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Housing finance reforms must meet CU needs CUNA

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WASHINGTON (6/29/11)--Any changes to the U.S. housing finance system must ensure that credit unions and other small issuers maintain fair and affordable access to secondary mortgage markets, SECU of Maryland President/CEO Rod Staatz told members of the Senate Banking Committee on Tuesday. Staatz testified on behalf of the Credit Union National Association (CUNA) during a committee hearing on mortgage finance reforms. He was the only credit union witness.
Click to view larger image Credit unions are increasingly important lenders in the residential mortgage market, testifies CUNA witness Rod Staatz (foreground) before a Senate committee hearing on housing finance reform. After averaging just over 2% of all residential first mortgage originations in the fifteen years ending in 2007, the credit union share of originations more than doubled to 5% during the past three years, and more recently has risen to almost 6%, Staatz, president/CEO of SECU of Maryland, points out. CUNA VP of Legislative Affairs Ryan Donovan is shown behind Staatz. (CUNA Photo)
Congress must “take reasonable time” to complete changes to the country’s housing finance system, including reform of the government-sponsored enterprises (GSE), and to ensure that an effective foundation will be responsive to the needs of borrowers and lenders,” he said during his testimony. While the problems that led to the conservatorships of Fannie Mae and Freddie Mac need to be addressed in a comprehensive and meaningful manner, the widespread availability of mortgage credit, housing affordability, consumer protection, financial stability and strong regulation must be maintained, Staatz added. “Reform of the housing finance system has already proven to be a very difficult challenge, but failing to make necessary changes to improve the system will result in even greater challenges for the economy, lenders, and borrowers,” he said. Toxic assets and other mortgage market issues led to the 2008 conservatorship of the GSEs. The government conservatorship of these entities has cost taxpayers more than $150 billion. The Obama administration has proposed a trio of potential outcomes for the GSEs, including almost completely privatizing the housing finance system, limiting the government's intervention in the mortgage market to times of financial distress, and using a system of reinsurance to backstop private mortgage guarantors to a targeted range of mortgages. Credit unions are concerned that fully privatizing the securitization market by turning it over to a group of large banks, as has been suggested by some, could exclude them from important parts of the market. Staatz noted that maintaining a neutral third party with the sole task of acting as a secondary market conduit must be a vital part of any reforms. Staatz also highlighted the importance of preserving 30-year fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity. The definition of qualified residential mortgages (QRMs) was also covered during Staatz’s testimony, with the credit union CEO and CUNA urging Congress to insist that regulators go back to the drawing board and issue a new proposed QRM definition for public comments. The Dodd-Frank Wall Street Reform Act requires regulators to write a rule on credit risk retention for securitized assets, but allows QRMs to be exempted from the requirement that the lender retain 5% of the credit risk. CUNA and others, including a bipartisan group of lawmakers, have criticized a proposal to require a 20% down payment for a loan to be defined as a QRM, saying that this change would "shut out responsible homebuyers and further cripple the housing market." Requiring higher down payments from potential homebuyers could also “dry up mortgage liquidity for small lenders,” Staatz warned. American Enterprise Institute fellow Edward Pinto and Community Reinvestment Association of North Carolina executive director Peter Skillern also spoke during the hearing. Peoples Bank Company CEO Jack Hartings also testified on behalf of the Independent Community Bankers of America, and South Shore Saving Bank vice president Christopher Dunn spoke on behalf of the American Bankers Association. For video of the hearing, use the resource link.

Today to see interchange prepay plan action

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WASHINGTON (6/29/11)--Two issues of great importance to credit unions, the debit interchange fee cap and the corporate credit union stabilization fund prepayment plan, will be taken up later today by the Federal Reserve and the National Credit Union Administration (NCUA), respectively. Proposed Governing Debit Card Interchange Fees, Fraud Prevention Adjustment, Routing and Exclusivity Restrictions, and other related matters are on the agenda for the Fed’s meeting on its debit interchange fee cap proposal, which will take place at 3:30 p.m. ET. A draft Fed proposal set the cap at 12 cents per transaction. Credit unions and other financial institutions have said that such a low fee would not cover debit account-related costs and could force debit card issuers to charge fees to consumers for the popular debit card service. The Credit Union National Association (CUNA) and credit unions have urged the Fed to minimize negative effects on credit unions and their members when it issues its final proposal. Legislation that would have delayed interchange cap implementation to allow greater time to study the issue failed in the Senate earlier this month, falling on a 54 to 45 vote margin. The measure needed 60 votes to pass. The NCUA’s Wednesday meeting will address its plan that would allow credit unions, on a voluntary basis, to prepay their Corporate Stabilization Fund assessment. That meeting will begin at 8:30 a.m. ET. The NCUA proposed the prepayment plan at its May open board meeting and accepted public comment on the proposal until June 20. CUNA has anticipated that, if the plan is approved, the NCUA will likely give credit unions approximately 40 days after that to tell the agency whether or not they will commit any funds to the plan. CUNA has made recommendations to improve the complex prepayment plan, but has said overall it could help reduce credit unions' assessment for 2011 substantially, depending on credit unions' participation, and it would help even out assessments for subsequent years. CUNA has urged the agency to raise the target minimum commitment level from $300 million to $1 billion, to allow payment of some interest on the prepaid funds, and to apply any excess prepayments against this year's assessments on a pro-rata basis. It is expected that credit unions will have 40 days after this week's meeting to notify the agency of intentions to participate. News Now will cover developments at each of these meetings via its NewsNowLiveWire twitter feed.

Regulators issue cyber-security guidance

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WASHINGTON (6/29/11)--Noting that many of the methods employed by identity thieves and other online criminals have changed, and that the scope of many of their crimes has grown, the Federal Financial Institutions Examination Council (FFIEC) has urged credit unions and other institutions to update some practices. Institutions should “perform periodic risk assessments considering new and evolving threats to online accounts and adjust their customer authentication, layered security, and other controls as appropriate in response to identified risks,” the FFIEC said. The recommendations are part of a risk management framework update that was released on Tuesday. The new guidance supplements the FFIEC’s Authentication in an Internet Banking Environment guidance that was issued in October of 2005. However, much of the guidance proposed in 2005 is now less effective than it was when it was first released, according to the FFIEC. The FFIEC has said that institutions should rely on more than one authentication method for online bankers and should consider providing different levels of user authentication for different types of online banking transactions. Financial institutions should implement layered levels of online security that are consistent with the risk presented by various consumer transactions, the FFIEC said. Layered security can include advanced fraud detection and monitoring systems and the use of debit blocks and other techniques to limit the amount that can be withdrawn from an account at a given time. Enhanced controls over the number of transactions allowed per day, the timing of any payments, the recipients of those payments, and other account activities can also be added. Institutions can also use software that blocks connections to web servers that have previously been involved in fraudulent transactions, the FFIEC said. Customers should also be made aware of fraud risks and the potential impact of fraud on their accounts, the FFIEC added. The FFIEC said that its various member agencies, including the National Credit Union Administration (NCUA), will “continue to work closely with financial institutions to promote security in electronic banking.” Financial examiners from these institutions will assess financial institutions’ adoption of these security methods starting in January of 2012, the FFIEC added. For the full release, use the resource link.

FinCEN Scrutiny leads mortgage fraud SAR increase

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WASHINGTON (6/29/11)--The total number of mortgage loan fraud-related suspicious activity reports (SARs) filed in the first quarter of 2011 increased by 31% when compared to the first quarter of 2010, the Financial Crimes Enforcement Network (FinCEN) reported in its first quarter update for 2011. FinCEN in its Tuesday release said that the increase is due to “large mortgage lenders conducting additional reviews after receiving demands to repurchase poorly performing mortgage loans.” Over 80% of the mortgage-related SARs related to amounts of $500,000 or less. FinCEN also reported on federal mortgage assistance-related fraud cases, which often involve falsified income, employment, occupancy numbers, or Social Security numbers. Around 230 of these types of SARs were reported each month, with those SARs totaling $73 million in funds. FinCEN Director James Freis said “a substantial majority of reports involved activities that occurred in 2006-2007,” and added that this shows that “the industry is slowly making its way through the most problematic mortgages.” The report covers reports filed between the beginning of this year and the end of March. The agency received a total of 25,485 SARs during this time period, and the total number of SARs filed increased by 10% over the total reported in the first quarter of 2010. California, Nevada and North Carolina reported the most SARs per capita. Los Angeles, Calif., New York, N.Y., Chicago, Ill., and Miami, Fla. had the highest amounts of SARs among the 50 most populous metropolitan areas. For the full release, use the resource link.

Inside Washington (06/28/2011)

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* WASHINGTON (6/29/11)--Jeffrey Goldstein, the Treasury Department’s undersecretary for domestic finance, has announced his resignation. Goldstein’s departure leaves about a dozen posts for President Barack Obama must to fill among the government’s top financial-policy-making agencies (The Wall Street Journal June 28). Goldstein has overseen Treasury’s implementation of the Dodd-Frank Act financial-regulatory overhaul. He also has played a key role in the administration’s transition of mortgage-finance giants Fannie Mae and Freddie Mac …