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Inside Washington (04/17/2008)

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* WASHINGTON (4/18/08)--The gap between Sen. Richard Shelby (R-Ala.) and Sen. Christopher Dodd (D-Conn.) on how to fix the housing market has widened (American Banker April 17). Shelby questioned the Senate Banking Committe chairman’s plan at a Wednesday hearing, saying it would do nothing more than aid “reckless lenders” and help “undeserving borrowers.” He said--and Dodd agreed--that the committee needs to find the cause of the mortgage market problems. But Dodd urged the committee to make foreclosure prevention a top priority. Shelby has argued that the government should not step in to help the housing market, and that the market will have to correct itself. Dodd has said he wants to get his bill through the Senate by Memorial Day. No more hearings have been scheduled for it ... * WASHINGTON (4/18/08)--Banks aren’t moving quickly enough on their losses--especially those involving commercial real estate credits, said Comptroller of the Currency John Dugan (American Banker April 17). He said bankers should reward loan officers for letting management know about problems early. Dugan noted his agency would encourage banks to refresh their appraisals and give managers a “reasonable” amount of time for review. Regulatory expectations must be clearly communicated--banks can’t be expected to deal with problems that have been downplayed, he said ... * WASHINGTON (4/18/08)--Policymakers failed to settle on a compromise for tightening regulation for Fannie Mae and Freddie Mac at a meeting Tuesday (American Banker April 17). Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said reform is important, but foreclosures are a priority. Dodd met with Henry Paulson, Treasury secretary; David Nason, Treasury assistant secretary for financial institutions; Sen. Richard Shelby (R-Ala).; Daniel Mudd, Fannie Mae CEO; Richard Syron, Freddie Mac CEO; and Robert Steel, undersecretary for domestic finance ...

FOIA rules would streamline under NCUA plan

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WASHINGTON (4/18/08)—A proposed a rule intended to streamline the National Credit Union Administration's (NCUA's) system for complying with freedom of information and privacy laws was approved for comment Thursday. Some of the revisions were housekeeping changes; others were more substantive. “The proposed rule incorporates recent amendments to the Freedom of Information Act, adds definitions, and revises and clarifies provisions implementing the Privacy Act,” the board said in a statement. The proposal calls for a 60-day comment period. Regarding the FOI, the NCUA would amend regulations to identify more precisely the agency’s Information Centers and addresses, and describe required content for request letters. “The changes are intended to minimize delays caused by requests being sent to an inappropriate office, or lacking necessary and sufficient information,” the agency's statement said. On the privacy issue, the proposal would abolish present language that permits persons to submit telephone requests. The NCUA Board is concerned that it is too difficult to enforce the regulation’s identification requirements. The board said that contemplated housekeeping changes in the privacy area include correcting cross-references, grammar and punctuation; a change in nomenclature and additional definitions to improve understanding of rights and requirements, and more exact definitions for “system manager” and “working day.” NCUA also said the proposed language on privacy would clarify that requests must be submitted in writing to the appropriate system manager or to other staff as specified. NCUA staff attorney Linda Dent, presenting the proposal at the agency's open board meeting, said NCUA received about 200 FOI requests in 2007. The average time spent by NCUA in completing a "simple request" for information is 16 days, she said. For "more complex requests," Dent said the agency averages a 32-day response time. Dent added that NCUA grants either partial or full information for 96% of information inquiries. Use the resource link below to access the NCUA plan.

NCUSIF report shows steady equity ratio

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ALEXANDRIA, Va. (4/18/08)—The National Credit Union Share Insurance
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Fund (NCUSIF) equity ratio is projected for the end of the year at 1.29% of insured shares, which is exactly where it began the year. That wouldn’t be high enough to prompt a dividend payment for all federally insured credit unions, but it would be far above the level at which a premium would need to be charged. The figures were contained in the National Credit Union Administration‘s (NCUA’s) quarterly NCUSIF report released at its Thursday open board meeting. For the first quarter of the year, the fund’s net income of $61.3 million is $21.2 million ahead of budget. Credit Union National Association Chief Economist Bill Hampel said the NCUA’s projection of an unchanged equity ratio by the end of the year “is good news considering the stresses credit unions are facing from a major housing market correction and a recession.” The NCUSIF report also showed that while the number of problem
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credit unions, ranked at CAMEL Code 4/5, has increased by only 20 since year-end 2007, the amount of insured shares at those credit unions has jumped by $3 billion. The report said there were 229 CAMEL 4/5 credit unions as of the end of the first quarter, up from 211 in December. However, the percentage of CAMEL Code 4/5 shares-to-total-insured-shares hit 1.59% by March 31. That figure was 1.04% three months earlier. The NCUSIF quarterly report, presented to the board by NCUA Chief Financial Officer Mary Ann Woodson, also projected a 2008 net income of $159.3 million. For the past 10 years, that figure has ranged from a low in 2003 of $28.9 million to a high in 2000 of $204.2 million.

Mass. CU-bank merger on closed agenda

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WASHINGTON (4/18/08)—Aspects of a merger plan between Northeast Community CU and Haverhill Bank, under the name Haverhill Bank, were expected to be addressed Thursday during a closed meeting of the National Credit Union Administration (NCUA) Board, but the agency declined to comment on the session. It is NCUA’s general policy not to discuss items on the agenda or action it takes during a closed meeting of the agency’s three board members. However, NCUA may issue a statement in the coming days about the status of the merger. The Massachusetts Division of Banks has accepted public comment on the proposed merger of the $100 million asset credit union and $130 million asset bank. The merger partners have said the move is designed to expand and improve on financial services for area residents.

Two housing-rescue bills readied for House committee vote

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WASHINGTON (4/18/08)--The House Financial Services Committee introduced two measures Thursday, each intended to combat the country’s current unprecedented rise in foreclosures, and the associated impact on cities and states. According to an announcement by the committee’s chairman, Rep. Barney Frank (D-Mass.), the FHA Housing and Homeowner Retention Act (H.R. 5830) and the Neighborhood Stabilization Act (H.R. 5818) will be voted on April 23 and 24. H.R. 5830, first announced by Frank in March, proposes to expand the Department of Housing and Urban Development’s FHA program to help refinance at-risk borrowers into viable mortgages. The bill would also require the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. The second measure, H.R. 5818, introduced by Chairwoman Maxine Waters (D-Calif.) of the House Financial Services subcommittee on housing and community opportunity, would provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country.

New services proposed for CUSOs

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WASHINGTON (4/18/08)—Credit Union National Association (CUNA) President/CEO Dan Mica said Thursday that CUNA has concerns about proposed provisions to extend federal regulators’ access to the books and records of federally insured state credit union CUSOs, and to allow state regulators to inspect the books and records of a federal credit union's CUSO if a state chartered credit union also participates in that CUSO. “However, at the same time, we commend the agency's effort in proposing expanded authority for CUSOs. We look forward to working with NCUA to enhance the ability of credit unions to participate with CUSOs,” Mica said following a National Credit Union Administration (NCUA) open board meeting. At that meeting, the agency also proposed an expansion of services for (CUSOs) to conform with broader powers granted to credit unions by the 2006 Financial Institutions Regulatory Relief Act. The agency's plan also would add credit card loan origination and payroll processing to the CUSO list. The agency noted that the legislative history of the 2006 relief provisions indicates Congress intended to allow federal credit unions to sell to eligible members negotiable checks, money orders, and similar transfer instruments, including international and domestic electronic fund transfers. "The Board believes enactment of that law warrants a parallel expansion in the CUSO rule," NCUA said, "since a federal credit union may elect to provide some or all of these types of services through the vehicle of a CUSO." The same proposal also would permit CUSOs to originate and hold credit card loans as a principal on their own behalf or on behalf of credit unions. NCUA pointed out that generally it has permitted CUSOs to engage in loan origination "where a degree of expertise is required to be successful." It cited as examples business, student and real estate lending. "NCUA believes credit card origination also requires a degree of specialization and expertise to succeed, and the proposal will allow credit unions to collaborate and pool resources by working with a CUSO," the agency said. As for payroll processing, NCUA said the agency's general counsel has concluded that a federal credit union may provide this service for members as an exercise of its incidental powers, and that a CUSO may assist it. The proposal also would clarify that CUSOs may buy and sell loan participations that they are currently authorized to originate. HOwever, the NCUA also proposed to extend its authority to inspect a CUSO's books and records to federally insured, state-chartered credit unions involved in CUSOs. Reciprocally, state regulators also would have the authority to inspect the books and records of these CUSOs, including ones owned by a federal credit union if a state credit union also participates in the CUSO. The agency would also restrict the ability of federal credit unions to recapitalize CUSOs if the credit union is less than adequately capitalized under Prompt Corrective Action. CUNA said it will be scrutinizing the provisions on access to books and records, along with its Governmental Affairs Committee subcommittees.

Low-income standard would be broadened under plan

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WASHINGTON (4/18/08)—The National Credit Union Administration (NCUA) proposed broadening its low-income designation to consider different income patterns in metropolitan areas. The designation is important in determining whether a credit union qualifies for assistance to help low-income members. “The proposed rule will eliminate the confusion associated with adjusting median household income in metropolitan areas with higher costs of living,” the board said. It set a 60-day public comment period on the recommendation. The 2006 Member Service Assessment Pilot Program (MSAP) recommended that the formula for determining whether a federal credit union qualifies as low-income be reassessed. The NCUA Outreach Task Force agreed with the MSAP that the standard for low-income designation be changed to be consistent with the position of other federal agencies. The board in a statement pointed out that presently agency regulations describe a low-income family as members whose annual household income falls at or below 80% of the national Median Family Income, but that the rule does provide a differential for certain geographic areas with higher costs of living. The NCUA change would “revise the definition of 'low-income members' to base the determination on an income standard that relies on Median Family Income or the alternative of median earnings,” according to the board statement. It added: “For metropolitan areas, the proposal defines low-income members as those living in an area, within the metropolitan area, where the standard is at or below 80% of either the standard for the entire metropolitan area, or the national standard, whichever is greater." In addition to eliminating the confusion associated with adjusting the national Median Family Income for metropolitan areas with higher costs of living, it will better align the criteria for low-income designation with that now used to determine field of membership and other credit union classifications, NCUA said. The low-income designation is considered especially important to credit unions because it determines whether they qualify for subsidies from the Community Development Revolving Loan Fund.

FinCEN releases foreign corruption SAR guidance

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WASHINGTON (4/18/08)--The Financial Crimes Enforcement Network (FinCEN) yesterday released new guidance for financial institutions that aims to help law enforcement target foreign corruption and money laundering. The guidance requests that financial institutions include the term “foreign corruption” in the narrative portions of their Suspicious Activity Reports (SARs). It also clarifies the definition of “senior foreign political figure.” “FinCEN guidance seeks to focus financial industry efforts to provide law enforcement authorities with indications of suspicious activity in a way that promotes faster and more targeted identification and investigation,” said FinCEN Director James Freis Jr. “More consistent flagging of the specific term ‘foreign corruption’ will facilitate law enforcement efforts focused on this high priority area.” The change in guidance is a “way of streamlining the reports,” according to Nichole Seabron, Credit Union National Association (CUNA) federal compliance counsel. “They’re trying to set a precise standard. It’s more informational,” she said. CUNA has continued to meet with the Treasury Department and has discussed FinCEN’s efforts to prevent the financial system from being abused by money launderers, terrorists and other criminals. CUNA’s Bank Secrecy Act (BSA) Task Force also has gathered information on how to improve the BSA process (News Now June 25, 2007). For more information, use the link.