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State AGs want principal adjustments before foreclosure

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WASHINGTON (3/10/11)—Federal legislation that proposed to permit judicial modification of mortgage terms under the bankruptcy law--typically referred to as “cramdowns”-- has been defeated in recent years. However, a group of state attorneys general and several federal agencies have been negotiating a settlement agreement with the major mortgage servicers which could create a possible loan modification process that could be viewed as having a similar result, at least for the servicers subject to the agreement. This settlement agreement is intended to resolve enforcement actions that have been brought against the mortgage servicers. Credit Union National Association (CUNA) General Counsel Eric Richard said that although credit unions are not subject to such enforcement actions, CUNA continues to monitor these for any possible impact on credit unions. Last week, the attorneys general circulated a 27-page outline of what they would like to see in a settlement agreement to address concerns about how mortgage servicers have handled foreclosures. The mortgage servicers are now reviewing the proposal, so nothing is finalized, Richard emphasizes. Included in the “remedies” proposed by the attorneys general are “a loss mitigation duty,” which would require covered servicers to “thoroughly evaluate borrowers for all available loss mitigation options prior to foreclosure referral.” This would apply to all eligible borrowers, including borrowers in bankruptcy. Servicers subject to the agreement would have to “facilitate” modifications, such as helping to fill out the application, when a modification would result in a greater “net present value” (NPV) than foreclosure. Servicers would be expected to “consider and apply” reductions in principal and in bankruptcy cases to reduce the interest rate on a mortgage loan to zero percent for the first five years. The proposed agreement envisions the new Consumer Financial Protection Bureau involved in monitoring the calculation of the NPV, as well as other aspects of the agreement. “Including the CFPB in the proposed settlement document raises questions as to whether some terms of the agreement could become standards applied to mortgage lenders in general,” Richard noted. “It’s also unclear how the brief reference that servicers’ loan modification programs are to modify secondary liens could work in practice. These are some of the provisions that CUNA is tracking closely.” The proposed agreement attempts to address a wide range of problems that have come to light about servicers and the foreclosure process, including: Robo-signing of documents with no verification of accuracy; failure to document the chain of assignment; the inability of borrowers and housing counselors to communicate with servicers; failure of temporary modifications being made permanent after months of on-time payments by borrowers; violations of the Servicemembers Civil Relief Act; and failure of servicers to respond to short sale offers. Use the resource link for the settlement terms document.

CUs urged to action on MBL bill CUNA

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WASHINGTON (3/10/11)--The Credit Union National Association (CUNA) is asking credit union backers nationwide to urge their respective Senators to back the Small Business Lending Enhancement Act, S.509, legislation that would raise the credit union member business lending cap to 27.5% of assets. A recent CUNA study found that lifting the MBL cap in this fashion could provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs at no cost to taxpayers. The CUNA Action Alert, issued on Tuesday, also asks credit union representatives to thank their legislators that have already backed 2. 509. The legislation was introduced by Sen. Mark Udall (D-Colo.) on Tuesday. Sens. Olympia Snowe (R-Maine), Charles Schumer (D-N.Y.), Barbara Boxer (D-Calif.), Sherrod Brown (D-Ohio), Susan Collins (R-Maine), Al Franken (D-Minn.), Kirsten Gillibrand (D-N.Y.), Patrick Leahy (D-Vt.), Joseph Lieberman (I-Conn.), Bill Nelson (D-Fla.), Jack Reed (D-R.I.), Sheldon Whitehouse (D-R.I.), and Ron Wyden (D-Ore.) have signed on as co-sponsors of the bill. CUNA thanked the Senators for their help in a Tuesday letter. (Use resource link below to read related March 9 story: CUNA urges senators for MBL bill support) MBL legislation was introduced last year, and while it had significant bipartisan support from both legislative bodies, it did not make its way to President Obama’s desk to be signed into law. CUNA President/CEO Bill Cheney commented on the re-introduction of the MBL legislation, noting that while economic conditions may be improving, “the nation is still in need of more jobs, and small businesses are still in search of affordable and accessible options for capital. Credit unions can help on both fronts.” "Raising the statutory cap is a no-cost way to free credit unions to do more of what they are doing now: making safe and responsible loans to help their members start or grow their small businesses,” Cheney added. Udall’s legislation would limit the growth of a given credit union's MBL portfolio to no more than 30% annually, and would require credit unions to be well capitalized and to be lending at a ratio near the current 12.25% cap for the previous four quarters. Eligible credit unions would also need to have a minimum of five years of underwriting and servicing MBLs and would need to demonstrate sufficient prior experience in managing these types of loans. Udall’s legislation would also give the National Credit Union Administration (NCUA) the authority to set intermediate (MBL) limits. Rep. Ed Royce (R-Calif.) told attendees of CUNA’s recently completed Governmental Affairs Conference that he intends to introduce his own MBL cap legislation in the House. To take action advocates can visit the Grassroots Action Center.

Inside Washington (03/09/2011)

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* WASHINGTON (3/10/11)--Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services subcommittee on capital markets and government-sponsored enterprises, has introduced a bill to help establish a U.S. covered bond market. The bill was co-sponsored by Rep. Carolyn Maloney (D-N.Y.), ranking member of the House Financial Services subcommittee on financial institutions and consumer credit. Covered bonds have been used in Europe for decades to help provide additional funding options for issuing institutions and are a major source of liquidity for many European nations’ mortgage markets. The purpose of the U.S. Covered Bond Act of 2011 is to create a legislative framework for U.S. covered bonds to allow credit to flow more freely from the capital markets to households, small businesses and state and local governments in a way that enhances stability of the broader financial system. “As our country recovers from the fallout of the financial crisis, it’s more important now than ever before to provide the U.S. capital markets with new and innovative ways to unlock credit and encourage private sector capital to get off the sidelines,” Garrett said … * WASHINGTON (3/10/11)--In a comment letter sent to the Federal Reserve Board, Acting Comptroller of the Currency John Walsh warned that the proposed debit interchange rule could be detrimental to banks of all sizes. Walsh said the proposal is too narrow and could threaten the safety and soundness of banks (American Banker March 8). Under the Dodd-Frank Act, the Fed is charged with keeping debit interchange fees “reasonable and proportional.” The Fed proposal, issued in December, limits interchange to 12 cents per transaction. But Walsh said the board overreached its authority and was required only to set reasonable standard, not an allowable fee. “Within the constraints of this statutory framework, we believe there is flexibility for the board to consider alternative approaches that could enable debit card issuers to recover identifiable costs of conducting a debit card business,” Walsh wrote. Credit Union National Association President/CEO Bill Cheney last week called for the Fed to stop, study and start over on interchange fee regulations and encouraged members of Congress to strike a legislative remedy that will ensure a meaningful interchange fee carve-out …

NCUA launches

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ALEXANDRIA, Va. (3/10/11)--The National Credit Union Administration (NCUA) on Wednesday launched, a new website that will offer “a one-stop toolbox of educational information and personal finance tips designed to help individuals in making smart financial decisions and better choices for their money.” The website contains background information on the credit union system and tells interested parties how they can start their own credit union. The site also addresses the needs of consumers by helping users locate local credit unions and reminding existing and potential members that up to $250,000 worth of funds placed in a credit union are covered by the NCUA’s deposit insurance fund. The site also “provides important pointers for resolving credit union member complaints,” according to the NCUA. More general information on key financial concepts like saving, borrowing, managing credit, and obtaining free credit reports are covered by the site. “The best way for consumers to protect their money and to get the best financial deal is to learn the most that they can about financial products and services before signing on the dotted line,” NCUA Chairman Debbie Matz said in comments accompanying the release. “Whether it’s a car loan, a mortgage, a credit card, or a short-term alternative loan, smart consumers need to do their financial homework.” The NCUA has timed the launch to coincide with National Consumer Protection Week, which runs through March 12 and aims to highlight consumer protection and education efforts around the country. For more on the new NCUA site, use the resource link.