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CUNA CFPB discuss qualified mortgage concerns

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WASHINGTON (8/14/12)--Key concerns about the Consumer Financial Protection Bureau's (CFPB) Ability-to-Repay Regulation Z proposal were the subject of a Monday meeting in Washington.

Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn, Senior Assistant General Counsel Jared Ihrig and Regulatory Counsel Dennis Tsang attended the Monday CFPB meeting in Washington. CUNA has met several times with agency officials to discuss the ability-to-repay proposal, which would define a "qualified mortgage."

Under the still developing ability-to-repay rule, mortgage originators would be required to consider a homebuyer's ability to repay the loan before a loan could be offered.

Dunn said one area of critical concern is how the agency should implement a provision in the Dodd-Frank Wall Street Reform Act that directs the CFPB to establish a "safe harbor" or "rebuttable presumption of compliance." The agency can only include one of the approaches in the final rule, she noted.

Based on how courts have treated safe harbors in the past, this approach would afford mortgage loan originators that follow the CFPB's qualified mortgage requirements certain protections from litigation. That is because, in general, under the safe harbor approach, the court would be confined to looking at whether the qualified mortgage requirements were met, Dunn said.

Dunn noted that the "rebuttable presumption" approach would provide more flexibility for consumers to sue lenders and allow them to assert their inability to repay a mortgage loan as an affirmative defense in a foreclosure proceeding. Lenders challenged in court would generally have the burden of proving they met the qualified mortgage standards, under the rebuttable presumption approach.

CUNA will continue advocating for the safe harbor approach, Dunn said. The final rule is not expected to be released until after this November's election, and must be in place by Jan. 21, 2013.

CUNA anticipates further discussions on the proposal.

WOCCU CU shares may be capital in Basel III

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WASHINGTON (8/14/12)--Credit union shares that are perpetual, nonwithdrawable and available to cover institutional losses may be considered "common equity" regulatory capital under guidelines offered by the Basel Committee on Banking Supervision's Basel III document, the World Council of Credit Unions (WOCCU) said in a white paper released on Monday.

Basel III standards will require banks to hold common equity of 4.5% by 2015. In addition, banks must hold a 2.5% conservation buffer, which will be gradually introduced by 2019, and increase Tier 1 levels from 4% to 6% by 2015. These international bank rules are intended to force banks to hold more capital as a buffer against future financial shocks.

Credit union shares with a high degree of permanence and the ability to absorb losses on a going-concern basis should qualify as the most desirable form of capital under Basel III, known as "Common Equity Tier 1 capital," the WOCCU white paper notes. However, the paper adds, credit union shares can qualify as other forms of Basel III regulatory capital even when they do not meet this "Common Equity Tier 1" capital definition.

"As the financial services system becomes more global, credit unions in more countries fall under the local authority application of Basel III guidelines," WOCCU President/CEO Brian Branch said in a release. "A clear understanding of the opportunities and obligations under Basel III is critical for growth and service to members," he added. WOCCU Chief Counsel/Vice President for Advocacy and Government Affairs Michael Edwards noted that while many credit union systems will not implement Basel III requirements, portions of Basel III that determine when credit union shares qualify as regulatory capital under Basel III will be critically important in jurisdictions that do implement Basel III for credit unions.

The WOCCU release said that Australia, Bolivia, Brazil, several Canadian provinces and Ecuador have enacted capital rules for credit unions based on Basel II, and are likely to do the same under Basel III. The Basel III rules do not apply to credit unions, but the debate and discussion that takes place as these new reforms are brought into practice by regulators could provide a new backdrop for and focus on a conversation about alternative capital for credit unions in the U.S.

For the full white paper, use the resource link.

CU-backed Hirono moves closer to Senate

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WASHINGTON (8/14/12)--Credit union-backed Democratic primary candidate and current U.S. House member Rep. Mazie Hirono (D-Hawaii) won her party's Senate nomination over the weekend, and will face former Governor Linda Lingle (R) this November in a race to replace retiring Sen. Daniel Akaka (D-Hawaii).

Hirono, who was supported by the Credit Union National Association's (CUNA) Credit Union Legislative Action Council (CULAC) and the Hawaii Credit Union League, defeated former Rep. Ed Case (D) by winning 58% of the vote.

CUNA Vice President of Political Affairs Trey Hawkins said Hirono is a strong credit union backer who "has signaled her support publicly on just about every issue facing credit unions during her time in Congress, including the member business lending cap, debit interchange fee changes and supplemental capital."

Hawaii National Guard Commander Tulsi Gabbard will be the Democratic nominee in this fall's contest to replace Hirono in the U.S. House. Gabbard will face Kawika Crowley this November.

Hirono and Gabbard are expected to win their contests in what has long been a "blue" state, although Republicans are hopeful that Lingle's candidacy will make the Senate seat more competitive.

Connecticut, Florida, Minnesota and Wisconsin primaries are being held today, and CULAC and credit unions are backing several Senate primary candidates, including incumbent Sen. Amy Klobuchar (D-Minn.) and current House members Chris Murphy (D-Conn.) and Tammy Baldwin (D-Wis.).

House nominations will also be contested in today's elections.

Bankers misrepresent LICU letters CUNA warns iWSJi

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WASHINGTON (8/14/12)--Some are mischaracterizing the National Credit Union Administration's (NCUA) recent move to streamline the process for federal credit unions to receive low-income designations, Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn told The Wall Street Journal last week.

The NCUA last week sent letters to 1,003 credit unions to alert them of their low income credit union (LICU) designations. The LICU designation brings benefits that include the ability to accept supplemental capital and an exemption from the small business lending cap under certain circumstances.

Credit unions that wish to receive a LICU designation from the regulator may simply reply to the NCUA letter, rather than filling out more substantial paperwork.

The NCUA's LICU notifications were incorporated into a larger Obama administration plan to aid states affected by this summer's drought-like conditions. Around half of the LICU-eligible institutions that received the recent NCUA notices are headquartered in states identified by the National Oceanic and Atmospheric Administration as having "extreme" drought conditions.

CUNA and credit unions do not think this move to facilitate the process for LICU eligiblity should be made "into something nefarious and evil," Dunn added in the Journal coverage. Opponents have claimed that the LICU changes are an attempt to bypass the current 12.25% of assets credit union member business lending (MBL) cap. However, Dunn on Monday emphasized that the NCUA's LICU changes do not give credit unions new powers. "There are real hard and fast criteria that credit unions need to meet to establish themselves as LICUs," she said.

To qualify as a LICU, a majority of a federal credit union's membership must meet low-income thresholds based on 2010 Census data. In addition to the exemption from the statutory 12.25% statutory MBL cap, other advantages derived from the LICU designation include:

  • Eligibility for Community Development Revolving Loan Fund grants and low-interest loans,
  • Ability to accept deposits from non-members, and
  • Authorization to obtain supplemental capital.
The NCUA has estimated that LICU streamlining could result in $250 million to $500 million in new loans to small-business-owning credit union members. The initiative could double the number of LICUs and increase their member business lending by nearly 75%. However, it is not clear how many eligible credit unions will become LICUs, and the NCUA's LICU changes do not impact state credit unions.