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Senate approves sends housing bill back to House

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WASHINGTON (7/15/08)—House Financial Services Committee Chairman Barney Frank (D-Mass.) Monday reiterated his intention to have a package of housing reforms ready soon for the president’s signature. Frank described what the bill will look like. The chairman issued his statement after the Senate voted 63-5 Friday in favor of a bill to respond to the subprime mortgage crisis. The Senate sent the legislative package back to the House of Representatives for further modifications. The House passed a similar bill earlier this year, and now the two bodies must reconcile differences to work out a bill that they hope will be signed into law by President George W. Bush later this week. In a statement, Frank noted that the current “turmoil” in the American mortgage markets is at the root of a financial crisis that has “undermined confidence in and threatens the stability of the global financial system.” He said Congress will soon send the president a comprehensive package of legislation that “makes future crises less likely” by:
* Responding to the current situation; * Strengthening regulatory oversight and prohibiting the irresponsible lending practices that brought us here; and * Addressing the lack of affordable housing in America.
“First, the legislation we will pass creates a new regulator for the (government-sponsored enterprises) GSEs with strong additional powers. We also make it possible for the FHA to assist homeowners facing foreclosure by refinancing them into sustainable loans. The bill will also strengthen the FHA’s capacity to resume its historical role as a lender of first resort for working families and first time homebuyers.” Frank also pledged that the bill would have proposals announced over the weekend by U.S. Treasury Secretary Henry Paulson to ensure that Fannie Mae and Freddie Mac have the resources needed to continue to play their role in America’s housing finance system. “Third, in a long overdue measure, the legislation creates an affordable housing trust fund that allows us to address decades of under investment in the supply of housing for lower income families,” Frank said. The bill approved Friday by the Senate would set up a new program to allow the FHA to refinance $300 billion worth of distressed subprime home mortgages and place them into 30-year fixed-rate FHA-backed mortgages. It is expected to provide aid for approximately half a million borrowers struggling to hang onto their homes. The program would allow certain mortgage holders to get an FHA guarantee on a loan if they write down the principal amount. The bill also adds housing tax breaks. For instance:
* Taxpayers who do not itemize deductions can deduct some property taxes; * First-time homebuyers would be offered refundable tax credits’ $11 billion of private activity bonds are authorized to refinance and rehabilitate subprime homes; and * $3.92 billion is provided in Community Development Building Grant (CDBG) funds to mitigate the effects of the mortgage and credit crises.

Fed fair-lending plan changes key definition

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WASHINGTON (7/15/08)—The Federal Reserve Board Monday approved a final rule for home mortgage lending practices. The rule is intended to better protect consumers and facilitate responsible lending, while keeping credit available to qualified borrowers. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. It establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in a transaction. By amending its Regulation Z, which implements Truth-in-Lending provisions adopted under the Home Ownership and Equity Protection Act (HOEPA), the Fed adds four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. A Fed announcement said the plan largely follows a proposal released by the board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis. Jeffrey Bloch, senior assistant general counsel for the Credit Union National Association (CUNA), said, however, that there have been changes to the original plan. One change of note involves the agency’s threshold for determining what is a “higher-priced” mortgage loan. The Fed will be using a threshold based on mortgage loans, instead of based on U.S. Treasury securities. More specifically, the threshold will be based on an "average prime offer rate" that is published by Freddie Mac. “As mentioned in our comment letter in response to this proposal, we were concerned that the proposed threshold based on Treasury securities may have covered some portion of the prime loan market, which is not what the Fed intended,” Bloch said Monday. He added, “We were also concerned that using Treasury securities, especially when they are volatile, may result in situations in which a loan may or may not be covered, depending on the Treasury rates at the time the loan is made. “In the final rule, the Fed recognized these concerns, and we believe that the change in the thresholds should alleviate these concerns.” The four protections adopted for the newly defined category of higher-priced mortgage loans will:
* Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice;” * Require creditors to verify the income and assets they rely upon to determine repayment ability; * Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed; and * Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.
The Fed will also be issuing a separate proposal to revise the definition of "higher-priced mortgage loan" under Regulation C, the Home Mortgage Disclosure Act (HMDA) so it is consistent with the definition in this rule. Under HMDA, lenders are required to report additional price information for these types of loans. Credit unions and others will have an opportunity to comment further on this change and CUNA will issue a Comment Call on this shortly. In a related story, House Financial Services Chairman Barney Frank (D-Mass.) issued a statement indicating he did not believe the Fed rules alone were adequate to address predatory and deceptive lending practices. Frank said, “Those new rules combined with H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007, which the House passed last year—and that Senator (Christopher) Dodd (D-Conn.) assures me the Senate will address this year--will make the problem of irresponsible lending far less likely in the future.”

NCUSIF protection strong at mid-year says NCUA

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ALEXANDRIA, Va. (7/15/08)–National Credit Union Administration (NCUA) Chairman JoAnn Johnson issued a state-of-the-National Credit Union Share Insurance Fund (NCUSIF) assessment Monday based on mid-year data and said the fund stands strong with an equity ratio estimated at 1.24% for June 30. Johnson reminded that member deposits in federal and almost all state-chartered credit unions are federally insured by the NCUSIF, which in turn is backed by the full faith and credit of the United States government. “Consumers who have federally insured funds in credit unions should rest assured that their deposits are safe up to at least $100,000 per account, with additional coverage of up to $250,000 for certain retirement accounts,” Johnson said. She added that the fund’s equity ratio is expected to increase to 1.28% by yearend. NCUA staff is scheduled to present mid-year NCUSIF results in more detail at the July 24 NCUA board meeting. “While there are isolated instances of credit unions encountering difficulties, on the whole the credit union industry is healthy,” Johnson assured. “The NCUSIF enters the second half of 2008 secure and well-capitalized.”

FTC plans a ID theft victim survey

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WASHINGTON (7/15/08)—The Federal Trade Commission has announced its intention to conduct a survey of identity theft victims regarding remedies available to them under the Fair and Accurate Credit Transactions Act (FACTA). The survey participants will be selected from identity theft victims who contacted the FTC between Jan.1 and May 30 this year, according to the agency’s Federal Register document. Information gathered from the survey is expected to allow the FTC to focus its approach regarding consumer education and law enforcement. The FTC also recently issued a reminder that an interagency identity theft “red flags” rule requires credit unions and other financial institutions and creditors to develop and adopt written identity theft prevention programs by Nov. 1. The red flags rule was issued last November by the FTC, the National Credit Union Administration, and federal bank and thrift regulators. The rule requires each financial institution and creditor that holds any consumer account--or other account for which there is a reasonably foreseeable risk of identity theft--to develop and implement an Identity Theft Prevention Program for combating identity theft in connection with new and existing accounts. The program must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft and enable a financial institution or creditor to:
* Identify relevant patterns, practices, and specific forms of activity that are "red flags" signaling possible identity theft and incorporate those red flags into the program; * Detect red flags that have been incorporated into the program; * Respond appropriately to any red flags that are detected to prevent and mitigate identity theft; and *Ensure the Program is updated periodically to reflect changes in risks from identity theft.
The agencies also issued guidelines to assist financial institutions and creditors in developing and implementing a program, including a supplement that provides examples of red flags. Use the resource links below for more on the FTC survey and on the identify theft rule.

Inside Washington (07/14/2008)

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* WASHINGTON (7/15/08)--The Federal Reserve Board and Bush administration announced Sunday that the Federal Reserve Bank of New York has the authority to lend to Fannie Mae and Freddie Mac. “This authorization is intended to supplement the Treasury's existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets,” the Fed said in a release. Any lending would be at the primary credit rate. The Treasury also proposed a three-part plan: a temporary increase in the line of credit the government sponsored enterprises (GSEs) have with Treasury, temporary authority for the Treasury to purchase equity in either of the two GSEs if needed and a consultant role for the Federal Reserve in the new GSE regulator's process for setting capital requirements, Treasury Secretary Henry Paulson said. Government agencies are stepping up to help the GSEs as Fannie and Freddie shares dropped about 35% last week (American Banker July 14) ...