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Inside Washington (05/18/2011)

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* WASHINGTON (5/19/11)--Mortgage lenders and appraisers are clashing over a provision of the Dodd-Frank Act that requires lenders to pay “customary and reasonable” fees to appraisers. The measure was written to address a long-held appraiser complaint that lenders drive down fees at the expense of quality through ownership of appraisal management companies (AMCs). The law seeks to ensure lenders hire the most competent, rather than the cheapest, appraisers (American Banker May 17). But appraisers and independent AMCs have complained to regulators that some lenders have lowered their fees since the provision took effect April 1. Other lenders have virtually done the same by demanding more work for the same pay as before. Interim federal guidance advises banks to look at the fees they have paid in the past year to determine what is “customary and reasonable.” Thomas J. Kirchmeyer, president of Kirchmeyer & Associates Inc., an AMC in Buffalo, N.Y., said lenders bear more risk and want more support for the value they get from the appraiser. For example, some lenders are asking for two current or pending listings in the area, as well as the usual three comparable sales. Bill Garber, director of government and external relations at the Appraisal Institute, an appraiser trade group, said instead of monitoring fees, regulators are primarily concerned with the competency of appraisers and whether AMCs’ appraisal ordering systems always accept the lowest bid … * WASHINGTON (5/19/11)--Federal Housing Finance Agency (FHFA) officials fear Federal Home Loan Banks have drifted too far from their original purpose. Four of the 12 FHLBs now hold more in investments than advances (American Banker May 17). Two others are near that threshold. In a speech to Home Loan bank officials last week, FHFA Acting Director Edward DeMarco emphasized that the role of the banks is to promote liquidity through advances, not to grow investments. “First, the Federal Home Loan Banks’ various financial problems of the past 20 years have not come from the traditional advances business,” DeMarco said. “Instead, investments and mortgage purchase programs have been the source of deterioration in the financial condition of some Federal Home Loan Banks. Second, a large investment portfolio intended to generate added earnings is inconsistent with the purposes of the Federal Home Loan Bank system and is a misuse of the system’s preferential access to capital markets.” A decade ago, banks’ assets were primarily composed of advances, which equaled roughly 80% to 90% of their assets. However, by March 31, advances accounted for just 52.4% of assets. Investments had grown to a combined 38.7% of total assets by the end of the first quarter …

Legal opinion a step toward mutual fund for MBLs CUSO attorney says

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ALEXANDRIA, Va. (5/19/11)--In a legal opinion letter that clarifies its rules regarding the sale of loans, the National Credit Union Administration (NCUA) said a federal credit union is permitted to sell loans of its members to a registered mutual fund. The agency letter, signed by Hattie M. Ulan, NCUA associate general counsel, was in response to an inquiry from Guy Messick, a credit union attorney with Messick & Weber P.C., Media, Pa. Messick told News Now that his firm approached the NCUA to take an existing pilot project “to the next level,” that is from an unregistered mutual fund to a registered mutual fund. Messick said the underlying assets are credit union business loans. The NCUA legal opinion said permission for a federal credit union to sell members’ loans to a registered mutual fund is found in section 701.23 of the agency’s regulations, which controls the purchase, sale, and pledge of eligible obligations. The NCUA letter notes that “eligible obligations” is defined as a loan or group of loans. The letter goes on to say that such sales are permissible provided the credit union’s board of directors or investment committee approves the sale, and a written agreement and a schedule of the eligible obligations covered by the agreement are retained in the seller's office. Messick said the purpose of his approach is to provide a liquidity tool for credit unions with a large lending demand and a means to sell business loans to relieve pressures on the aggregate business loan regulatory cap. Also, Messick said, it is intended to be a way “to share loan yield with credit unions by a means that is safer then loan participations because the repayment risk is spread across hundreds or even thousands of loans,” or, in other words, buying shares in a mutual fund such as this would be a safer investment than purchasing a loan participation. The NCUA opinion letter is just a step in Messick & Weber’s pursuit of this authority. As yet, credit unions cannot benefit from the yield of such a fund because they are not permitted to buy shares in the fund. Messick maintained that the Federal Credit Union Act confers power to the NCUA to permit this type of investment and contended it is a policy decision as to whether NCUA will permit it. “This power could also permit the creation of mutual funds consisting of any types of credit union loans including mortgage loans. With the uncertainty over the future of Fannie Mae and Freddie Mac, this could be a valuable tool for credit unions,” Messick argues. “There is capital in the system to share,” Messick said, “Loan participations can share loan yield but mutual funds of credit union loans is a more efficient and less risky means to share yield.” Another benefit of the mutual fund plan, Messick said, is that outside institutional investors could buy into these mutual funds and that would add further liquidity to the credit union system.

CUNA MBLs mean greater choice for small business

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WASHINGTON (5/19/11)—Credit Union National Association (CUNA) President/CEO Bill Cheney cited National Small Business Week as another opportunity to emphasize to Congress that it needs to lift the credit union member business lending cap to give small businesses greater affordable financing options. Cheney made the points in a Wednesday op-ed column for The Daily Caller, a news and opinion website founded by Tucker Carlson, a 20-year veteran of print and broadcast media, and Neil Patel, former chief policy adviser to Vice President Cheney. Cheney in the column noted that Congress’s focus during National Small Business Week, which runs until May 20, should be on “what is best for America’s small businesses.” “And what’s best is choice,” Cheney added. Cheney noted that banker opposition has been the “stumbling block” to advancement of credit union small business lending legislation — “which, should it pass, would still barely dent the banks’ dominant share of the market.” CUNA has supported House and Senate legislation that would lift the current MBL cap to 27.5% of total assets. Lifting the MBL cap would, according to CUNA estimates, generate $13 billion in new small business loans over the first year, creating 140,000 new jobs at no expense to taxpayers. H.R. 1418, MBL cap lift legislation that was introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) last month, currently has 25 cosponsors. Sen. Mark Udall’s (D-Colo.) S. 509 was introduced earlier this year and has 18 cosponsors. Cheney noted that CUNA surveys have found that two-thirds of voting-age consumers agree that credit unions should be making more small business loans to help stimulate the economy and create jobs. He added that “a broad-based coalition of small business groups also supports [the MBL] legislation,” with the National Small Business Association, the National Association for the Self-Employed, the National Association of Realtors, the National Association of Manufacturers, and the League of United Latin American Citizens counting among those groups. For the full column, use the resource link.

Retailers feel CU heat on interchange Cheney

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WASHINGTON (5/19/11)--Retailers “are feeling the heat” from credit unions and others urging a delay of a statutory cap on debit card interchange fees, said Credit Union National Association (CUNA) President/CEO Bill Cheney, which is clear by their pledge announced yesterday to escalate their fight over the next 60 days. The National Retail Federation announced Wednesday that it soon will launch a nationwide 60-day grassroots, media and lobbying barrage--complete with hundreds of thousands of dollars in radio ads and Capitol Hill visits in June--to fight efforts to delay implementation of the cap in favor of further study. Without legislation to push back the effective date, the cap is set to go into effect July 21. Cheney said in response to the retailers’ plans that it is no surprise the merchants are fighting back, but credit unions will continue fighting as well: “Since March 15, credit unions have generated at least 325,000 direct contacts with members of Congress in support of bills by Sen. Jon Tester (D-Mont.) and Rep. Shelley Moore Capito (R-W.Va.) to delay and study the law and proposed rules. Congress is listening to credit unions.” At issue is a plan by the Federal Reserve Board to implement the Dodd-Frank Wall Street Reform Act cap on debit and interchange fees at seven to 12 cents per transaction. “Credit unions acknowledge that there should be sensible reform of interchange fees--but what is in the law now is not sensible at all,” Cheney said. The Federal Reserve Board’s proposal carries no enforcement mechanism to ensure a small issuer exemption works and, therefore, credit unions and small community banks will be affected by the regulation in a manner that Congress did not intend, the CUNA leader underscored. “Congress needs to stop, study and start over on the interchange rule,” he said.

Interchange advocacy efforts continue in CUNA Hill visit

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WASHINGTON (5/19/11)—A Wednesday meeting with Sen. Barbara Boxer (D-Calif.) was the latest example of credit union advocacy in the face of pending interchange regulations.
Click to view larger image CUNA President/CEO Bill Cheney (left), Senior Vice President of Legislative Affairs John Magill (far left) and Vice President of Legislative Affairs Ryan Donovan (center) discuss the issues that interchange fee cap regulation would cause consumers and credit unions during a meeting with Sen. Barbara Boxer (D-Calif.) (far right) and a member of her staff. (CUNA Photo)
Credit Union National Association (CUNA) President/CEO Bill Cheney, flanked by Senior Vice President of Legislative Affairs John Magill and Vice President of Legislative Affairs Ryan Donovan, urged the senator's support for a delay of the implementation of the interchange fee cap regulations. CUNA has noted the Federal Reserve's proposed debit card interchange fee cap of seven cents to 12 cents, down from a current average charge of 44 cents, would result in fees that are far below any card issuer's per transaction cost, eliminating any return on debit-card products and services. This reduction would likely force an introduction of new fees to all consumers who are debit card users, and could limit access to credit for some low-income debit card users. The statutory deadline for a Fed proposal is July 21, and the agency is expected to release a proposal before that date. CUNA has called on Congress to “Stop, study and start over” on the interchange proposal, and to ensure that a planned interchange exemption for credit unions and other small issuers with under $10 billion in assets would work as planned. Federal Reserve Chairman Ben Bernanke, whose agency is developing the interchange regulations, and several other regulators have said that they are unsure that the exemption will work in practice. A CUNA grassroots action alert has generated approximately 320,000 communications to federal lawmakers, and state credit union leagues and individual credit unions continue to be active in their own districts. CUNA and its partners in the Electronic Payments Coalition have jointly filed a court document in support of TCF National Bank's (TCF) lawsuit to block the Federal Reserve Board's implementation of proposed debit card interchange fee cap regulations. The TCF suit states that the government cannot write laws that would arbitrarily prevent a given business from recovering its costs sufficiently to avoid losses on its various business operations. For CUNA coverage of recent interchange actions, use the resource links.

CFPB sample mortgage disclosures ready for comment

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WASHINGTON (5/19/11)--The Consumer Financial Protection Bureau (CFPB) on Wednesday began the next stage of its mortgage disclosure simplification by releasing sample mortgage forms that combine the complicated documents required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into one document. Current CFPB leader Elizabeth Warren said that the CFPB's mortgage project, known as the "Know Before You Owe" project, "is about giving consumers upfront, easy-to-understand information that helps them compare different mortgage offers and find the one that's best for them." The CFPB release aims to make the costs and risks of mortgage loans clearer and would help consumers to comparison shop for the best offer. The combined form is required under the Dodd-Frank Act and is intended to reduce mortgage lender regulatory burden and make mortgage disclosures less confusing to consumers. A final version of the new mortgage form is required to be released by July 2012. The forms are available in both Spanish and English and have been posted online for review and comment. The CFPB will also collect input via direct interviews in Albuquerque, N.M., Baltimore, Md., Birmingham, Ala., Chicago, Ill., Los Angeles, Calif. and Springfield, Mass. Credit unions and credit union members may give online feedback regarding the draft mortgage disclosure. Comments on this version of the forms will be accepted until May 27, and a new draft form will be released soon thereafter for an additional round of online comments. Use the link below to access the "industry tool" to comment on the form. The CFPB will collect and evaluate comments and revise the forms five separate times between now and September, and new sample forms will be released about once per month. A single draft disclosure will then be developed. The Credit Union National Association met with the CFPB ahead of the Wednesday release, and CUNA is planning to meet with the CFPB next week as well. For the CFPB release, use the resource link.

NCUA closes Hmong American FCU

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ALEXANDRIA, Va. (5/19/11)--Hmong American FCU of St. Paul, Minn. was liquidated by the National Credit Union Administration (NCUA) on Wednesday. This is the eighth federal credit union liquidation to take place this year. The agency in a release said that the credit union was insolvent and had “no prospects for restoring viable operations.” Hmong American FCU held $2.7 million in assets from 700 members as of the first quarter of this year. The NCUA placed Hmong American FCU into conservatorship earlier this month. The agency at that time said that it would work with the financial institution to "resolve issues" affecting safety and soundness. For the full NCUA release, use the resource link.

Tester 15-mo. interchange delay is bare minimum

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WASHINGTON (5/18/11)--Sen. Jon Tester (D-Mont.), sponsor of a bill to postpone implementation of a statutory debit card interchange fee cap, said on the Senate Floor Wednesday that he would adjust his proposed two-year delay to 15-months to win over critics. Tester, who along with Sen. Bob Corker (R-Tenn.) drafted S. 575 to delay the fee cap, said the adjustment would reflect feedback from some Senate colleagues that a 24-month delay is too long. “Sen. Corker and I have decided to shorten the timeframe from 24 months to 15 months,” Tester noted in his remarks. He added, however, that he considered 15 months to be the “the bare minimum” to get a study of the issues “right.” The 15-month delay would be broken into three periods: six-months to study issues surrounding government imposition of a cap on what card issuers may charge for use of the debit card system, six months for the Federal Reserve to rewrite rules to implement the Dodd-Frank Wall Street Reform provision, and three months to implement rules. Tester also used his time on the Senate Floor to underscore the devastating impact of the Fed’s currently proposed rule--capping fees at seven to 12 cents per transaction--could have on credit unions and other small, community-based financial institutions--and also consumers. He said either debit card issuers would pass costs left uncovered by the low cap on to consumers--whom Tester said can ill afford it--or risk financial problems of their own. He noted that federal and state regulators have repeatedly voiced concerns that a provision meant to exempt small issuers under $10 billion in asset from the reaches of the interchange law is unlikely to work to that end. “(Fed Chairman Ben)Bernanke just last week said he’s still not sure whether the small issuer exemption would work, saying--quote: 'There are market forces that would work against the exemption.' Chairwoman (Sheila) Bair of the (Federal Deposit Insurance Corp.) has raised similar concerns about the workability of the small issuer exemption. So has Chairwoman Debbie Matz of the National Credit Union Administration. So has the Conference of State Banking Supervisors. So has the National Association of State Credit Union Supervisors,” Tester said. Credit Union National Association President/CEO Bill Cheney said with regard to the senator’s announcement, “We support his efforts to stop the implementation of the law and study its impact--which we hope will result in new rule that will be more favorable than the current proposed rule.”