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Judge may not order trial in Bellco UBIT case

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WASHINGTON (9/4/09)--Judge Christine Arguello asked both parties in the Bellco Credit Union V. U.S. unrelated business income tax case to reconsider their requests for a jury trial. During oral arguments late last week in Denver, Arguello asked several questions of both sides during a two-hour session. The oral argument portion of the trial followed the filing of separate motions for summary judgment by both Bellco and the U.S. Department of Justice. Bellco has challenged the assessment of unrelated business income tax (UBIT) on three of its products, and is seeking a refund of $199,293 that was paid on products such as accidental death and disability insurance (AD&D), credit life and disability insurance, and financial services such as investments in 2000, 2001 and 2003, plus statutory interest. One disputed issue is whether the sale of credit insurance and investment products are substantially related to the granting of loans and the promotion of thrift, and whether income from the sale of AD&D qualified as a royalty not subject to UBIT. The government has asserted that neither credit insurance nor financial services were related to the exercise or performance of Bellco's tax-exempt purposes. The government has also sought to exclude income from the sale of AD&D policies from being counted as royalty income. Arguello said she may ask for further briefings on the issues surrounding the case before making her final decision. The trial, if approved, would take place in December.

CU comment sought on Reg Z closed-end mortgage rules

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WASHINGTON (9/4/09)--The Credit Union National Association (CUNA) has issued a regulatory comment call on the Federal Reserve's proposal that will revise the disclosures that lenders must provide in connection with mortgage loans. The proposal will require that Fed-published documents be given to consumers at the time of application and will revise the other current disclosures, which must be provided within three days after application, as well as three days before loan consummation. This information is intended to outline additional information about certain loan features, especially in connection with adjustable rate mortgages. These changes, which would apply to disclosures for all closed-end credit transactions secured by real property, would also revise the annual percentage rate (APR) calculation to include most fees and settlement costs, many of which are currently excluded from the APR. The proposal will impose eligibility and disclosure requirements for credit insurance, debt cancellation, and debt suspension coverage. In addition, the Fed would require lenders to notify borrowers 60 days before any changes to their monthly payments on adjustable-rate loans are made. The Fed currently rules require lenders to give consumers 25 days of advance notice. Comments are due to CUNA by Dec. 10, and should be submitted to the Fed on Dec. 24. To view the CUNA comment call, use the link.

Inside Washington (09/03/2009)

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* WASHINGTON (9/4/09)--A hearing on the Securities and Exchange Commission’s (SEC) handling of the Bernie Madoff fraud case has been scheduled for Sept. 10, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) announced Wednesday. The hearing will discuss a report released by an SEC inspector general Wednesday (American Banker Sept. 3). Dodd’s committee plans to use the report to learn what went wrong in the SEC’s oversight of the Madoff case, he said ... * WASHINGTON (9/4/09)--Fannie Mae and Freddie Mac sent a letter this week to their regulator, the Federal Housing Finance Agency (FHFA), saying they object to several parts of a July 2 interim rule that requires them to submit all activities and products to FHFA for review (American Banker Sept. 3). The rule is ineffective and burdensome, the enterprises said. The rule also makes it difficult for the enterprises to help during a financial crisis. The letter signals one of the first times the enterprises have publicly contacted their regulator about an issue. Both were placed into conservatorship by FHFA last year ... * WASHINGTON (9/4/09)--Members of the Federal Reserve Board’s policymaking open market committee were split on whether to purchase mortgage-backed securities associated with adjustable-rate mortgages, according to minutes released this week from the Aug. 11-12 committee meeting. Some participants said the securities would be useful because they could reduce the large spreads between the adjustable-rate mortgages and yields on similar-duration Treasury securities. Others saw little benefit, given the small stock and limited issuance on fixed-rate mortgages. The committee also discussed reducing the pace at which the Fed buys Treasury securities, agency debt and agency mortgage-backed securities before the end of the asset purchase programs. Slowing the pace of the purchases could promote a smooth transition in markets, participants said. However, no decisions were made on purchasing mortgage-backed securities or tapering the pace at which the Fed buys Treasury securities ...

CUNA NAFCU put forward unified corporate CU plan

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WASHINGTON (9/4/09)-- A unified credit union view of the future of the corporate credit union system is the product of a joint task force appointed by the chairs of the Credit Union National Association (CUNA) and the National Association of Federal Credit Unions (NAFCU). The task force’s detailed recommendations cover the major areas of the corporate credit union system: services, capital, structure, corporate governance, federal regulatory oversight and insurance of shares and deposits in corporates. The task force’s recommendations are offered as a comprehensive plan. The task force recognized that the suggestions being made represent a departure from the current corporate system. The proposed system implied by the task force’s suggestions represents a future corporate system that the task force believes that natural person credit unions would support and use. Some of the key findings of the joint CUNA-NAFCU task force include:
* Services of corporates should be limited to a defined set, including payments and settlements, liquidity and short-term investments. Further, longer-term, on-balance sheet investments should not be offered by corporates; * Contributed capital should be required for membership and service use by credit unions; corporates will have to present a sufficiently compelling business case covering both the value of services provided and strong risk control; * With limits on risk-taking, competition among corporates will be driven by efficiency, placing a premium on economies of scale and thus creating substantial pressures for consolidation; * Insurance coverage for natural-person credit union (NPCU) shares and deposits in corporate credit unions must be limited to the maximum coverage for personal deposits and shares in the NPCUs; * National Credit Union Administration (NCUA) oversight of corporates must be improved, with adequate qualified staff with special knowledge of the complex operations of corporate credit unions; * Corporate board members must have sufficient expertise to govern their corporate consistent with the powers of the corporate credit union.
The task force delivered its views Thursday in a report to the NCUA board, and effort intended to maximize credit unions’ impact on the NCUA’s rulemaking process concerning corporate credit unions. “The circumstances of the current corporate credit union system have had an enormous impact on the credit union industry, and we want to make sure going forward that credit unions have as much input as possible on how to best enhance the system for the future,” said NAFCU Chair Brad Beal. “We undertook this as a collaborative effort because we wanted to develop recommendations that were comprehensive and strategic. We strived to address the challenges of balancing risk and the needs of natural person and corporate credit unions in our recommendations,” said CUNA Chair Kris Mecham. The task force’s recommendations, CUNA and NAFCU said in a release, are a departure from the current corporate system and represent a future corporate system that the task force believes that natural person credit unions would support and use Use the resource link below to access the complete report.

Obama loan mod program to be subject of hearing

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WASHINGTON (9/4/09)—The House Financial Services subcommittee on housing and community opportunity will be turning the spotlight on the Obama administration’s Making Home Affordable (MHA) Program later this month. In a scheduled Sept. 9 hearing the subcommittee chaired by Rep. Maxine Waters (D-Calif.) will take a look at the outcomes for homeowners eligible for the program and what are the obstacles to the program’s success. The Making Homes Affordable Program was launched with the intention of easing the crush of home mortgage disclosures by encouraging lenders to execute more loan modifications for responsible borrowers. However, the program has been criticized for not reaching enough troubled homeowners. For instance, a Sept. 1 article in CNN’s Politics.com said that now, six months into the program, only 6% of four million homeowners identified as eligible have gotten help. The article says borrowers have expressed frustrations that some lenders just give them a runaround. To help support credit union participation in the loan modification program, the National Credit Union Administration (NCUA) in June issued an interim final rule allowing credit unions to modify second mortgage loans to match the terms of modified first mortgages. Although the Treasury had recently added a second lien program to its MHA, many credit unions could not participate due to an NCUA lending rule that imposed a 20-year maturity limit on second mortgage loans secured by the member-borrower's primary residence. A witness list has not yet been made public for the subcommittee hearing.