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House approves cramdown bill

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WASHINGTON (3/6/09)--The U.S. House of Representatives yesterday voted 234-191 in favor of H.R. 1106, Helping Families Save Their Homes Act, which contains a mortgage cramdown provision that will affect credit unions. The provision would allow bankruptcy judges to modify the terms of existing mortgages, which the Credit Union National Association (CUNA) has said could lead to borrowers’ gaming of the system. The bill will now move to the Senate, where CUNA believes there is an opportunity to limit the scope, application and duration of the legislation. The cramdown portion of the bill was modified prior to the House vote, but the revised language is insufficient, CUNA said. It "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,” said Ryan Donovan, CUNA vice president of legislative affairs. Though CUNA does not support the cramdown provision of H.R. 1106, it does strongly support another provision that would make higher share and deposit insurance ceilings permanent.

Call report expense data change

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ALEXANDRIA, Va. (3/6/09)—There will be changes to the March 31 call report designed to enable credit unions to provide a more accurate picture of expenses related to the recent Corporate Stabilization Program, according to the National Credit Union Administration (NCUA). The NCUA said its new version of the 5300 Call Report will show the expense related to the stabilization action as a separate line item on the Income Statement within the Call Report. It will also show net income before and after the expense item. The two new accounts added are NCUSIF Stabilization Expense, Account 311 and Net Income (Loss) before NCUSIF Stabilization Expense, Account 660A. The agency said this will allow call report users to quickly ascertain the impact of the stabilization expense on the operating position of each credit union. The NCUA promised a letter to credit unions to be issued soon with additional details. In the NCUA announcement, Chairman Michael Fryzel said, “This modification is an improvement for credit unions, their members and NCUA. It will present a clearer, and I believe fairer, picture of the real financial condition of a credit union given the external factors that have affected the corporate network.: He added, “I am committed to continuing to provide reasonable and innovative regulatory approaches for credit unions during these difficult times, whether it is through last week’s Supervisory Letter regarding examiner flexibility or this Call Report enhancement.”

Inside Washington (03/05/2009)

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* WASHINGTON (3/6/09)--Minnesota credit union representatives met with their congressional members on Capitol Hill during the annual Hill hike event, which coincided with the Credit Union National Association’s Government Affairs Conference Feb. 21-26. Representatives met with Sen. Amy Klobuchar (D), Rep. Betty McCollum (D), Rep. Collin Peterson (D), Rep. Michele Bachmann (R) and Rep. Keith Ellison (D). Discussions focused on the economy, credit unions’ safety and soundness, mortgage cramdown legislation and member business lending. McCollum (pictured) said credit unions are stable and are a "high standard."(Photo provided by the Minnesota Credit Union Network) ... * ALEXANDRIA, Va. (3/6/09)--Addressing the North Carolina Credit Union League at a town hall forum Wednesday, National Credit Union Administration (NCUA) Vice Chair Rodney Hood underscored guidance released by the agency that addresses its Corporate Credit Union Stabilization Program. The letter, which was also sent to federal credit unions, discusses how the program may impact individual credit unions' earnings and net worth ratios. (See RELATED: Examiners to address corporate plan impact on CUs) ... * WASHINGTON (3/6/09)--The Credit Union National Association has released a summary of the guidelines and program description for President Barack Obama’s Making Home Affordable program, which aims to help homeowners making a good-faith effort to stay current on their mortgage payments. The summary also specifically notes how the program will affect credit unions ... * WASHINGTON (3/6/09)--If the Federal Reserve Board could issue its own debt, it could have the ability to fund more liquidity programs, according to financial industry observers. The idea of allowing the Fed to issue its own debt is gaining speed as the bank readies to inject billions of dollars in the market to boost banking lending (American Banker March 5). The other alternative would allow the Treasury to sell more debt and turn over the profits to the Fed. But if the Fed received money from the Treasury, Congress would be forced to increase the government’s debt ceiling. If the Fed was its own debt-issuer, no restriction would be imposed. According to Douglas Landy, former Fed lawyer, the central bank’s balanced sheet is maxed out ... * WASHINGTON (3/6/09)--While testifying before the Senate Finance Committee, Treasury Secretary Timothy Geithner provided new details about a proposal that the department plans to announce on creating a public-private partnership to buy toxic assets (American Banker March 5). The plan would “marry government financing,” using both the Federal Reserve Board and the Federal Deposit Insurance Corp. However, Geithner did not detail either agency’s roles. Government financing would be used to invigorate the markets, which would make private lending and borrowing more appealing. The program would use capital as a bridge to private capital, direct support to re-open credit markets and use government financing and private capital to unfreeze the markets, he said ... * WASHINGTON (3/6/09)--Guidance released by the Treasury Department Wednesday indicates that servicers participating in loan modifications through the Making Home Affordable program will need to take a step-by-step approach to help borrowers. According to the guidance, servicers will follow a sequence of steps to reduce borrowers’ monthly payment to no more than 31% of gross monthly income. The first step will require servicers to reduce the interest rate and then extend the term of the loan up to a maximum of 40 years and then, if needed, forbear principal ... * WASHINGTON (3/6/09)--The Federal Deposit Insurance Corp. (FDIC) could cut in half a special emergency assessment fee announced last week if the House approves a bill that would raise the agency’s borrowing authority to $100 billion from $30 billion. The House was expected to vote on the bill Thursday (American Banker March 5). In an earlier American Banker story, FDIC Chairman Sheila Bair noted that without the assessment fee, the Deposit Insurance Fund could become insolvent ...

Franks work continues on financial reform

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WASHINGTON (3/6/09)--House Financial Services Committee Chairman Barney Frank (D-Mass.) announced Thursday that he will continue to work on financial reform and regulatory restructuring, and move legislation to the House floor that would curtail abusive mortgage lending practices, and reform credit card and overdraft practices. Frank’s committee also will meet to examine creating a systemic risk regulator, enhancing the effectiveness and scope of prudential standards, streamlining front-line regulation, and strengthening consumer and investor protection. A March 20 hearing has been scheduled to examine if federal and state law enforcement agencies have all they need to pursue financial institutions and individuals that commit fraud, abuse their positions and violate the law. “While we will continue to work with the Obama Administration on stabilization, it is now essential that we continue work on our reform agenda and address the need for financial regulatory restructuring to diminish systemic risk and enhance market integrity,” Frank said in a release. The mortgage legislation would reform the mortgage origination process and ban predatory lending, similar to a 2007 effort that passed the House, but later failed in the Senate. Rep. Carolyn Maloney (D-N.Y.) has re-introduced legislation to abolish unfair and deceptive credit card industry practices by protecting cardholders from interest rate increases, misleading terms, excessive fees, and subprime cards for those who cannot afford them. Maloney re-introduced the legislation with Sens. Charles Schumer (D-N.Y.) and Mark Udall (D-Colo.)

CUNA CUs ready if MBL cap is lifted

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WASHINGTON (3/6/09)--Sen. Charles Schumer’s (D-N.Y.) intent to draft a bill that would lift the credit unions’ member business lending caps (MBL) is good news not only for credit unions, but for small businesses, which credit unions are ready to help, according to the Credit Union National Association (CUNA). Schumer, a member of the Senate Finance and Senate Banking Committees, announced Thursday that he is drafting legislation to lift the caps--which currently prevent credit unions from engaging in lending that is more than 12.25% of their total assets. Schumer cited CUNA's estimate that credit unions could lend $10 billion to small businesses in the first year after the cap is lifted. Lifting the cap would help small businesses facing a gaping void in credit availability, Schumer said in a letter to colleagues. “Credit unions also have a long track record of scrutinizing borrowers, and low delinquencies as a result,” Schumer said in a release. “Because deposits have been on the rise as people move their savings from the stock market to savings accounts, they have cash on hand to loan to small businesses." “Credit unions have stood ready to help small businesses, but many are chafing against the arbitrary statutory cap that exists under current law,” said John Magill, CUNA senior vice president of legislative affairs. Magill noted that Schumer has said the bill’s focus “must be on increasing lending to small businesses--the ‘lifeblood of our economy.’” Magill added: “His legislation would do just that, and with no cost to the American taxpayer.” The cap on member business lending has been in place for 10 years and credit unions have a long and safe record of making such loans, Magill said. More than one-quarter of the nation’s 8,147 credit unions offer member business lending, CUNA figures indicate, and those loans grew by 18% last year to $33 billion from $28 billion in 2007. The average loan size is $215,000. "Many credit unions have made it clear they would lend even more money if they could," Magill said. The National Credit Union Administration also has commended Schumer for his plans to draft legislation on MBL caps. “NCUA considers credit union member business lending to be a tangible and important benefit for small businesses, provided that the loans are properly regulated and made in a prudent manner consistent with safety and soundness standards,” said NCUA Chairman Michael Fryzel. “I commend Sen. Schumer for his recognition of the important role credit unions can play in helping members during these difficult economic times.” Member business lending caps were one of credit unions’ many talking points during an annual Hike the Hill event that coincided with the Governmental Affairs Conference in Washington, D.C. last week. During the Hill hikes, representatives from credit unions nationwide expressed to congressional members that they want the caps lifted to help small businesses thrive in a tough economy (News Now Feb. 26).