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Inside Washington (08/17/2012)

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  • WASHINGTON (8/20/12)--The Federal Housing Finance Agency (FHFA) said it will pursue civil damage claims against lenders who sold "materially deficient" mortgages to Fannie Mae and Freddie Mac. FHFA auditors are in the process of identifying lenders who pose the highest risk to Fannie and Freddie, Health Wolfe, an assistant inspector general in FHFA's Office of the Inspector General, said. He spoke at the American Association of Residential Mortgage Regulators' annual conference (American Banker Aug. 17). Wolfe has met with the Department of Justice's (DOJ) Civil Division. He said he expects DOJ to sue for $3 on every dollar Fannie Mae and Fredde Mac paid out against lenders who violated the government-sponsored enterprises' lending requirements …
  • WASHINGTON (8/20/12)--With Fannie Mae and Freddie Mac's recent strong financial results, the future of the government-sponsored enterprises (GSEs) appears to hinge on the fees they charge lenders. A stabilization in housing prices has helped Fannie and Freddie avoid borrowing significant money from the Treasury, leaving their total bailout amount at around $190 million--far less than the best-case estimate of $202 million made by the Federal Housing Finance Agency (FHFA) in October (American Banker Aug. 17). Fannie and Freddie earn guarantee fees from lenders in exchange for assuming the credit risk on conforming loans. The cost is then passed through to borrowers. Rates are determined by the FHFA, the GSEs' conservator. A minor fee increase would suppress mortgage rates and keep the GSEs under the FHFA's conservatorship. Raising the rates high enough could help the private securitization market bounce back and shrink Fannie and Freddie. An in-between strategy could help Freddie and Fannie generate consistent income--barring another housing crash …
  • WASHINGTON (8/20/12)--The Consumer Financial Protection Bureau (CFPB) in the Federal Register said it is seeking public comment on the application of Maine and Tennessee unclaimed property laws to gift cards, and whether these laws provide greater consumer protections than federal laws. The CFPB has been asked to opine on whether provisions in the Electronic Funds Transfer Act and Regulation E that address gift card expiration dates would pre-empt unclaimed property law provisions in those states. Public comments will be analyzed before the agency releases its final opinion…

CUNACFPB audio conference to discuss reg priorities

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WASHINGTON (8/20/12)--Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, Credit Union National Association (CUNA) President/CEO Bill Cheney, and CUNA staff will give the latest news on CFPB rulemaking initiatives in a pair of upcoming audio conferences.

The first audio conference, set for Aug. 30, will feature a discussion between Cordray and Cheney. Attendees will be able to ask the CFPB head and CUNA CEO directly about the CFPB's upcoming plans and what they could mean for credit unions.

In a second Sept. 6. audio conference, CUNA Deputy General Counsel Mary Dunn, CUNA Senior Assistant General Counsel Jared Ihrig and Andrea Stritzke, vice president of regulatory compliance for PolicyWorks, will discuss how recent CFPB mortgage proposals could impact credit unions.

This conference will cover the current status of the CFPB's proposed mortgage rules, what credit unions can do to help influence the final rule, and how they can prepare for the final CFPB rule. This webinar will also focus on the agency's proposed "higher-risk" mortgage appraisal rule and the recently approved Regulation B appraisal proposal.

The two audio conferences are offered as a package. Both webinars are scheduled to begin at 1 p.m. CT.

To register for the webinars, use the resource link.

CUNA backs clearing exemption for some swaps

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WASHINGTON (8/20/12)--The Credit Union National Association (CUNA) in a Friday comment letter backed a Commodity Futures Trading Commission (CFTC) proposal that would provide credit unions and other cooperative businesses with a clearing exemption for certain swaps.

The CFTC proposal would permit credit unions and other co-ops with $10 billion or more in assets to avoid swap clearing requirements when loans that are originated for members are sold on to other entities. This exemption also would be extended to swap transactions that are used to hedge against risks associated with member loans.

The exemption would apply to cooperatives whose members are non-financial entities, financial entities to which the small financial institution exemption applies, and cooperatives. Credit unions and other financial institutions with under $10 billion in assets are already exempt under a separate CFTC proposal.

"As not-for-profit cooperatives, all well-managed credit unions, consistent with safety and soundness, should be able to elect not to clear swaps that are for the purpose of hedging interest rate risks," CUNA Deputy General Counsel Mary Dunn wrote in the comment letter. The proposed exemption would help minimize the additional costs and fees associated with mandatory clearing and provide flexibility for credit unions to use non-cleared swaps, she added.

CUNA in the letter also urged the CFTC to minimize any compliance burdens on credit unions and other cooperatives that elect the clearing exemption, under this proposal and the final rule on the end-user exception, including the notification requirements to the CFTC regarding how an exempt counterparty plans to meet its financial obligations associated with non-cleared swaps.

The CFTC earlier this year finalized definitions of swaps, security-based swaps and security-based swap agreements. The new swap definitions are currently in effect.

National Credit Union Administration regulations currently permit a limited number of federal credit unions to use certain derivatives, such as interest rate swaps and caps, to hedge or reduce their interest rate risks. Some state-chartered credit unions also have similar derivatives authority for risk management purposes. Relatively few credit unions use derivatives to hedge interest rate risk.

For the full CUNA comment letter, use the resource link.

CFPB could require option of no-point no-fee mortgages

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WASHINGTON (8/20/12)--After floating the concepts earlier this year, the Consumer Financial Protection Bureau (CFPB) last Friday took the next step and issued a 369-page proposal on new loan origination standards and compensation rules for mortgage loan officers.

The CFPB proposal would require mortgage lenders to make no-point, no-fee mortgage loans available to their prospective borrowers, unless the borrower is unlikely to qualify for such a loan. This option would help consumers who are buying or refinancing a home compare their various loan offers, the CFPB said.

Lenders would also need to provide mortgage borrowers who pay upfront points or fees on their mortgages with a certain minimum interest rate reduction.

The CFPB noted that the Dodd-Frank Wall Street Reform Act places certain restrictions on the points and fees offered with most mortgages as well as on the qualification and compensation of loan originators. The act would prohibit payment of upfront points and fees for most mortgages, absent this CFPB rulemaking.

"Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees," CFPB Director Richard Cordray said. The agency wants to "provide consumers with clearer options and enable them to choose the loan that they believe is right for them," he added.

The agency's proposed mortgage loan originator qualification and screening standards would replace varied state and federal Secure and Fair Enforcement for Mortgage Licensing Act standards for loan originators working at credit unions, banks, thrifts, mortgage brokerage firms and nonprofit organizations with a single federal standard.

Under the CFPB proposal, these loan originators would be subject to the same character, fitness and financial responsibility requirements, and be screened for felony convictions. They also would be required to take the same training courses.

The proposal would also clarify portions of the Dodd-Frank Act that prohibit payment of steering incentives to mortgage loan originators.

Portions of the Dodd-Frank Act that prohibit lenders from adding mandatory arbitration clauses and increasing loan amounts to cover credit insurance premiums would be implemented under the proposal, the CFPB said.

The Credit Union National Association (CUNA) is still reviewing this lengthy proposed rule. "While we initially see several positive elements--such as the CFPB's decision not to expand the certification test to cover registered mortgage loan origination employees--we remain concerned about the overall impact of this rule on credit unions. We will be analyzing the rule carefully with these concerns in mind," CUNA Deputy General Counsel Mary Dunn said.

The proposal will remain open for public comment until Oct. 16. A final version of the proposal will be released in January, the CFPB said.

Treasury steps up Fannie Freddie wind-down efforts

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WASHINGTON (8/20/12)--The gradual winding down of mortgage investment portfolios held by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will be accelerated, the U.S. Treasury announced Friday.

Fannie and Freddie's investment portfolios would be wound down at an annual rate of 15% under the revised Treasury plan. The agency had previously set a 10% annual reduction rate, which would have reduced the amount of mortgage assets held by the GSEs to $250 billion by 2022. The increase to 15% will accelerate this process by four years, according to the Treasury.

All future profits earned by Fannie and Freddie will be paid directly to the Treasury under the new plan. This change will ensure that every dollar generated by the GSEs "will be used to benefit taxpayers for their investment in those firms," and will end "the circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury," the agency said.

Fannie and Freddie currently are making quarterly dividend payments to the federal government to repay funds that were used to bail out the two firms. Fannie and Freddie occasionally borrow money from the government if their profits have not been sufficient to cover these dividend payments.

The Treasury will also require the GSEs to submit plans detailing how they will reduce taxpayer exposure to mortgage credit risk on an annual basis.

"With today's announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market," Counselor to the Secretary of the Treasury for Housing Finance Policy Michael Stegman said Friday. "As we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests," he added.

The Obama administration is considering a range of options for mortgage market reform, 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. Administration officials have said that each proposal would shrink the government's role in the mortgage market.