card securities.
Credit Union National Association (CUNA) Counsel for Special Projects Michael Edwards said participation, obviously, is subject to federal and state investment laws for credit unions. Edwards noted, “Federal credit unions, in general, can invest in SBA loan pools and Sallie Mae securities—but not generally in auto loan- or credit card-backed securities under National Credit Union Administration rules. “State laws on what types of investments credit unions are allowed to make are sometimes more liberal, but vary quite a bit state to state.” The way the program works, Edwards explained, is that a credit union or other company with eligible asset-backed securities uses those securities as collateral for a non-recourse loan of three-year duration. “The practical affect of the TALF program, because of its use of non-recourse lending, is to add a layer of government guarantee to these assets over and above any existing guarantee,” Edwards said. Since they are non-recourse loans, the TALF program can seize only the securities that back the loan if the loan is not repaid by the end of the three-year term. Edwards noted that the Treasury-Fed documents declare eligibility for “(a)ny U.S. company that owns eligible collateral…provided the company maintains an account relationship with a primary dealer.” He added that institutions interested in TALF loans should note that the securities must be backed by recently originated loans.

FinCEN to allow some SAR shared information

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VIENNA, Va. (3/4/09)—Under a plan unveiled by the Financial Crimes Enforcement Network (FinCEN) Tuesday, depository institutions would be allowed to share suspicious activity information with certain affiliates. FinCen’s proposed changes to its Suspicious Activity Report (SAR) rules are intended to:
* Clarify the scope of a statutory prohibition against the disclosure by a financial institution of a SAR; * Address a statutory prohibition against the disclosure by the government of a SAR; * Clarify that the exclusive standard applicable to the disclosure of a SAR is “to fulfill official duties consistent with Title II of the (Bank Secrecy Act) BSA”; * Modify the safe harbor provision to include changes made by the USA PATRIOT Act; and * Where possible, coordinate minor technical differences that exist between confidentiality, safe harbor, and compliance provisions of FinCEN rulemaking for different industries.
FinCEN said in its proposal document that it expects some of the federal financial institutions regulators to issues contemporaneous rules. It noted that the Office of the Comptroller of the Currency and Office of Thrift Supervision had such plans. FinCEN also said it is simultaneously issuing for notice and comment proposed guidance regarding the sharing of SARs with affiliates. It noted its proposed guidance interprets one of the provisions of its notice of proposed rulemaking and, accordingly, should be read in conjunction with this notice.

NCUA lists corporate guarantee program participants

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WASHINGTON (3/4/09)--The National Credit Union Administration announced Monday the participants in its Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP). The TCCUSGP was approved by the NCUA Board Jan. 28 as a temporary guarantee by the National Credit Union Share Insurance Fund (NCUSIF) of all shares (excluding paid-in-capital and membership capital accounts) at all corporate credit unions. The voluntary guarantee was effective Monday. It expires Dec. 31, 2010. The guarantee provides members who have NCUSIF-insured share accounts at corporates with excess coverage above the NCUSIF insurance limits. The guarantee applies to all share amounts above $250,000, and the NCUSIF insurance coverage applies to all share amounts below $250,000. Four corporates are not participating in the program: Eastern Corporate FCU, Midwest Corporate CU, Iowa Corporate Central CU and First Carolina Corporate CU. Corporates participating in the program are:
* Central Corporate CU; * Constitution Corporate FCU; * Corporate America CU; * Corporate Central CU; * Corporate One FCU; * First Corporate CU; * Georgia Central CU; * Kansas Corporate CU; * Kentucky Corporate FCU; * Louisiana Corporate CU; * Members United Corporate FCU; * Mid-Atlantic Corporate FCU; * Missouri Corporate CU; * Southeast Corporate FCU; * Southwest Corporate FCU; * SunCorp CU; * Treasure State Corporate CU; * Tricorp FCU; * U.S. Central FCU; * VACORP FCU; * Volunteer Corporate CU; * West Virginia Corporate CU; and * Western Corporate Federal CU.