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Regulators urge loan mod participation

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WASHINGTON (3/5/09)—The National Credit Union Administration (NCUA), along with the federal bank and thrift regulators, encouraged all federally regulated financial institutions to participate in the Obama administration’s newly detailed “Making Homes Affordable” loan modification program. The U.S. Treasury Department’s guidelines implement financial incentives for mortgage lenders to modify existing first mortgages and set standard industry practices for modifications. In its announcement yesterday, Treasury said its loan modification program also includes additional incentives for efforts to extinguish second liens on modified loans. Extinguishing second liens, the department said in its release, will make mortgages more affordable, improve loan performance, and help prevent foreclosures. The NCUA, in a joint statement with federal bank and thrift regulators, said the agencies strongly support the administration’s goal of promoting sustainable loan modifications for at-risk homeowners “that appropriately balance the interests of homeowners, servicers, and investors.” “The program also provides incentives for homeowners whose mortgages are modified to remain current on their mortgages after modification. Taken together, these incentives should help responsible homeowners remain in their homes and avoid foreclosure, thereby easing downward pressures on house prices in many parts of the country and averting the costs to families, communities, and the economy from avoidable foreclosures,” the joint statement said. The federal bank, thrift, and credit union regulatory agencies worked closely with Treasury in developing the guidelines, the statement noted. Use the resource link below to see program details.

Examiners to address corporate plan impact on CUs

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ALEXANDRIA, Va. (3/5/09)--The National Credit Union Administration (NCUA) has released a supervisory letter to its examiners designed to addresses the implementation of agency’s Corporate CU Stabilization Program. The letter discusses how the program may impact individual credit unions' earnings and net worth ratios. The same letter was sent to federal credit unions. “We are fully aware of the potential concerns and outcomes from such actions,” said the letter signed by John Kutchey, NCUA’s acting director of the Office of Examination and Insurance. Examiners are directed to consider the impact of the Corporate Stabilization Program when evaluating a credit union’s earnings. “Although the return on average assets will decline over the short-term, most natural person credit unions have the net worth to absorb the charge and retain sufficient levels of capital,” the NCUA supervisory guidance stated. “Examiners are encouraged to fully evaluate the earnings level and not take exception to the amount of earnings resulting from these NCUA Board actions,” it said. The supervisory letter noted the NCUA’s Jan. 28 action to stabilize the corporate credit union system. The NCUA:
* Guaranteed uninsured shares at all corporate credit unions through February 2009, and established a voluntary guarantee program for uninsured shares of all corporate credit unions through Dec. 31, 2010; * Issued a $1 billion capital note to U.S. Central Corporate FCU; and * Declared a premium assessment to be collected in 2009 to restore the NCUSIF equity ratio to 1.30%.
The agency said the impact of these actions on individual credit union financial statements will be twofold. It will cause an impairment of the NCUSIF deposit, requiring a write-down of a portion, presently estimated at 51% percent, of the credit union’s NCUSIF Deposit. It also will necessitate an assessment of a premium equal to 30 basis points of insured shares. The NCUA’s current estimate for the write-down of the NCUSIF deposit and the premium assessment is that it will produce a 62 basis-point reduction in the return on assets for 2009 and reduce the net worth by 56 basis points. Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said Wednesday that CUNA “continues to advocate aggressively, and on a daily basis with NCUA senior staff, for alternatives to mitigate the costs of the program to credit unions.” She noted that NCUA is working on such alternatives, according to its officials. “If the accounting and legal issues can be worked out and an alternative funding approach is adopted by NCUA as CUNA urges, the costs to credit unions could be spread out over time,” Dunn said.

CUNA wants new FTC mortgage powers vetted

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WASHINGTON (3/5/09)—A plan to broaden the Federal Trade Commission’s (FTC) mortgage-lending rulemaking authority should be thoroughly vetted in the congressional hearing process before it’s considered for a vote, said the Credit Union National Association (CUNA) Wednesday. As written, a section of H.R. 1105, the Fiscal Year 2009 Omnibus Appropriations Act, would greatly expand FTC authority over some aspects of mortgage lending. The Senate is currently considering the House-passed bill. CUNA wrote in support of an amendment to be offered by Sen. Michael Crapo (R-Idaho) that would strike the proposed increased FTC authority and increased state attorneys general authority to enforce all types of Truth-in-Lending violations. Currently those violations primarily are addressed by federal agency enforcement actions and in private lawsuits. Under Section 626 of H.R. 1105, state attorneys general would be empowered to consider not only HOEPA violations, but any Truth-in-Lending violations without the current three-year limitation applicable to HOEPA violations. Advocates of the plan say it would allow the FTC to crack down on deceptive sales practices of nonblank lenders. However, opponents saw it could, intentionally or otherwise, interfere with federal financial institutions’ regulatory structure. In the CUNA letter to Crapo supporting his amendment, CUNA President/CEO Dan Mica wrote, “At the very least, Section 626 involves complicated issues that should be subject to hearings before being enacted into law as a rider to an omnibus appropriations bill.” He added that hearings would “bring to light the concerns of those supporting the provision and help to show whether additional enforcement tools are indeed necessary.” Mica said the Federal Reserve Board also should be given an opportunity to describe its plans to propose later in the year changes to its mortgage lending disclosure regulations, which might suffice to address concerns. Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, has also opposed the insertion of the FTC language into the appropriation bill. Dodd maintains that such a plan should be considered as part of a broader conversation on the overhaul of financial regulation.

Changes to cramdown bill insufficient says CUNA

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WASHINGTON (3/5/09)—The U.S. House of Representatives is expected to complete consideration of H.R. 1106 today, and the Credit Union National Association (CUNA) said that even with modifications made earlier this week, the bill’s mortgage cramdown language will be too broad. However, CUNA Vice President of Legislative Affairs Ryan Donovan said Wednesday that CUNA believes there still will be an opportunity to limit the scope, application, and duration of the legislation when it is considered in the Senate. The House bill, called the Helping Families Save Their Homes Act, contains language permitting judicial modification of mortgages, an action called a cramdown. While CUNA has serious concerns with the loan modification language of the bill, the credit union group strongly supports another provision that makes higher share and deposit insurance ceilings permanent. CUNA’s Donovan said that changes made to the cramdown provisions during House consideration of the bill this week do not go far enough in terms of directing bankruptcy judges to force interest rate modifications before cramming down the mortgage principal. “We had been hopeful that the amendment would include language prohibiting cramdown on modified mortgages that met the conditions of the President's foreclosure prevention plan,” Donovan said, referring to the plan unveiled by the U.S. Treasury Dept. yesterday. “Unfortunately, it appears the revised language only uses the President's plan as a guideline for the courts to follow, not a limitation on what type of loans the courts can cramdown or what the courts can do to those loans. “Therefore, while the revised language is better than what is currently in the bill, we will not be able to support the bill even with this language,” Donovan said. He noted CUNA’s work in the Senate, to narrow the cramdown authority in the bill, is fully in action.

Details to Obama loan mod plan released

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WASHINGTON (3/5/09)—The Obama administration released details Wednesday of its mortgage loan modification program first announced Feb. 18. Credit Union National Association (CUNA) Senior Assistant General Counsel Jeffrey Bloch noted that credit union members are starting to show strong interest in the program. He added credit unions may start to get a lot of member inquiries now that guidance has been released. “Although this program is voluntary, credit unions may now want to start reviewing their loan portfolios to see which loans are candidates for modification. That way they can be prepared for the next step, which is to execute the agreements with the U.S. Treasury Department that are required under this program,” Bloch said. Under the Obama administration’s “Making Home Affordable” program, as many as 7 to 9 million homeowners may get assistance to refinance their mortgages to avoid foreclosure, if they make a good-faith effort to stay current on their mortgage payments. The plan consists of three components: one to help responsible homeowners refinance into affordable mortgages, a comprehensive $75 billion loan modification program, and a plan to support lower mortgage rates by boosting confidence in Fannie Mae and Freddie Mac. Early CUNA analysis shows what the program details means to credit unions:
* Borrowers with existing Freddie Mac and Fannie Mae mortgages may refinance through those institutions even if the borrower has less than 20% equity in their house; * Federally insured credit unions, if they choose to make loan modifications on current or delinquent mortgages in order to get the benefits of the program, may do so according to the Treasury guidelines. Also, the National Credit Union Administration, as well as federal bank and thrift regulators, were asked to "encourage" federally insured institutions to participate in the program (see related Story: Regulators urge loan mod participation); * To be eligible under the Treasury plan, a loan must be for an owner-occupied residence. The loan’s balance must be lower than $729,750 for a single family unit, and the borrower must have a debt to income (DTI) ratio of more than 31%: * By reducing the interest rate on the modified loan, the lending institution must first reduce the borrower’s monthly mortgage payment to no more than 38% of the borrowers monthly income; and * The Treasury will match further reduction in monthly payments—below the 38% DTI ratio --dollar-for-dollar with the lender/investor, down to a 31% front-end DTI ratio for the borrower.
Holders and servicers of the modified mortgages will receive additional cash incentives, and a form of government subsidy on the modified mortgages. Also, eligible loans include those that credit unions hold in portfolio, as well as loans that have been securitized that the credit union services. For loans underlying “private label securitizations,” the guidelines require serivcers to “consider all eligible loans under the program guidelines unless prohibited by the rules of the applicable [pooling and servicing agreement] and/or other investor servicing agreements.” Use the resource links below for program details and to access a government site on financial stability.

Inside Washington (03/04/2009)

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* WASHINGTON (3/5/09)--The Federal Reserve and the Treasury said Tuesday that they will seek legislation to give the Fed the additional tools it will need to manage reserves while providing the funds necessary for the Term Asset-Backed Securities Loan Facility (TALF) and other credit-easing programs. Increasing TALF lending will expand the Fed’s balance sheet, the agencies said. TALF, which has the potential to generate up to $1 trillion of lending for businesses and households, was launched Tuesday ... * WASHINGTON (3/5/09)--Sen. Charles Schumer (D-N.Y.) said Tuesday that he may introduce a bill that would create a financial services regulator for consumer protection. Schumer is working with Sen. Richard Durbin (D-Ill.) on the legislation and indicated that the regulator would review financial products and services, and “watch out” for the average American (American Banker March 4). The agency would be part of regulatory overhaul legislation that Schumer said he hopes to pass by the end of the year ... * WASHINGTON (3/5/09)--More than 100 credit union representatives from Texas attended a meeting Feb. 25 with Sens. Kay Bailey Hutchison (R-Texas) and John Cornyn (R-Texas) on Capitol Hill during
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an annual Hike the Hill event that coincides with the Credit Union National Association’s Governmental Affairs Conference in Washington, D.C. During the meeting, Hutchison said she opposed the Treasury Blueprint--released last year by former Treasury Secretary Henry Paulson--and said she was in favor of keeping the National Credit Union Administration separate and independent (The Advocate March 4). Cornyn said he favored lifting the member business lending cap for credit unions. Both said they oppose mortgage cramdown legislation, and government regulation or intervention in interchange fee income. Credit union representatives also met with other Texas congressional members during the Hill hike. From left are: Texas Credit Union League President/CEO Dick Ensweiler; Southwest Airlines FCU CEO Charles Rutan; City CU CEO Sharon Moore and Rep. Jeb Hensarling (R-Texas). (Photo provided by the Texas Credit Union League) ...

Mica in IThe HillI Unity needed to battle tough economy

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WASHINGTON (3/5/09)--Trade associations and lobbyists must work together to battle tough economic times, Credit Union National Association President/CEO Dan Mica said in his monthly column in The Hill newspaper. While a challenging economy can trigger fear and panic, the key to overcoming economic strains is to communicate effectively and work cooperatively, Mica said. As the economy worsens and budgets tighten, the strains on association membership only increase. Just as investors panic, so do associations, their leadership and members. A once-unified membership can suddenly point fingers and turn minor issues into major disagreements, he added. He also encouraged association leaders to:
* E-mail and call members frequently; * Provide webinars or video conference calls because many members or clients are cutting or reducing trips to Washington, D.C.; and * Anticipate “big stories” in the mass media instead of waiting for news to break. Tell members and clients that the news is coming their way.
A time of crisis, while challenging, can also be energizing because it pulls everyone together to create meaningful solutions. Quoting a friend of his, Mica said, “Humans are naturally wired so that their intuition does not guide them properly when it comes to making financial decisions. Intuition and fear always drive people to sell and wait until the stock market gets better. They lose the buying opportunity.” To avoid losing the "buying opportunity," Mica said: “It is important to sometimes ignore that human intuition and instead focus on the key facts and what needs to be done to rebuild our country.” Mica’s column, which appears each month in the “K Street Insiders,” is geared toward lobbyists and trade associations in Washington, D.C. To see the column, use the link.