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Inside Washington (09/10/2008)

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* WASHINGTON (9/11/08)--Sens. Charles Schumer (D-N.Y.) and Jack Reed (D-R.I.) are criticizing the severance packages that Fannie Mae’s and Freddie Mac’s ousted heads will receive considering the government placed the two mortgage giants into conservatorship (American Banker Sept. 10). Schumer and Reed wrote a letter Tuesday to James Lockhart, Federal Housing Finance Agency director, encouraging him to reduce or eliminate the packages ... * WASHINGTON (9/11/08)--The Federal Housing Finance Agency (FHFA) said Tuesday that Fannie Mae and Freddie Mac will have to improve loan modification efforts. FHFA Director James Lockhart said he is looking into modification programs for the two enterprises and will discuss them with Fannie and Freddie officials. The FHFA and Treasury have both been urged to help the enterprises speed up the modification process (American Banker Sept. 10). The enterprises would be the investors, so there would be no fear of investor backlash from servicers, according to Fannie-Freddie workout supporters. The enterprises’ top executives were removed Sunday. Modifying loans would be costly and could shrink the credit pool, said Daniel Mudd, Fannie’s former chief executive. Both Fannie and Freddie’s top executives were averse to speeding up the modification process ...

FinCEN gives guidance on money services definition

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WASHINGTON (9/11/08)—Credit unions and other financial institutions with Bank Secrecy Act (BSA) compliance obligations received a little further guidance Wednesday on whom the Financial Crimes Enforcement Network (FinCEN) considers a money services business. The FinCEN interpretative guidance specifically addressed whether a broker or dealer in currency or other commodities is a money transmitter when, in the ordinary course of business, the broker or dealer accepts and transmits funds in order to effect transactions in currency or other commodities for or with a customer. “When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as that term is defined in our regulations,” FinCEN noted in a release. “In such circumstances, the transmission of funds is a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. The transmission of funds is not a separate and discrete service provided in addition to the underlying transaction. It is a necessary and integral part of the transaction,” it added. However, the agency warned that the conclusions reached in its guidance are limited to circumstances in which a broker or dealer in currency or other commodities accepts and transmits funds as an integral part of the execution and settlement of a transaction other than the funds transmission itself. In 2006, FinCEN began seeking public comment regarding the impact of BSA regulations on the ability of MSBs to open and maintain accounts and obtain other banking services at depository institutions. Also, the U.S. Congress has been considering legislation to encourage credit unions and banks to serve MSBs by clarifying that they would not be responsible for whether the MSB is complying with anti-money laundering laws and any other applicable Bank Secrecy Act (BSA) requirements. A bill passed the House on July 22.

Red-flag exam guidance expected soon

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WASHINGTON (9/11/08)—Federal financial regulators, including the National Credit Union Administration (NCUA), are soon expected to issue guidelines for examiners charged with reviewing financial institution compliance with an identity theft “red flags” rule. The red-flags rule, as required under the Fair and Accurate Credit Transaction (FACT) Act, was issued jointly last November by the federal credit union, bank and thrift regulators and the Federal Trade Commission. The rules require financial institutions and other creditors to develop and implement a written program that is designed to detect, prevent, and mitigate identity theft. There is a Nov. 1 compliance deadline. Credit Union National Association (CUNA) Senior Assistant General Counsel Jeff Bloch said it is CUNA's understanding that the exam guidance is in the final stages of preparation and will be issued shortly. Bloch said, based on information unveiled Aug. 11 by the Office of Thrift Supervision, CUNA expects the NCUA instruction to examiners to include that:
* A credit union’s red flags program can build on existing foundations for information security, such as Customer Identification Programs, and does not have to start from scratch; * A credit union should use existing tools as much as is possible; * The program should be a collaborative effort among all departments; and * Each program should reflect a credit union’s unique circumstances.
A study released Wednesday by TowerGroup, a research firm that focuses on financial services issues, predicted that less than one-third of the country’s financial institutions may be ready for the Nov. 1 compliance date. “Regulators are expected to be reasonable with institutions that have made a good-faith effort to comply,” according to TowerGroup. But the firm advised financial institutions to “step up their efforts to develop and deploy programs to prevent identity theft, or they face the inevitable consequences of noncompliance.” CUNA continues to provide resources to help credit unions with compliance. CUNA, with CUNA Mutual Group, offers an archived Webinar targeted to credit union staff responsible for compliance, information security, and fraud prevention. CUNA is also offering a Sept. 29 audio conference with advice from industry experts. As an additional resource, CUNA’s director of compliance information, Valerie Moss, posed the seven red-flags questions credit unions should be asking during the few months left before the mandatory compliance date in an August Credit Union Magazine article. To access these resources, use the resource links below.

RESPA changes focus of a Sept. hearing

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WASHINGTON (9/11/08)—Proposed changes to the Real Estate Settlement Practices Act, known as RESPA, will come under the scrutiny during a House Financial Services subcommittee hearing Sept. 16. Rep. Melvin Watt (D-N.C.), chairman of the subcommittee on oversight and investigations, announced Wednesday that he intends to gather testimony from representatives of the U.S. Department of Housing and Urban Development (HUD), which has developed the proposed changes, consumer advocates and industry representatives. In March, HUD unveiled long-awaited proposed revisions to RESPA and sought comment. HUD has been working since the late 1990's on revising its rules implementing the 1974 RESPA law with a view to improving the mortgage process and to lower settlement costs for borrowers. The current proposal supplants one issued in 2002, scrapped by HUD after the Credit Union National Association (CUNA) and others noted that some of the proposed changes could be confusing to consumers and could have the opposite effect of the intended simplification In part, the current proposal would:
* Make significant changes to the Good Faith Estimate (GFE) form, resulting in a new format for the GFE. That change is intended to ensure that the estimates are more accurate and to facilitate consumer comparisons between lenders. These changes will also facilitate comparisons between the GFE and the HUD-1 or HUD-1A settlement statement; * Ensure that borrowers are aware of the final loan terms and costs at settlement by requiring lenders read to each borrower a copy of a "closing script" containing the information; and * Clarify when it is appropriate to provide borrowers with discounts and average price costing of settlement services.
Watt said his subcommittee will be investigating the costs, regulatory burdens and other impacts of the proposed RESPA rule. The HUD RESPA plan has many critics. In fact, this summer 240 members of the U.S. House of Representatives signed a letter to HUD Secretary Steven Preston urging him to withdraw his agency’s RESPA plan. The lawmakers petitioned Preston to “immediately commence” joint rulemaking with the Federal Reserve Board to produce “more simplified” mortgage and real estate settlement cost disclosure forms. “To expedite this process, we also ask you to discard the hundreds of pages of HUD’s current proposed RESPA rule that have not previously been the subject of public comment and cover a number of subjects beyond disclosures,” the letter requested. The lawmakers said they are “profoundly concerned” that HUD plan will “hinder rather than help the recovery of the housing market.” The Credit Union National Association (CUNA) strongly supports the concept of amending the RESPA rules in order to simplify and streamline the home purchase and settlement process. CUNA believes that such changes would reduce out-of-pocket costs to consumers and increase quality of services. However, CUNA also has a significant number of concerns with the HUD proposal and has questioned whether the HUD plan makes the disclosure process more confusing for consumers, rather then less so.