Tuesday, July 29, 2014

HMDA Proposal Would Increase Reporting Burden

The Consumer Financial Protection Bureau (CFPB) has issued a 573-page proposed rule that would significantly increase the reporting burden on Home Mortgage Disclosure Act (HMDA) filers.

The proposed rule would mandate financial institutions to report 37 new additional data fields under HMDA. In keeping with the Dodd-Frank Act requirements, the rule would require lenders to report for the first time property value, loan term, total points and fees, the duration of teaser rates and the age and credit score of the applicant or borrower. The CFPB also proposed that lenders submit data on an applicant’s debt-to-income ratio, interest rate and total points charged, which the bureau said would help it evaluate the impact of its mortgage rules. With only a few exceptions, all dwelling-secured loans would be subject to the rule.

The CFPB further proposed a single threshold -- 25 mortgages originated annually, excluding open-end lines of credit -- at which financial institutions become subject to the rule. The CFPB estimates that approximately 1600 depository institutions would no longer be subject to HMDA reporting, while almost 450 nondepository institutions would now have to report their HMDA data.

In addition, financial institutions that reported at least 75,000 covered loans, applications, and purchased covered loans, combined, for the preceding calendar year, would be required to report data quarterly. THE CFPB estimates 28 financial institutions would be subject to the new quarterly reporting requirements based on 2012 HMDA data.

While the proposal would reduce the reporting burden on banks and credit unions that originate few mortgages, for all other banks and credit unions the reporting burden will significantly increase.

Monday, July 28, 2014

Going POSTAL Act

Like a bad penny, the idea of the Post Office offering banking services is being resurrected.

Between 1910 and 1967, the U.S. Post Office offered banking services. However by the 1950s, the need for the Postal Savings System was being questioned and in 1965 the Postmaster General recommended abolishing the system.

But on July 16th of this year, the Pew Charitable Trust hosted an event on whether the Post Office should offer financial services.

Senator Elizabeth Warren spoke at the event and has become a vocal champion of postal banking. For example in U.S. News, Senator Warren argued that allowing the post office to offer affordable banking services would be a win for underserved families and it would also shore up the finances of the Post Office. She pointed out that the Post Office already provides some financial services, like international money transfers to certain countries and domestic money orders. (Click here to read the op ed)

On July 24th, Rep. Cedric Richmond (D-La.) introduced a bill, The Providing Opportunities for Savings, Transactions and Lending Act – or the POSTAL Act, that would allow the U.S. Postal Service to provide an expanded range of financial products -- including checking accounts, interest-bearing savings accounts, small-dollar loans, debit cards and international money transfers. In addition to these products, which are explicitly mentioned in the bill, Richmond would allow USPS to offer “such other basic financial services as the Postal Service determines appropriate in the public interest.”

The danger to banks and credit unions is that this new postal savings bank could be perceived by many as a government-endorsed and preferred provider of financial products and the last thing we need is more government competition with the private sector.

Friday, July 25, 2014

Prudent Capital Management Should Include a Buffer

In case you missed it, credit unions should read NCUA Board member Rick Metsger's column in the July 2014 NCUA Report.

Metsger believes that prudent capital management should include a capital buffer above the minimum requirement for being well-capitalized.

Metsger wrote:

Maintaining a buffer, like a reserve fuel source, is certainly prudent management—but how much of a buffer is actually needed? As currently written and using the most recent data, the proposed rule identifies 20 credit unions that are undercapitalized and an additional 210 credit unions in the “buffer zone” as adequately capitalized. In total, these 230 credit unions represent just 7.6 percent of credit union assets subject to the proposed rule. Another 15.5 percent of credit unions are well-capitalized, but with less than 20 percent cushion above the 10.5 percent threshold as shown in the
graph to the right.

The remaining 1,595 credit unions with more than $50 million in assets—which collectively hold 77 percent of covered credit union [assets] already have at least a 20 percent risk-based capital buffer. In fact, a quarter of a trillion dollars in assets reside in credit unions whose buffer is a whopping 50 percent or more than the well-capitalized standard.

Reasonable people can debate what constitutes a prudential buffer. But a 20 percent cushion above a credit union’s “yellow warning light” is a pretty big buffer.

So while Metsger is trying to tell most credit unions covered by the proposed rule that they are holding more than enough capital and should not worry about the proposed risk-based capital rule, I believe NCUA is signalling its expectations to credit unions that a risk-based capital ratio of 10.5 percent, which is the minimum requirement for being well-capitalized, is not enough.

Wednesday, July 23, 2014

Matz: CU System Would Not Have Survived without $26 Billion in Federal Government Assistance

In a July 23 speech to the Annual Convention of the National Association of Federla Credit Unions, NCUA Chairman Debbie Matz defended the agency's risk-based capital proposal by pointing out the credit unions received significant assistance from the federal government and would not have survived without it.

Matz said:

"While the worst of the crisis now appears to be receding into the rearview mirror, we cannot forget its lessons. First and foremost, we cannot forget that the federal government had to pump $26 billion into the credit union system to prevent it from collapsing. Without an infusion of $20 billion from NCUA’s Central Liquidity Facility and an additional $6 billion from NCUA’s line of credit at the U.S. Treasury, the credit union system as we know it would probably not have survived.

Even with this extraordinary assistance from the federal government, 102 credit unions still failed. Many of those credit unions appeared to have sufficient capital. That is, until they collapsed. Those failures cost the Share Insurance Fund three-quarters of a billion dollars. Through strong supervision, we were able to prevent an additional $1.5 billion dollars in losses from troubled credit unions that were on the brink of failing."

Read Matz's speech.

CFPB Proposal Would Subject Banks and CUs to Reputational Risk

Several years ago, I spoke to the 33rd Annual National Directors' Convention in Las Vegas about the huge threat that the Consumer Financial Protection Bureau (CFPB) poses to banks and credit unions.

The latest example of this threat is a new proposal by the CFPB to publish consumers’ narratives in its consumer complaint database. A company subject to a complaint would be given an opportunity to post a response that would appear next to a customer’s story. If the company does not respond in 15 days, the complaint narrative would be published.

The CFPB states that "by giving consumers an option to publicly share their stories, the CFPB would greatly enhance the utility of the database, a platform designed to provide consumers with valuable information needed to make better financial choices for themselves and their families."

But unlike YELP, the CFPB database will not include information about favorable consumer experiences.

The public disclosure of unverified consumer complaint narratives will not advance the goal of helping consumers to make informed and responsible financial decisions. However, it will subject financial institutions to reputational risk.

Read the press release.

Tuesday, July 22, 2014

Monterey CU Seeking a Mutual Bank Charter

Credit Union Times is reporting that privately-insured Monterey Credit Union is in the process of switching to a mutual savings bank charter.

The credit union cited limitations in making business loans as a reason for the charter conversion.

The credit union has applied to the California Department of Business Oversight for a mutual savings bank charter and to the FDIC for federal deposit insurance.

Ballots and information on the charter conversion were mailed to members on May 31 with ballots due by July 25.

Read the story.

Chairman Matz's Reply to Rep. McHenry on Risk-Based Capital Proposal

Below is a six page letter from NCUA Chairman Debbie Matz to Representative McHenry, regarding the agency's proposed risk-based capital rule.


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