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FHFA GSE reform needs careful consideration

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WASHINGTON (9/16/10)--Federal Housing Finance Authority (FHFA) Acting Director Edward DeMarco on Wednesday called for “careful consideration” of how mortgage subsidies are distributed in any future nationwide housing finance system. Speaking during a House Financial Services capital markets subcommittee hearing on the future of housing finance, DeMarco generally agreed that legislation to “restructure and strengthen” the existing housing finance system and to resolve the dual conservatorships of Fannie Mae and Freddie Mac is needed. DeMarco added that it is “reasonable to question whether all conventional mortgages warrant a government guarantee.” “To put it simply, replacing the (government-sponsored enterprises’) implicit guarantee with an explicit one does not resolve all the shortcomings and inherent conflicts in that model, and it may produce its own problems,” he said. DeMarco added that providing an explicit federal guarantee on mortgages could potentially distort the pricing of credit risk or result in taxpayers again being called on to bail out Fannie and Freddie. Panelists speaking at a U.S. Treasury Department meeting on the housing finance system held earlier this year suggested a number of options, including providing limited guarantees for only certain types of mortgages and securities and bringing the entire housing finance industry under the control of a single government agency. Treasury Secretary Tim Geithner during that meeting also called for a new system that eliminates the conflict between Freddie Mac's and Fannie Mae's public policy role and the need to enhance shareholder returns. Going forward, DeMarco said that Fannie and Freddie should “maintain their focus on mitigating credit losses and remediating internal operational weaknesses while employing prudent underwriting standards and guaranteeing proven mortgage products.” Developing and offering new products should be tabled for the time being, he added. For DeMarco’s full testimony, use the resource link.

CUs look forward to future campaign chances

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WASHINGTON (9/16/10)—Though the narrow primary loss of potential New Hampshire Senate seat nominee and former credit union chairman Ovide Lamontagne is a disappointment, Credit Union National Association (CUNA) Senior Vice President of Political Affairs Richard Gose said that CUNA “look(s) forward to finding similar opportunities with other candidates in the future.” Lamontagne, who led St. Mary's Bank, the nation’s oldest credit union, fell 1,600 votes short of Republican primary opponent and former New Hampshire state Attorney General Kelly Ayotte. “As a former chairman of a credit union, he was committed to credit unions and their needs; we are committed to helping those who understand and commit themselves to credit unions,” Gose added. The Credit Union Legislative Action Council (CULAC) contributed $5,000 to Lamontagne’s campaign and ran a series of statewide radio ads supporting Lamontagne as the election came to a close. Credit union-backed candidates came out on top in several other electoral contests. Former District of Columbia city councilman Vincent Gray, who was backed by the Maryland and District of Columbia Credit Union Association, defeated incumbent Adrian Fenty for the Democratic mayoral nomination. Julie Lassa (D) and Carolyn Maloney (D), who also had credit union backing, won their respective primary contests in Wisconsin and New York.

House revising CRA hearing set for Sept. 21

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WASHINGTON (9/16/10)—The House Financial Services Committee on Wednesday announced that a hearing on potential revisions to the Community Reinvestment Act (CRA) will be held on Sept. 21. A witness list had not been released at press time. Federal Reserve Governor Elizabeth Duke earlier this year called for a comprehensive CRA update, and panelists at a Fed-sponsored discussion also recommended that CRA be broadened and applied to credit unions. The panelists also called for enhanced enforcement of CRA rules. CRA was enacted in 1977 in response to a practice known as "redlining," which refers to the failure to lend to lower-income and minority neighborhoods by banks and thrift institutions during the 1960s and early 1970s. The purpose of the law is to ensure that for-profit financial institutions adequately meet the financial service needs of all parts of the communities from which they draw deposits. The Credit Union National Association (CUNA) opposes any effort to include credit unions under CRA requirements, and has argued that credit unions already meet and exceed the intent behind CRA due to their localized scope and membership requirements.

Inside Washington (09/15/2010)

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* WASHINGTON (9/16/10)--Banks need to better align their capital cushions with commercial real estate concentrations, and auditors should have a smaller role in setting loan-loss reserves, said Tim Long, certified national bank examiner. Long spoke Tuesday to the American Institute of Certified Public Accountants (American Banker Sept. 15). As banks’ concentrations increase, so should the buffer above regulatory capital minimums, which would provide more transparency, he said. Banks also should focus more on their own credit analysis than accountants’ advice when determining the proper amount of loss reserves. Some accountants didn’t recognize the risk leading up to the financial crisis, he added ... * WASHINGTON (9/16/10)--Senate Democrats support appointing Elizabeth Warren as interim head of the Consumer Financial Protection Bureau, but Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said the move would be a mistake. Dodd joins Republicans in saying that the appointment should be handled through the traditional Senate confirmation process--requiring at least 60 votes to block a filibuster. Dodd said he does not favor recess appointments and appointing Warren as interim head could set a poor precedent for future administrations (American Banker Sept. 15). Warren chaired the Congressional Oversight Panel and is a professor at Harvard University. When news broke that her classes at Harvard were cancelled, and that she had met with President Barack Obama in Washington, D.C., last week, financial observers began to speculate whether she would be appointed head of the bureau, which was created under the Dodd-Frank Act ... * WASHINGTON (9/16/10)--The Federal Deposit Insurance Corp. has issued guidance regarding the risks posed by sensitive information stored on certain electronic devices and how financial institutions should mitigate risks. Financial institutions should implement written policies to ensure a hard drive or flash memory with sensitive information is erased, encrypted or destroyed prior to returning to the leasing company, sold or disposed of, the letter said ...

NCUA takes on assessment financial reforms today

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WASHINGTON (9/16/10)—Discussion of the National Credit Union Share Insurance Fund (NCUSIF) premium, which will help replenish the equity level of the NCUSIF, will be one of many highlights of today’s National Credit Union Administration (NCUA) board meeting, the first to take place since July. The Credit Union National Association (CUNA) has projected that the NCUA will charge a premium of between six and 10 basis points. The recently enacted Dodd-Frank financial regulatory reform legislation will be another topic of discussion. CUNA has estimated that around 35 of the new regulations would impact credit unions, with specific changes to interchange fees and related issues being the most notable additions. Other areas specifically impacting credit unions include changes to mortgage lending rules as well as other rules that will be issued by the new Consumer Financial Protection Bureau. CUNA has said that a number of changes would likely only alter existing regulations. Final rules addressing secondary capital accounts and short-term, small amount (STS) loans are also on the docket. The NCUA earlier this year proposed allowing federal credit unions to offer STS loans as a better alternative to predatory payday loans that are offered by other financial service providers. Under this proposal, federal credit unions would be permitted to charge an interest rate that is higher than the current usury ceiling in the Federal Credit Union Act, but the rule would impose limitations on the permissible term, amount, and fees for these types of loans. The Credit Union National Association supports the STS plan, but has urged the NCUA to make sure the rule is not so prescriptive as to discourage credit union participation. Potential adoption of the Federal Accounting Standards Advisory Board's financial reporting standards and the general status of the NCUA's insurance funds also will be discussed during the open portion of the meeting. For the full NCUA agenda, use the resource link.

CU among six iGo Directi Champions

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WASHINGTON (9/16/10)--State Employees' CU, Raleigh, N.C., was among six financial institutions named by the U.S. Treasury Department as 2010 Go Direct Champions for their roles in driving enrollments in direct deposit among federal benefit-check recipients. The six champions beat out 13 other competitors. Participating credit unions and banks were grouped into two tiers based on number of branches, and the program tracked increases in the financial institutions' Social Security and Supplemental Security Income (SSI) ACH payments over an eight-month period, ending May 31. This recognition program is aimed at financial institutions with a minimum of 100 branches. The Go Direct campaign has helped more than four million Social Security and other federal benefit check recipients switch to direct deposit since its launch in 2005. The Credit Union National Association is a Go Direct national partner. The Treasury’s Go Direct campaign also has a recognition program, called the Community Ambassadors, aimed at small- and medium-sized financial institutions.