NAFCU Compliance Blog

The Hill; Prohibition Orders; Softball

Posted by Anthony Demangone

Wow, was yesterday a big day on Capitol Hill.

First, a movement to give bankruptcy judges the ability to "cram-down" mortgages in certain situations was unsuccessful yesterday.  As you may recall, NAFCU opposed the proposed legislation.  The movement, which was pushed as an amendment to major housing legislation before the U.S. Senate needed 60 votes.  It fell short of 50.  Kudos to NAFCU's team of lobbyists, who worked around the clock the last few weeks. 

The Senate is also looking at giving NCUA additional borrowing authority to deal with the corporate credit union situation, as extending the share insurance increase to $250,000.

Finally, the House passed legislation to provide additional legislative protections to consumers in the area of credit cards.  Much of the legislation is already going to take affect as part of UDAP.  But the legislation would codify those changes, making them much more difficult to roll back.  That now moves to the Senate. 

Rather than hash out all the details, NAFCU Today has done a good job of providing great overviews of what took place.  Read all about it here.

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NCUA issued prohibition orders on Wednesday.  Read all about them here.  The orders are good wake-up calls for two groups of people:

1. Those who refuse to believe that there are people simply looking to rob your credit union blind; and
2. Those people who think no one is looking for insider abuse.

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Have a great weekend, everyone!  Mandy and I have a babysitter for Saturday! My goal is to have an adult beverage or two, have a nice dinner, and then fall asleep by 9 p.m.

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Added by Steve Van Beek

NAFCU Softball Update: The NAFCU Nationals split their games on Thursday night.  The first game was a nail biter with NAFCU losing 11-10.  We rallied in the bottom of the last inning and had the tying run on third base but their centerfielder made a diving catch to end the game.

Game Two was a whole new game with the NAFCU bats catching fire.  The game started with a inside-the-park homerun by Quincy, one of NAFCU's lobbyists, and we never looked back.  Final Score: 23-3 (the good way). 

Cramdowns; Its Not Easy Being Green; B+S+A = $5 million

A few days ago, the NAFCU Board of Directors revisited the mortgage bankruptcy issue, and voted unanimously to oppose broad cramdown of mortgage loans, and suggested a compromise solution.

The NAFCU Board’s position is stated in a letter that NAFCU sent Senator Richard Durbin this morning.  Specifically, the letter addresses the principles that are being discussed regarding the mortgage bankruptcy title as part of the Senate response to the House-passed version of H.R. 1106.  Of note, NAFCU does not believe that enough information has been presented on how second mortgages and PMI would be treated in bankruptcy under the Senate compromise. At this juncture, the Board felt that any compromise without additional information was premature.  In addition:

*NAFCU is continuing its efforts to work towards a compromise agreement. Credit unions did not cause this crisis, and we continue to support a bill that would be limited in scope to subprime or Alt-A (nontraditional) mortgages, an approach that the credit union industry and others had agreed to last year.

*We could also support a broader package of bankruptcy relief that provides a carve-out for loans made by not-for-profit lenders such as credit unions, housing associations and others who did not contribute to this current crisis.

The entire text of NAFCU’s letter is set out below. 

April 22, 2009

The Honorable Richard Durbin
United States Senate
309 Hart Senate Office Building
Washington, D.C.  20510

Dear Senator Durbin:

I am writing on behalf of the National Association of Federal Credit Unions (NAFCU), the only national trade association that exclusively represents the interests of our nation’s federal credit unions, to share our comments regarding the principles that are being discussed regarding the mortgage bankruptcy title as part of the Senate response to the House-passed version of H.R. 1106, the “Helping Families Save Their Homes Act of 2009.”

NAFCU sincerely appreciates all of the hard work you and your staff have done on this important issue. As discussions continue regarding how to address current problems in the housing market, we commend you for your efforts in seeking to provide relief for distressed home owners. We recognize and applaud your leadership efforts in dealing with issues related to the continued fall-out from the subprime crisis and the need to mitigate foreclosures.

NAFCU, however, remains concerned about any legislation that includes broad cram-downs of all mortgages in bankruptcy. We believe that a more targeted approach is better suited to address the issue, and are pleased that the discussions with your staff on this matter have proceeded along such lines. We believe that these discussions have been very productive in moving this legislation forward. Our Board of Directors, however, believes it is important to understand the impact of this critical legislation, and have asked questions about the Administration’s modification and work-out plans for subordinate liens, as well as how this legislation and new bankruptcy authority would impact existing Private Mortgage Insurance contracts. Unfortunately, at this time, there do not appear to be details available on these important issues. Without this information, the NAFCU Board of Directors does not believe that they can fully and fairly evaluate how this legislation will impact credit unions. Consequently and very unfortunately, at this juncture, we cannot “support and defend”, as your staff has requested of us.

I should note that this does not mean we oppose your efforts to get to a compromise agreement; rather, the NAFCU Board of Directors cannot endorse it in its current form without additional information and details. In particular, we would continue to support the compromise we endorsed last year, that would have bankruptcy modification apply only to subprime or Alt-A (or non-traditional) mortgage loans. Additionally, we would also currently support a broader package of bankruptcy relief that provided a carve-out for loans made by not-for-profit lenders, such as credit unions, housing associations and others, who did not contribute to this current crisis.

As always, we very much appreciate the opportunity to continue to work with you and your staff on this matter and other critical legislation, and we thank you for your continued efforts in addressing our nation’s mortgage crisis.

If you or your staff should have any questions on this matter, please do not hesitate to contact NAFCU’s Director of Legislative Affairs, Brad Thaler or me at (703) 522-4770. Thank you for your leadership on this very important matter.

Sincerely,

Fred R. Becker, Jr.
President/CEO

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Yesterday was Earth Day.  Read all about it here.  With that in mind, I wonder how many NAFCU members know that you can receive our Compliance Newsletter and BSA Blast electronically.  If you want to receive them electronically, let us know.  When they are available, we'll send you an email with a link where you can log-in and read.  If you are interested in ditching the paper for electrons, send us an email at compliance @ nafcu.org, and include the following information:

• Name
• Credit Union
• Title

• Email address

We'll save stamps.  A few trees will breath a bit longer.  And you won't have to wait as long to read long-winded, regulatory explanations.   Also, as many folks as you want can sign up at your credit union for this.  Forward this post to whomever you want.

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And you thought BSA was going away?  FinCEN and the OCC recently announced a $5 million civil money penalty for alleged BSA violations.  Read all about it here.  Things of note:

• This bank had been under a Cease and Desist order.  I guess they weren't fixing things quickly enough.
• The usual problems were there: lack of testing and appropriate internal controls.
• While this bank may not have a lot in common with your credit union's location, size, international nature, etc., the penalty still is worth noting.  Pay attention to NCUA demands.  And remember that regulators can swing a big stick if they get frustrated.

• If you wanted to add a little punch to your next BSA training program, this might be what the Doctor ordered.

Corporate Stabiliztion; Bankruptcy

NCUA posted a new "corporate stabilization" document to its website.   The new document is an analysis of the distressed investments held at corporate credit unions.  While this is technically CFO stuff, people expect compliance officers to find stuff that pertains to NCUA.  So here's a link to that document.  And here's a link to NCUA's corporate stabilization homepage, which serves as a repository for all related guidance.

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We often get questions regarding bankruptcy at NAFCU.  Let me be honest: we are farfrom being experts regarding bankruptcy.  There's no substitute for good legal counsel who is familiar with your particular jurisdiction/bankruptcy court.  That being said, here's a good bankruptcy resource.

You'll find links to forms, form instructions, overviews, etc.   Good stuff, people.  Good stuff.

  

I'm just a bill...

Here's an update regarding what's up on Capitol Hill:

Cram down.   HR 1106 passed the House.    The legislation would give bankruptcy judges the power to "cram dowm" the outstanding balance on certain mortgages so that the balance is in line with the property's value.  While the legislation as currently drafted would be very problematic for credit unions that do real estate loans, the bill now moves to the Senate.  The word on the street is that the Senate is more likely to limit the scope of the legislation.  For example, the scope could be limited to subprime loans.  NAFCU's lobbyists are keeping a close eye on this and are communicating credit union concerns to all the right people.

Member business lending (MBL).  Senator Charles E. Schumer (D-NY) announced plans to assist small businesses by eliminating the MBL cap found within the Federal Credit Union Act.  (Wait.  It can't be!  Good news?!?)   However, it is worth noting that such a change would involve a bill that passes both Houses and gets the signature of President Obama.  But we'll keep a close eye on this one.

Financial reform.  Representative Barney Frank (D-MA) announced that he will continue his vigorous financial reform agenda.  Areas of interest include mortgage lending, overdraft protection, regulatory restructuring and credit cards.  (That's a short but powerful list.) 

Cram-downs

As you may be aware, there a legislative proposal that would give bankruptcy judges the power to "cram-down" mortgage loans and extend mortgage maturities.   (It is Senate Bill 61.)   For those unfamiliar with cram-downs, it involves reducing the outstanding balance of a loan to equal the value of the underlying collateral. 

Here's an example.  Joe Member has a mortgage loan with a $400,000 outstanding balance.  Currently, the value of the collateral is estimated to be $300,000.  If the proposed legislation were to become final, a bankruptcy judge might be able to waive his or her bankruptcy wand, and --- poof--- the member now only owes you $300,000.

Ouch.

Here at NAFCU, we're very, very concerned about how this would affect credit unions.  With that in mind, we sent this letter to Senator Richard Durbin to voice our concerns.  If your credit union does mortgage lending, make sure someone reads this letter.  Keep the cram-down issue on your radar, and know that NAFCU's lobbyists are tracking it very, very closely. 

Bankruptcy Issue; Privacy and Third Parties

Never underestimate the value of attending a conference.  You get to pick up great tips from smart people, like Andy Keeney, a credit union attorney with Kaufman and Conoles.  (A Virginia-based law firm.)   Here's Andy's bio.
 
Andy mentioned the following.  Apparently, there are certain bankruptcy attorneys that are filing numerous lawsuits against credit unions and other creditors for discrepancies in credit reports.  The problem stems from the way that some credit unions are handling charge-off data.  Because the credit union is reporting (i.e., coding) the debt amount as “charged off” as opposed to “discharged in bankruptcy,” the debtor is asserting that the CU has frustrated his or her “fresh start,” in violation of bankruptcy laws.  Apparently there are a number of debtor attorneys who are filing these lawsuits against creditors in large numbers with the intent that the creditor will simply settle the case quickly, typically for around $3,500.  Andy wanted to bring attention to this growing problem as credit unions are seemingly being targeted by a few attorneys.

Thanks, Andy!

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This FTC news item caught my eye.  In short, a mortgage company got slammed by the FTC for not adequately managing a third party's access to sensitive customer data.  The issue is a blend of privacy concerns and third party due diligence.  While the FTC does not examine FCUs for privacy compliance, this paragraph REALLY caught my eye.

The FTC complaint also alleges that Premier violated Section 5 of the FTC Act and the Privacy Rule by failing to live up to its own privacy policy, which claimed: “We take our responsibility to protect the privacy and confidentiality of customer information very seriously. We maintain physical, electronic, and procedural safeguards that comply with federal standards to store and secure information about you from unauthorized access, alteration and destruction. Our control policies, for example, authorize access to customer information only by individuals who need access to do their work.”

How many of you have read your privacy policy recently?  How many of you have a similar paragraph?