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Friday, July 1, 2011

Interchange - the drama continues


Yesterday, the Federal Reserve cut the maximum debit interchange fee to about $0.24 for the average debit card transaction, which was recently about $38. Currently the fee for the average size debit transaction is $0.44, so the new rule represents a 45% decline. However, this new $0.24 cap is much better for financial institutions than the initial $0.07 to $0.12 cap the Fed proposed back in December-2010. As a result, free checking may continue to be offered by big banks. If you recall, back in Feb-2011, the WSJ reported that some of the largest banks were starting to remove rewards programs on debit cards while others began charging $3 monthly fees to have a debit card.

Source: Brick and Associates

Forget Freddie Krueger. QE3 is scarier


On 6-22-11, the Fed left the fed funds target at a range of 0.0% to 0.25% and continued to say they will hold rates at “exceptionally low levels” for an “extended period.” At this meeting, Federal Reserve officials made the following revisions to their economic forecasts for both 2011 and 2012: lower economic growth, higher
unemployment, and higher core inflation. This brings the Fed’s forecasts more in line with private economists. The Fed’s post-meeting statement said, “The slower pace of the recovery reflects in part factors that are likely to be temporary (our emphasis), including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan” The day after the Fed meeting the WSJ wrote, “Federal Reserve officials see the US economy settling into a disappointingly weak recovery this year and next, and say they have done all they are prepared to do to spur growth for now.” However, in his post-meeting press conference, Bernanke actually did leave the door open to a possible QE3 or other Fed action if the economy performs much worse than expected when he said the Fed would be “prepared to take additional action, obviously, if conditions warranted.” Following today’s end of the Fed’s $600b QE2 Treasury purchase program, the Fed’s balance sheet is currently $2.8 trillion, or four times its pre-crisis level. About $900b of their balance sheet is currently in Agency Passthroughs.


Generally speaking, the Fed’s broad goals for QE2 were to lower long-term Treasury rates, avoid deflation, and improve financial conditions in order to boost economic growth and lower the unemployment rate. In speeches last fall, Fed officials publicly said they wanted to boost stock prices in order for the so-called
wealth-effect to boost consumer spending. On a much more technical level, the Fed was trying to boost inflation expectations in order to avoid potential deflation. In general, inflation expectations have risen by about 100BPs since Bernanke first hinted at QE2 on 8-27-10. Inflation expectations over the next ten years
(10-year Treasury yield - 10-year TIPS yield) have risen about 100BPs since August-2010 to 2.5% currently.

Source: Brick and Associates

Monday, March 21, 2011

Freddie and Fannie wind down?


The Treasury Department released a long-awaited “white paper” on 2-11-11 that calls for winding down these GSEs. Basically the Treasury wants the mortgage market to be mainly private and they feel it will take 5-7 years to transition to a new housing finance system. The Treasury said they would make sure
Fannie and Freddie have the resources they need to meet all their commitments. Note that the last three US Presidents have tried to reign in Fannie and Freddie but Congress has taken virtually no action thus far. Also, it was recently reported that last fall, the widely respected CEO of JP Morgan Chase referred to Fannie and Freddie
as "the biggest disasters of all time." Interestingly, after this “wind down” proposal, Fannie and Freddie spreads tightened. The reason was that the Treasury department wants Fannie and Freddie to shrink their balance sheets; less supply of bonds means tighter spreads, at least initially. Whether Fannie and Freddie can be wounddown remains to be seen. MBS investors, which actually determine mortgage loan rates, say mortgage rates will be much higher (say a few hundred BPs) without some form of government backing. Could politicians really handle mortgage rates of say 7% instead of say 5%, holding everything else equal?

From Brick and Associates, Inc Commentary

Inflation Watch


The head of the European Central Bank said on 3-7-11 that he is ready to raise rates because inflation is too high. (That was before Japan’s earthquake.) Bill Gross, the biggest bond fund manager in the world, dumped all of his Treasury bonds in February because he feels the rates are too low and he wonders who will buy all the Treasury debt (at today’s low rates) when QE2 is over. He said Treasury yields are artificially low by about 150BPs because of QE1 and QE2, based on expected nominal GDP growth of 5% this year.



Exerpt from Brick & Associates Commentary

Tuesday, February 8, 2011

Economic stress continues but Midwest improves


The nation's economic stress inched up in December because higher foreclosures outweighed lower unemployment, according to The Associated Press' monthly analysis.

Bankruptcy levels remained largely unchanged from November. But the depressed housing market took a toll. Foreclosure rates rose in 33 states, most sharply in Utah, New Jersey, Nevada and Arizona.

Most analysts expect the economy to gain momentum this year, in part because of a tax-cut package that lowers workers' Social Security taxes and puts more money in their paychecks. But two straight months of higher stress to end 2010 marked a setback after the nation's economic pain had eased since the start of last year, the AP Economic Stress Index showed.

The AP's index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signals more stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11.

The average county's score in December was 10.4, up from 10.3 in November. Slightly more than 40 percent of the nation's 3,141 counties were deemed stressed, up slightly from November.

For all of 2010, economic stress eased in every state but five: Colorado, Florida, Georgia, Nevada and Utah. Stress fell most sharply in the Great Lakes states and the Southern states of Alabama, Mississippi and Tennessee. Those states have large manufacturing bases, and the AP analysis showed that stress dropped most in counties with large proportions of workers in manufacturing.

U.S. manufacturers are finally adding jobs after years of shrinking their payrolls. They added 136,000 workers last year, the first net increase since 1997. And in January, the manufacturing sector added 49,000 jobs -- the most in any month since August 1998.

From AP
Tom Dluzen

Monday, February 7, 2011

Bond Market Bubble


Acccording to Martin D. Weiss, Phd., when the bond market bubble busts, the inevitable and immediate consequence is that interest rates surge — not only on bonds, but also on mortgages, auto loans, business loans, and almost every kind of financing imaginable.

If you hold fixed-income investments locked in at today’s low interest rates, you will almost definitely get hurt, regardless of what kind you own — Treasury bonds, Ginnie Maes, municipal bonds, mortgage bonds, corporate bonds, long-term bank CDs.

Either …

You’ll get stuck with miserable, below-market yields for years to come, or …
You’ll have to pay a tremendous price — losses in principal and/or stiff penalties — to switch to higher yielding investments.

At least consider selling your longer term investments while you can still get a small premium.

Tuesday, June 8, 2010

Howard Dean speaks to Tom Dluzen about the credit union industry


Governor Howard Dean’s diverse background means he’s not just well-versed in the issuesof the economy and financial reform; It also means he offers a unique perspective on thecredit union industry, why credit unions are more valuable than ever, and what you, as acredit union leader, can do to prepare for the future.


Governor Howard Dean does more than voice hissupport of the credit union industry, he lives it.Dean and his wife, as well as both of their children,are proud members of the Vermont StateEmployees Credit Union.“I’m a big fan of credit unions. They are usually community-managed, and are pretty sensible. You don’t often hearabout them getting into the news, which means they aren’t doinganything bad most of the time,” says Dean. “So, it’s a verypositive institution for the country. We need more . . . .




By: Tom Dluzen

Tuesday, April 13, 2010

Tom Dluzen interviews CNBC's Larry Kudlow

Tom Dluzen interviews CNBC's Larry Kudlow for Credit Union Business Magazine



When the economy is booming, even ineffectually managed financialinstitutions can succeed. During a downturn, however, theseinstitutions, unprepared for challenges such as credit or interestrate risk, find themselves in an untenable situation and often facethe risk of failure. It is difficult to express the importance of a well thought-out strategic plan, including an Asset Liability Management(ALM) program that permeates virtually every decisionthe credit union makes. Less attention should be paid to what thecompetition is doing, and more consideration given to how a loanor deposit interest rate special will affect your balance sheet.For example, if you have too many long-term assets on thebooks, perhaps a marketing campaign to promote fixed-rate mortgagesis the wrong strategy, particularly when interest rates are athistoric lows. When economic times turn sour, forward thinkinginstitutions are usually in a much better position to “weather thestorm.”Arguably, proactive economic forecasting is more importanttoday than at any time in U.S. history. This means taking the time to follow this link to the entire article http://creditunionbusiness.com/archives/lki_310.pdf






Friday, April 9, 2010

Fed says inflation tame, no need to raise rates soon


Federal Reserve policy makers last month saw an inflation slowdown across the U.S. economy that may persist in the coming months, tempering any need to reverse record-low interest rates. At the same time, the Fed said its pledge to keep the main rate low for an “extended period” wouldn’t keep it from taking action when needed to keep inflation in check, according to minutes of the March 16 Federal Open Market Committee meeting released April 7th. A few officials warned of the risks of increasing borrowing costs too soon.

The inflation outlook, coupled with Fed officials’ concerns about unemployment and long-term joblessness, signals Chairman Ben S. Bernanke and his colleagues are still looking for evidence of a sustained rebound from the worst recession since the 1930s. Fed staff economists reduced their 2010 and 2011 forecasts for inflation excluding food and energy, projections that were already below 2009 rates. “If you expect moderate growth and high unemployment and decelerating inflation, which is still likely to be the best guess at the moment, you won’t be interested in raising interest rates right now,” said former Fed Governor Lyle Gramley, a senior economic adviser at Potomac Research Group in Washington.

At the meeting last month, central bankers left the benchmark federal funds rate target, covering overnight interbank loans, in a range of zero to 0.25 percent, where it has been since December 2008. Fed officials cited the job market, lower home prices and tight credit as restraints on the recovery, the minutes said.

By Scott Lanman
April 7 (Bloomberg) --

Tuesday, April 6, 2010

Bankers not following BOA's lead on overdraft protection


Don't expect community banks to follow Bank of America's lead and drop their overdraft protection programs in advance of upcoming regulatory changes.
Many smaller banks say they plan to keep offering such services because demand is strong and overdraft fee income is essential. Consultants say that these banks, unlike Bank of America, do not necessarily need to curry favor with the public by getting rid of the service.
Marcia Johnson, the corporate operations officer at Glacier Bancorp, a $4.1 billion-asset company in Kalispell, Mont., said it considered dropping overdraft protection on its 221,000 checking accounts. But overdraft fees generate considerable income, and the bank decided offering protection was better for customers than going without.
"We envisioned some of the situations — being in the grocery store line and having all our things on the belt and being declined," she said. "Our thought was that we wanted to go through the process to give them the opportunity to opt in."
At the $11.6 billion-asset TCF Financial Corp. in Wayzata, Minn., which has 1.7 million checking account customers, overdraft fees account for about 40 percent of net income, said Jason Korstange, director of corporate communications. The company does not plan any change in its program, other than notification and an opt-in form.
Consultants predict that community banks that embrace the rule change and reduce their fees may stand to gain the most in terms of revenue and accounts.
"Those banks that are lowering that price, they're going to win Bank of America's checking accounts," said G. Michael Moebs, the founder and principal of Moebs Services, a Lake Bluff, Ill., company that consults for 2,000 credit unions and banks. "I believe very strongly that community banks are going to pick that revenue up."
Under changes in the Fed's Regulation E — which enforces the Electronic Funds Transfer Act — by July 1 banks must obtain permission from new customers for automatic overdraft protection on nonrecurring debit card transactions and automated teller machine withdrawals.
By Aug. 15, banks must obtain opt-in approval from existing customers.
A Moebs survey found that, of the 11.4 percent of banks that have begun preparing for the rule change, a little more than half plan to raise overdraft fee amounts, 18.4 percent said they would cut fees and 11 percent would offer overdraft protection for the first time. About 13.5 percent planned to drop the service.
The Consumer Federation of America, in a press release last month, urged banks to follow Bank of America's lead "instead of launching a hard-sell campaign to persuade its customers to opt-in to the most expensive form of overdraft coverage




By Kate Davidson

Friday, March 12, 2010

How long are your agency investments safe?


Politics, shaky economy create no rush to restructure Fannie and Freddie
By Zachary A. GoldfarbWashington Post Staff WriterThursday, March 11, 2010; A01

The federal government has spent the past half year seeking to roll back its emergency efforts at propping up the financial markets -- with the notable exception of its involvement in mortgage giants Fannie Mae and Freddie Mac.
As the government has pledged more and more money to cover the companies' losses, it has assured the public that planning was underway for overhauling the firms so the bailouts would end. As recently as December, the Obama administration said it expected to release a preliminary report on how to remake Fannie Mae and Freddie Mac around Feb. 1.
But no plan was produced, and in response to questions from lawmakers, Treasury Secretary Timothy F. Geithner clarified last month that it would be another year before the government proposes how to restructure the firms.
Sixteen months after they were seized to prevent their collapse, the companies remain wards of the state, running a tab that has now exceeded $125 billion in what has become the single costliest component of the federal bailout for the financial system.
Some members of Congress have complained that the huge public commitment is unsustainable. But the administration has been reluctant to start reforming Fannie Mae and Freddie Mac, officials and analysts say, because the firms in their current form play an essential role in supporting the housing market at a time when it is still under severe stress. As other financial firms have exited the market and credit has seized up, Fannie and Freddie have been behind the vast majority of mortgages made since the start of the financial crisis. The companies now own or back more than half of all U.S. home loans.
Moreover, the companies are helping the administration pursue policies designed to make new homes more affordable, ease the burden on struggling borrowers and direct funding to parts of the country especially hard hit by the downturn. Any initiative to remake the firms could distract energy from these programs or, in some cases, put an end to them.
The political angle
Nor is the administration eager to foster a debate over Fannie Mae and Freddie Mac in an election year, according to analysts and lawmakers. The pair have long been lightning rods for criticism by many Republicans, who call them an intrusion into the free market and a Democratic patronage haven. Many Democrats, even as they faulted companies' excesses, have defended the firms' role in fostering home ownership.
And with Obama's campaign to overhaul financial regulation facing resistance on Capitol Hill, administration officials don't want to add another divisive issue to the mix.
"We've obviously had our hands full, as has the Congress," said Michael Barr, assistant Treasury secretary for financial institutions. "We're just beginning to see some positive signs in the housing market, but we're not out of the woods yet and so we want to be careful to be sure that we had an appropriate, paced process."
Barr said Treasury officials have been meeting informally with their counterparts at the White House and the Department of Housing and Urban Development and exchanging policy papers to develop principles for overhauling Fannie Mae and Freddie Mac. These principles include, for instance, that the government ensure borrowers could still get mortgages even when the private market is no longer offering loans. But whatever replaces Fannie and Freddie, it should not be allowed to grow so large that its failure could threaten the financial system.
So far, Barr said, the administration has been too busy to build out the principles.
The government's extended involvement in the companies has opened the administration to criticism from both parties that it has failed to begin winding down Fannie Mae and Freddie Mac fast enough.
"They weren't planning to do much about it," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, in an interview. "They're busy, and it's hard and it's complicated and they're trying to put it off." Frank said he is "forcing" the issue by scheduling a committee hearing later this month, summoning Geithner and other officials to discuss options for reforming the firms.
Once among their strongest supporters, Frank has more recently called for their abolishment. But he said he still expects the government to play a role providing funding for low-income housing and subsidies for home ownership.
Future scenarios for reforming Fannie Mae and Freddie Mac range widely -- from total privatization to total nationalization. But no consensus has emerged over the best fix.
Spokesmen for Fannie Mae and Freddie Mac said their current focus is on keeping funds flowing into the mortgage market and helping distressed borrowers remain in their homes. The companies did not address the question of how they should be restructured.
The firms' regulator, the Federal Housing Finance Agency, agreed they have to help support the market and help struggling borrowers in the short-term. FHFA added that the administration and Congress must still come up with a long-term solution for the companies.
The record of Fannie Mae and Freddie Mac under government control has been mixed. The companies, with support from the Treasury Department and the Federal Reserve, have been able to keep mortgage interest rates low by providing substantial amounts of money to lenders. This has kept the struggling housing market from declining even more, in turn helping to stabilize the wider financial system.
The companies have also been tapped by the Treasury Department to rewrite the terms of home loans for struggling borrowers facing foreclosure. But this program -- carried out by Fannie, Freddie and other firms -- has had less success. Although 1.3 million borrowers have been eligible, only about one-tenth have had permanent mortgage modifications.
And keeping the companies solvent has been costly. To cover their losses, the firms have both said they will need additional federal money beyond the more than $125 billion already committed. They are ramping up purchases of bad mortgages in an effort to keep borrowers in their homes.
When the Bush administration seized the firms, it said it would make $200 billion available to them. The Obama administration a year ago doubled that figure, then decided late last year to offer them unlimited financial assistance as a signal to investors that the companies' solvency was guaranteed.
But critics warn this has given Fannie Mae and Freddie Mac a blank check.
"This idea of having money laying around that they can spend on whatever they think politically makes sense is certainly consistent with what we've seen from this administration," said Rep. Jim Jordan (R-Ohio), a member of the House Oversight and Government Reform Committee who has called for an investigation into the delay in planning for the companies' future. "This is just one more example of ridiculous government spending and huge losses to the taxpayer."
Delicate timing
Some analysts say it's an inopportune time to wind down the companies -- or even hint at major change -- while the housing market and economy remain in bad shape.
"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."
But time could be tight. Under the firms' agreement with the Treasury Department, they must shrink their mortgage portfolios every year, eroding their ability to support the market.
James Lockhart, a former top regulator of Fannie Mae and Freddie Mac, said the administration is erring by waiting another year to begin the reform process.
"The clock is ticking. We need to reinvigorate the private mortgage market and create something new and we know how long Congress takes," Lockhart said. "It's unhealthy to have as much government involvement in the mortgage market as we have in this country."

Tuesday, March 9, 2010

Barney Frank says Freddie, Fannnie bondholders not necessarily guaranteed


U.S. Treasury says stands behind Fannie, Freddie:

Fri, Mar 5 2010 WASHINGTON, March 5 (Reuters) -
The Treasury Department on Friday reiterated its position that it is standing behind U.S. mortgage finance giants Fannie Mae and Freddie Mac.

"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the statement from the Treasury said.

The statement came in response to a question from a reporter after Rep. Barney Frank, the chairman of the House Financial Services Committee, caused a stir in the mortgage-backed securities market earlier on Friday by suggesting that Fannie Mae and Freddie Mac bondholders do not have the same guarantees as Treasury bondholders.

http://www.reuters.com/article/idUSWBT01369320100305

Friday, March 5, 2010

RESPA vs mortgage preapprovals - unintended consequences


Respa Rule Has Lenders Balking on Preapproval

The new mortgage disclosure rule is upending the first step in the process of lending to homebuyers. Before shopping for a property, a prospective buyer typically gets a preapproval letter from a lender indicating how big a loan the person qualifies for. Real estate agents often ask for these letters so they can make sure the customer can afford the property before showing it.

Before writing the letters, lenders like to see proof of income, such as a pay stub or tax return. But under the Real Estate Settlement Procedures Act rule that took effect Jan. 1, lenders may not require such documents before giving the borrower a good-faith estimate of closing costs.
Since lenders are now being held to those estimates, they want to hold off on issuing them as long as possible. So some lenders are reconsidering or backing away from preapprovals. Without them lenders could end up wasting time on loan applications that fall out.

"If you don't have preapproval letters, then Realtors are going to have to show people houses whether they can afford them or not," said David Dickinson, president of Bankers Compliance Consulting Inc. in Central City, Neb.

Vicki Bott, the deputy assistant secretary for single family housing at the Department of Housing and Urban Development, said in an interview Tuesday that lenders are not barred from accepting documents, only from requiring them prior to issuing a GFE. "If a consumer wants to receive a preapproval they can choose to have their information verified," she said, and HUD will clarify this in future updates to its "frequently asked questions" about the Respa rule. (How inconvenient is that?)

Tuesday, February 23, 2010

Credit unions can take advice from Cisco Gen Y bank study


Banks can expect to achieve revenue gains of up to 10 percent over the long term by catering to the online and social media tastes of Generation Y, according to a survey report released today by Cisco's Internet Business Solutions Group.

These younger consumers, over half of whom have Webcams and log on to YouTube five times a day, say they are eager to use banks' online tools for budgeting and savings. Though not yet high earners, Gen Y'ers are professing high levels of trust in financial institutions that deliver professional advice in areas like debt reduction and long-term savings, and do so through interactive or social media.

"They are interested in and are coordinating quite frequently with friends, family, and peers using different types of social media," said Jorgen Ericsson, global lead for Cisco IBSG's financial services practice that provides technology consulting to executives of global Fortune 500 companies.

"For the specific question — how do I shape my financial future — they really want to get professional advice" through social media. But other than pilot projects in online personal financial management, most banks are still not adequately speaking to Gen Y'ers through the channels they use. More than 33 percent of younger consumers, for example, would be willing to have a "completely" virtual relationship with their bank by interacting with advisors through online video, according to the Cisco survey, which polled 1,055 consumers across all age groups in the fall. That trend is at odds with "the general perception of many established bankers who believe that video is unappealing to customers and not mature technology," said Philip Farah, the director of the financial services practice at Cisco IBSG. Prior to the survey, Cisco IBSG officials were skeptical that banks, particularly large national institutions, would score well with younger consumers.

"We assumed they would be very distrustful of banks," for two reasons, Farah said: banks are not well connected with Gen Y's communication outlets, "and because of everything that has happened with banks in the role of the current economic crisis." But instead, 85 percent of consumers under 30 gave large financial institutions high marks as trustworthy outlets for offering financial advice, guidance and planning tools to manage debt and build savings. Cisco IBSG found that more than one-third of Gen Y'ers polled last fall feels a greater need for financial advice, compared to less than one-fifth of boomers and seniors. Farah noted that brand recognition played a strong role in favorable views. While young consumers want more financial guidance in a relationship, they aren't likely to wait around for a slow-moving bank to provide it. Twenty-six percent of Gen Y'ers said they'd be willing to switch banks to get these tools.
The survey also found that: 40 percent of younger consumers use personal financial management tools, ones primarily offered by their banks, to manage expenses, reduce debt and maximize savings; and Gen Y consumers are four times more likely than boomers to post a question about financial matters to a blog or online forum.


US Banker February, 2010

Small Business Loan Exams - Regulators Lighten Up

The National Credit Union Administration, along with federal and state banksand thrift regulators, earlier this month spread the message that financial institutionsthat comprehensively review a small business’s financial condition before lending tothat business will not be subject to overly restrictive supervisory criticism.

Recognizing that many small businesses are having issues obtaining credit, theagencies said that their examiners “will not discourage prudent small business lendingby financial institutions,” will not “criticize institutions for working in a prudentand constructive manner with small business borrowers,” and, for the most part,“will not adversely classify loans solely due to a decline in the collateral value belowthe loan balance.”

The regulators also encouraged financial institutions to look beyond “nationalmarket trends” and base their lending decisions on a borrower’s “plan for the useand repayment of borrowed funds” while maintaining “an understanding of thecompetition and local market conditions affecting the borrower’s business




From CUNA Credit Union News Watch

Monday, February 22, 2010

Fed to clarify final rules under Regs E, DD


WASHINGTON (2/22/10)--The Federal Reserve on Friday released a series of proposals that would clarify the portions of Regulation E, Electronic Fund Transfers, and Regulation DD, Truth in Savings, that address overdraft services.

The proposals are meant to "provide further guidance regarding compliance with certain aspects of the final overdraft rules," with a particular emphasis on portions that prohibit financial institutions from "assessing overdraft fees without the consumer's affirmative consent."
The proposal seeks to affirm that this prohibition "applies to all institutions, including those with a policy and practice of declining ATM and one-time debit card transactions when an account has insufficient funds."

According to the Fed, the Reg E proposal would clarify that the prohibition on assessing overdraft fees without the consumer's affirmative consent applies to all institutions that charge such fees for ATM and one-time debit card overdrafts. Credit unions that do not have formal overdraft programs are also covered by this opt-in requirement if they charge any fees for ATM and one-time debit card overdrafts.

The Fed also clarifies that the fee prohibition applies if a credit union falls under the regulation's exception for institutions that have a policy and practice of declining ATM and one-time debit card transactions when an account has insufficient funds.

The Reg E proposal also addresses sustained overdraft, negative balance, or similar fees associated with paying overdrafts and clarifies that an institution is not prohibited from assessing a fee when a negative balance is attributable in whole or in part to a transaction that is not subject to the fee prohibition.

The Fed's proposed amendments to Reg DD clarify the application of the rule to retail sweep programs and the required use of the term "total overdraft fees" for overdraft fee disclosures. The Fed has also added references to the Reg E amendments into Reg DD.

The proposals, which will be open for comment for 30 days after they are published in the Federal Register, would also make certain technical corrections and conforming amendments, the Fed added.

From: CUNA News Now

Tuesday, February 16, 2010

Credit Unions Step Up for Michigan's Business Loan Initiative


Michigan Gov. Jennifer Granholm has unveiled a plan to partner with the Michigan Credit Union League to help small businesses. So far 30 credit unions have signed up to participate in the new partnership, called the Michigan Small Business Financing Alliance. They have committed to making $43 million in small-business loans as part of the initiative.

The state's Small Business and Technology Development Centers will coach the entrepreneurs, and state agencies will help in the loan-application process. Though the details of the plan are not expected to be finalized for about three months, Michigan officials noted that the loan funding would come from the credit unions, not the state. It was unclear why only credit unions had been included in the alliance.

From US Banker February, 2010

Does interest on Fed deposits spell the end of the Corporates?


In October 2008, Congress granted the Fed power to pay interest on both required and excess reserves for the first time. Before then, the Fed never paid any interest on bank reserves. After the WesCorp and US Central debacles and the resulting required shift towards safer and lower yielding investments, it's unclear how the corporate credit unions can continue to compete with the Federal Reserve. A handful of credit unions have already made the jump from a corporate to the Fed.

This new policy is a game changer. Before, the Fed could only raise interest rates by making reserves scarce relative to demand. This was done by "open market sales," or selling government bonds and debiting the reserve accounts of banks. The reduction in the supply of reserves sent the interest rate on reserves upward. That is how the Fed controlled the interest rate on the all-important Federal Funds Market, the market for overnight reserves that the banks lend each other to satisfy both the Fed's reserves requirements and their own liquidity needs.

Now the Fed can maintain a large quantity of reserves to satisfy the banks' desire for liquidity and still fight inflation by simply raising the interest rate that its pays on reserves without removing. The interest rate must set the floor to the Federal Funds and other short-term rates since no financial institution would loan out reserves in the Fed Funds market at a lower rate than they can receive on deposit from the central bank. The Fed can now raise rates and maintain the liquidity of our banking system.


(Derived from yahoofinance.com article)

Thursday, February 11, 2010

A heads-up worth repeating. Examiners worry about interest rate risk



If you read this blog on a regular basis, you probably noticed that I stay up nights obsessing about interest rate risk.

An interagency advisory issued by the Board of Governors of the Federal Reserve System and other federal regulators reminds institutions of supervisory expectations on sound practices for managing interest rate risk (IRR). Yes, it is directed at banks, but, at the risk of stating the obvious, it equally applies to credit unions.

The advisory does not constitute new guidance, says the FRB. It reiterates basic principles of sound IRR management that each of the regulators has codified in its existing guidance, as well as in the interagency guidance on IRR management issued by the banking agencies in 1996. The advisory highlights the need for active board and senior management oversight and a comprehensive risk-management process that effectively measures, monitors, and controls IRR.

The advisory targets interest-rate risk management at insured depository institutions.

Wednesday, February 10, 2010

One-Fifth of U.S. Homeowners Owe More Than Properties Are Worth

More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter as the number of houses and condominiums lost to foreclosure climbed to a record, according to Zillow.com. In the fourth quarter, 21.4 percent of owners of mortgaged homes were underwater, up from 21 percent in the previous three months and down from 23 percent in the second quarter, the Seattle-based real estate data provider said.

More than one in 1,000 homes were repossessed by lenders in December, the highest rate in Zillow data dating back to 2000. Underwater homes are more likely lost to foreclosure because their owners have a harder time refinancing or selling when they get behind on loan payments. U.S. home values dropped 5 percent in the fourth quarter from a year earlier, the 12th straight quarter of year-over-year declines, Zillow said. “While the next few months are likely to bring further home value declines in most markets, we do expect to see a national bottom in home prices by the middle of this year,” Zillow Chief Economist Stan Humphries said in a statement. “Thereafter, home values are likely to bounce along the bottom with real appreciation remaining negligible for some time.”

There were 2.82 million foreclosures in the U.S. last year, according to RealtyTrac Inc., the most since the data provider began compiling figures in 2005. The number may rise to 3 million in 2010, the Irvine, California-based company said last month. Bank sales of foreclosed properties accounted for a fifth of all U.S. home sales in December, Zillow said. Such transactions made up 68 percent of sales in Merced, California; 64 percent in the Las Vegas area; and 62 percent in Modesto, California, the company said. Almost 29 percent of homes sold in the U.S. went for less than their sellers originally paid for them, Zillow said. The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties.

Tuesday, February 9, 2010

Bankers worry about change in credit union business lending cap

Credit unions are feeling hopeful about finally persuading Congress to let them make more loans to small businesses. These days the rhetoric on Capitol Hill is all about creating jobs and getting the economy going again. By arguing that they can help, credit unions are gaining support in what has been a decade-long quest to expand their business lending.

Just before Christmas, Sen. Mark Udall, D-Colo., introduced a bill to increase the member business-lending cap to 25 percent of a credit union's total assets, from the current 12.25 percent. Perhaps even more significantly, the bill also would exempt loans under $250,000 from counting toward the cap; only loans under $50,000 are exempt now. The bipartisan co-sponsors include Sen. Charles Schumer, D-N.Y., a powerful new ally for the credit union effort.

Though the banking industry has fought off similar bills before, this one is a notable advance for credit unions because it is supported by so many small-business groups and think tanks that previously opted to avoid the issue. At least 17 of them endorsed the bill, including the National Association of Realtors, the National Small Business Association and the National Association of Manufacturers.

"In the past it was very difficult to get some of these associations to enter the fray because they just didn't want to bother with it," says John Magill, senior vice president of legislative affairs for the Credit Union National Association, an industry trade group. But if they preferred not to take sides before in what they considered to be a turf war between banks and credit unions, now the potential benefit of easing the credit crunch has won them over, Magill says. "All of these associations feel credit should be flowing more freely to small businesses." He says some banking industry lobbyists and other Washington insiders seemed "fairly stunned" by the list of organizations backing the bill, with the National Association of Realtors being viewed as a particular coup, since it commands formidable grassroots support. "I think that really raised eyebrows on Capitol Hill."

Still, the banking industry is doing what it can to slow the momentum. The Senate bill largely mirrors one in the House from Rep. Paul Kanjorski, D-Pa., that also has bipartisan support, and in early December, the American Bankers Association sent a letter to House Speaker Nancy Pelosi, D-Calif., and chairman of House Committee on Education and Labor, George Miller, D-Calif., urging them to oppose Kanjorski's bill. The letter, which was co-signed by banking trade groups in every state, argued that credit unions lack expertise in business lending and that an economic crisis is no time to give them more lending authority. It also reiterated the banking industry's contention that credit unions should give up their tax exemption if they stray from lending to consumers of modest means.Keith Leggett, the ABA's chief economist, says recent congressional testimony from the credit union industry's own regulator should give members of Congress pause about creating more competition.

In testifying before a Senate committee in October, Deborah Matz, chairman of the National Credit Union Administration, said a review of 71 troubled credit unions found that 62 of them had member business loans, with 12 of them having gotten into the sector since 2005. These credit unions, which average $1.1 billion of assets, had a higher concentration of member business loans than the overall industry, and delinquencies on those loans were at 8.34 percent as of June.

But the political focus is on jobs, and that's what credit unions are promising. With a higher cap, the credit union industry says it expects to extend an additional $10 billion of loans to small businesses in the first year, creating an estimated 108,000 jobs at zero cost to taxpayers.
"Why in the world stop credit unions from trying to help?" asks Magill. He doubts the banking industry will get far with its arguments to derail the credit union bill. "Given their own history of late, and their inability to lend, it's going to be very difficult for them to say, on the safety- and-soundness argument, we shouldn't be allowed to enter this arena and help the American economy."

In the past credit unions struggled to get attention in the Senate, but had more success in the House, with Kanjorski repeatedly introducing a version of his current bill over the years. Then Schumer announced in the spring that he would take up their cause. "With so many large banks in bad shape," credit unions need to be able to offer more small-business loans, Schumer said in a press release at the time.

"The situation facing these businesses right now is much worse than a matter of them simply being denied new loans. They are being strangled by having existing lines of credit pulled. A threat like this to small businesses could upend the livelihood of millions of workers and be catastrophic for the larger economy."

President Obama himself has stressed the need for more small-business lending in two separate meetings with bankers in December. He grabbed headlines by hauling a dozen chief executives of large financial firms to the White House and urging them to take a second look at any applications for business loans that they had previously denied. The following week, he welcomed 11 community bankers and one credit union executive to a more cordial meeting, where he encouraged them to do more for small businesses. But several attendees say the president never brought up the issue of the credit union cap. Magill concedes that other pressing issues have consumed banking committee members in both the House and the Senate over the past year, but he interprets the newly introduced Senate bill as a significant step forward.
"This got put on the back burner, and now we are confident it's on the front burner," he says. "I think this will give incentive to the House to focus, once it sees a strong lineup on the Senate side."

Magill says Schumer - whom he describes as a master tactician - is helping shepherd the bill. "With small-business lending almost, if not completely, at a halt these days, I think he felt the time was right." Magill wants to get the language about credit union business lending added to the jobs bill to be considered in the Senate early this year. But Leggett says expanding business lending for credit unions is "still very controversial" politically. Legislators declined to attach the proposed higher lending cap to a jobs bill this fall because "they didn't want to have something associated with that bill that would detract from the votes." Leggett also suggests the projected $10 billion increase in lending so often touted by credit unions is misleading.

The estimate is from CUNA economists, based on interest from credit unions close to the cap, as well as those that were scared away from getting into the loan segment because of it.
"The question is: does this really represent a net increase in business lending or does it represent $10 billion of business lending that goes from for-profit banks to not-for-profit credit unions?" Leggett asks. Leggett points out that only business loans a credit union makes to its members and keeps in its portfolio count toward the current cap. Any business loans that a credit union buys, whether whole ones or participations, are excluded, as are any portion of its own member business loans that it opts to sell.

So a significant amount of business lending by credit unions - about 19 percent, based on September data - is already exempt. (The industry reported roughly $27 billion of member business loans, and $6.65 billion of nonmember business loans. Nearly 700 of the 8,000 credit unions nationwide hold nonmember business loans.)

Even more, Alan Theriault, the president of CU Financial Services, a Portland, Maine, consulting firm that advises credit unions on entering new business lines and switching charters, says excluding any loans up to $250,000 from counting as member business lending would render the cap virtually meaningless. He considers such expansion of credit union business lending ill-advised.

"It allows credit unions to have a very large portfolio of commercial loans, much more than 25 percent," Theriault says. "It really gives credit unions the opportunity to convert from being a consumer lender to being almost a pure commercial lender." He thinks this ultimately could undermine support for the legislation, as it could be interpreted as going too far. Still, both Leggett and Theriault concede that the credit unions could benefit from the zeitgeist.
"I do think the climate is very politically charged and this could gain momentum," Leggett says.

Tuesday, January 26, 2010

Monday, January 25, 2010

Federal deficit in the danger zone


Time is running out for attacking the deficit. The danger, once distant, is now close. Soaring deficits are jacking up the national debt, resulting in higher interest rates and raising the odds of an even weaker dollar, which would stunt economic growth and lower Americans’ future standard of living.

Spending is out of control. For years it has averaged about 20% of GDP. This year, it’ll be about 25%. Some of that is due to spending on war in the Middle East as well as efforts to cushion the effects of the recession through higher unemployment benefits, aid to banks and state governments, spending on roads and highways, and more. Plus, tax receipts diminished as the economy shrank.

But even after the economy fully recovers, outlays won’t ebb. The growing ranks of retirees mean that Medicare and Medicaid costs will keep soaring, even if health care reform successfully curbs increases in the cost of care -- an iffy proposition at best.

Such entitlement programs -- those that lawmakers don’t control on a year-to-year basis but that run on a sort of autopilot -- account for 54% of federal spending. And they’ve climbed 6.4% on average a year since 2000. When it comes to spending that it can control annually, Congress has shown little restraint. Discretionary spending, which includes defense and an array of domestic programs from national parks to the FBI, has risen over the past decade at an average of 7.5% a year.

The result is an annual deficit that in fiscal 2009 was equal to nearly 10% of GDP, the largest since it hit 21.5% in 1945 at the end of World War II. What’s worse is that a mountain of debt will continue to pile up even if the politicians in Washington manage to keep a rein on spending and trim the yearly deficit. In fiscal 2009, federal debt held by the public jumped by a third, to $7.8 trillion. At the end of fiscal 2008, debt held by the public measured 41% of GDP. By 2014, it’ll equal a whopping two-thirds of GDP.

The interest payments on the debt will be staggering. They could soar to as much as $800 billion a year by the end of this decade, gobbling up 16% of the total budget. Indeed, servicing the debt may become the single biggest item in the federal budget, surpassing Medicare, defense and Social Security.

That will raise the cost of borrowing for everyone -- households and businesses alike. And it threatens to derail the U.S. economic engine. A jump in the debt from 40% of GDP to 60% would boost the rate on Treasury bonds by a full percentage point. Other interest rates, such as those for mortgages and corporate bonds, would follow. And if the U.S. loses its top credit rating -- until recently, an unimaginable event -- interest rates will increase even more. China, Saudi Arabia and other cash-rich nations would insist on higher returns to keep buying U.S. Treasuries at auctions.

Foreign nations, which own about half of the $7.8 trillion public debt, don’t need to sell to make waves. They could simply slow their rate of buying. That might tempt the Federal Reserve to buy debt in order to stave off a rise in interest rates. But that’s no way out. “Countries have tried that and seen double-digit inflation,” says Rudy Penner, former director of the Congressional Budget Office, now with the Urban Institute. “Even the tiniest probability of that has to be avoided.”

There are no easy fixes. Diane Swonk, chief economist with Mesirow Financial, says, “We’re going to have to cut overall spending and raise overall taxes.” In fact, solving the problem will take unparalleled restraint, and determination by elected officials of all stripes.

Saturday, January 23, 2010

The US dollar and looming interest rate risk

Just two months ago, economists were predicting a protracted fall in the strength of the US dollar. But since then, the the fundamental and technical evidence points to a rebounding U.S. dollar, at least in the short term. This is significant because continued demand for the relative safety of US Treasuries could mean interest rates should remain on the low side for the foreseeable future. Maybe six months.

No alternatives - flight to safety

If the US economy was isolated from the rest of the world, US government (record deficit-spending) policy responses to the financial crisis should send the dollar into a free-fall. But economic problems are global and threaten the sustainability of a global recovery. That makes investors nervous, and when they’re nervous, they prefer to own US dollars. Global investors responded to the uncertainty by plowing money into the U.S. Treasury market. Currency values are determined as compared to the value of other currencies. With that in mind, the dollar is positioned to strengthen. However, at the risk of stating the obvious, things could change rather quickly once the global economy improves.

A January 2010 Bloomberg poll indicates of how quickly perception can shift. According to the poll, investors have turned bullish on the U.S., a stark contrast from the views just a quarter ago. It turns out the rest of the world is in poor economic shape. Comparatively speaking, the U.S. and the dollar appear stronger for the time being.

Interest Rates

Granted, there is no clear correlation between US dollar and nominal interest rates. But as long as there is demand, Treasury rates, which affect mortgage and other borrowing rates, probably won't need to rise as quickly in order to attract investors. That said, record deficits harbor the risk of inflationary pressures. Higher rates inevitably follow.

If you held a gun to my head and forced me to make a prediction, I'd say Treasury rates should stay steady for about six months before beginning a prolonged rise. This gives financial institutions a small window of opportunity to get their balance sheets in order. Interest rate risk looms as the next major hazard to their bottom line, as well as to the US banking system.

Tom Dluzen

Thursday, January 21, 2010

Do bankers have good points opposing credit union increase in business lending cap?


Bankers oppose increase in business lending cap. Do they have a good point?

Read their letter to the US Senate

Commercial Property Is Biggest Risk, U.S. Bank Examiners Find

By Craig Torres
Jan. 6 (Bloomberg) -- Losses on commercial real estate loans pose the biggest risk to U.S. banks this year, troubling smaller lenders while unlikely to threaten the entire financial system, U.S. bank examiners concluded during a review.
“Losses from commercial real estate will be quite high by historic standards,” said Eugene Ludwig, former Comptroller of the Currency who is now chairman of Promontory Financial Group, a Washington-based consulting firm to financial institutions. “Hundreds of banks will fail or will be resolved over the course of the cycle.”
Federal Reserve Governor Elizabeth Duke said in a Jan. 4 speech that credit conditions in commercial real estate “are particularly strained.” Fed Governor Daniel Tarullo cited commercial real estate as one of the “key trouble spots” in congressional testimony in October after the Fed stepped up a review of banks’ exposure to such loans.
The failure of loans backing malls, hotels and apartments may impede the U.S. recovery as small- and medium-sized banks reduce lending and conserve capital to absorb losses, analysts said. Tight credit could slow the cycle of investment and hiring that is critical for sustained growth, they said.
Fed Chairman Ben S. Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion in the same month a year earlier, according to Fed data.
More Than Doubled
The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York. Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm.
Losses on the debt will “place continued pressure on banks’ earnings” because collateral values have fallen, Jon Greenlee, associate director of the Fed’s bank supervision division, said in Nov. 2 testimony to the domestic policy subcommittee of the House Committee on Oversight and Government Reform.
Banks and investors held about $3.5 trillion of commercial real estate debt in June 2009, with about $1.7 trillion of that total on the books of banks and thrifts, according to Fed data. About $500 billion of the loans will mature each year over the next few years, Fed officials say.
Regional banks are almost four times more concentrated in commercial property loans than the nation’s biggest lenders, according to data compiled by Bloomberg on bailout recipients.
Vulnerability of Banks
Investors have recognized the comparative vulnerability of smaller banks. The KBW Regional Banking Index, which includes shares of Old National Bancorp of Evansville, Indiana and Glacier Bancorp Inc. of Kalispell, Montana, fell 24 percent last year compared with a 3.6 percent decline for the KBW Bank Index, which includes shares of JPMorgan Chase & Co. and Citigroup Inc.
“The strong get stronger and the weak get weaker,” said Joel Conn, president of Lakeshore Capital LLC in Birmingham, Alabama, which specializes in financial stocks. “It is very difficult to come up with a scenario where earnings get anywhere back to normal for small banks with large commercial real estate exposures.”
Fed officials stepped up reviews of commercial real estate loans at banks last year. The Fed is focusing on banks smaller than the 19 largest lenders examined in May. Those institutions held assets exceeding $100 billion.
Defaults among prime borrowers for residential mortgages will probably accelerate this year, according to Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.
Hold to Plans
Still, the Fed will probably hold to its plans to finish the purchase of $1.43 trillion in mortgage-backed securities and housing-finance debt by March 31, barring a reversal in the economy or big rise in mortgage rates, Fed watchers said.
“Clearly, the market would react quite negatively if the Fed said, ‘We are changing our mind,’” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut, and a former Richmond Fed researcher.
Bernanke has said the purchases have helped lower mortgage rates and stabilize the economy. The Fed, which began in September to slow down the purchases, still has about $139 billion of mortgage-backed securities left to buy out of $1.25 trillion, and $15 billion of federal agency debt out of $175 billion.
Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ, Ltd. in New York, said Fed officials will monitor mortgage rates and the difference in yields between mortgage-backed securities and Treasuries.
‘Opposite Direction’
“They will not extend it without seeing a bad outcome,” Rupkey said. “Everything seems to be moving in the opposite direction” of increasing purchases of the securities, he said.
St. Louis Fed President James Bullard said in November that the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds.
Mortgage rates in the U.S. rose last week to 5.14 percent, the highest since August, Freddie Mac said Dec. 31. That’s still close to the record low of 4.71 percent reached in the week ended Dec. 3 and the average 5.04 percent for 2009. Rates averaged 6.05 percent in 2008 and 6.34 percent in 2007.
An increase in rates to 6 percent may prompt the Fed to reconsider ending purchases of mortgage-backed securities, Rupkey said.

Wednesday, January 13, 2010

Opinion - Man on the street - Fed Bans Debit Overdraft Fees


The Federal Reserve is prohibiting banks from collecting overdraft fees on purchases paid with a debit card unless customers opt in to programs that guarantee their balance-exceeding transactions go through. What do you think? See some responses

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Yields on the benchmark U.S. 10-year note to rise over the next 6 months


Yields on 10-year notes will end 2010 at 4.14 percent, the highest level since June 2008, according to a Bloomberg News survey. The yield on the benchmark 3.375 percent security due in November 2019 rose 4 basis points on January 13th, 2010. Mortgage rates are likely to follow. Here's the link http://bit.ly/6EWYJp
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Monday, January 11, 2010

Blogger Tom Dluzen interviews Steve Forbes for Credit Union Business Magazine


Steve Forbes, Chairman and CEO of Forbes, Inc., http://www.forbes.com/, took time out of his very busy schedule to speak with me about his views on the economy and how current economic trends might affect the credit union industry. Mr. Forbes touched upon major issues such as interest rates, the credit markets, the U.S. dollar, and proposed “mark-to-market” accounting rule changes.

Interest rates are affected by a myriad of pressures, including inflation, deflation, the relative strength (or weakness) of the U.S. dollar, availability of credit, record deficits, foreign and domestic demand for U.S. Treasurys, to name just a few. Interest rate risk for credit unions is always lurking in the background, but because of the current environment, the threat may be greater than normal. It is a complicated issue, but Steve . . .

Please go to Page 33 of Credit Union Business Magazine to read the entire article.

Wednesday, January 6, 2010

Tuesday, January 5, 2010

Higher Jumbo CD rates could foretell the future



This index is the 12 month average of the monthly average yields of 3 month certificates of deposit. In plain English, this index is calculated by averaging the previous 12 rates of the 3 month CD rate. The 3 month CD rate used is the rate publish monthly by the Federal Reserve. Because this particular index is an annual average, it is more steady than straight CD rates. As you can see, rates can move rather quickly over the course of a year.

Anecdotally speaking, I've noticed that over the last month or so, Jumbo rates are moving up. As members gain more confidence in the stock market, there could be more competition for deposits that could precipitate a move towards higher rates overall.

Tuesday, December 22, 2009

Follow the Cheat Sheet on Twitter!


I will continue to post new articles on this blog from time to time.

However, in an effort to be more timely in this ever-changing environment, most posts will be made via Twitter. Click on http://twitter.com/tdluzen

to follow my twits.

Thursday, December 10, 2009

Reporting for Discharges of Indebtedness to the IRS


For reporting purposes, the IRS considers indebtedness discharged on the occurrence of an identifiable event indicating the debtor will never have to pay the indebtedness. If appropriate, the lender may report discharges of indebtedness if the indebtedness meets one of the following tests:

A debt discharged in bankruptcy, but only if the debt was for
business or investment purposes;

A debt discharged by an agreement between the financial
institution and the member to accept an amount less than the
full amount of the debt;

A debt that the credit union decided not to pursue through
collection activity and discharges;

A debt on which a 36-month, non-payment testing period has
expired;

A debt extinguished because the statute of limitations the
debtor raised as an affirmative defense has expired;

A debt canceled or extinguished in receivership or foreclosure
in state or federal court;

A debt canceled or extinguished when the financial institution
elects foreclosure remedies; or

A debt canceled or extinguished, rendering it unenforceable in
probate.

(Note: A bookkeeping entry to charge off a loan does not by itself
qualify as an identifiable event.) Lenders should consider the
trigger points above in conjunction with the charge-off to
determine whether a discharge has occurred.
Additional reporting requirements include:

The discharge must be $600 or more, no aggregation;
lenders must provide copy of 1099-C to the borrower by
January 3 1 of the year following discharge; and
lenders must provide original of 1099-C to the IRS by
2/28 of the year following discharge.

Lenders must keep records of the return or the ability to
reconstruct the required data for four years from the required filing
date. For more information, review Section 6050.P of the Internal
Revenue Code.


Source: the NCUA

Tuesday, November 24, 2009

Corporate credit union program gets another extention


ALEXANDRIA, Va. (11/24/09) The Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) has received another extension from its parent agency, the National Credit Union Administration (NCUA). The agency is pushing the expiration date past the current sunset of Dec. 31, 2011 to let the program run until . . .

Friday, November 20, 2009

NCUSIF assessment may be much higher in 2010


CU 2010 assessment may be 0.15%-0.4%
ALEXANDRIA, Va. (11/20/09)—The credit union assessment to fund the National Credit Union Share Insurance Fund (NCUSIF) and the corporate credit union stabilization fund could range from 0.15% and 0.4% of insured shares in 2010, National Credit Union Administration (NCUA) estimated Thursday.
At the agency's open board meeting, Melinda Love, director of examination and insurance, predicted that NCUSIF losses for the coming year could range from $450 million to $1.68 billion—a substantially wide range. Those losses, she said, could require a 0.1% to 0.25% premium, And the assessment to fund the NCUA's Corporate Stabilization Fund could be between 0/05% and 0.15% of insure shares.


From CUNA News Now

Wednesday, November 18, 2009

Communists lecture Obama on U.S. economy

It could be an indication that the Obama administration's economic policies are on the wrong track when communist China is offering the best advice regarding the U.S. economy.

According to the Wall Street Journal ,Liu Mingkang, chairman of the China Banking Regulatory Commission, said that a weak U.S. dollar and low U.S. interest rates had led to "massive speculation" that was inflating asset bubbles around the world. . ." "Bubble" :sound familiar?

The ironic part . . . they are probably . . .
Read the entire article here

Tuesday, November 17, 2009

Some Credit Union Concerns Going Forward







The NCUSIF / Corporate CU restructuring plan will cost .15 basis points per year over the next 7 years, probably more. In addition, some corporates are writing down their capital; this will be handed down to natural persons CUs and cannot be recovered.

Increasing loan losses related to job losses and sluggish economic growth continue to be a concern. Unknown how deep the problem can go.

Interest margin pressures are a real concern. Deposit rates can move up much faster than loan rates.

Mortgage rates are being manipulated and are artificially low right now. Jack Brick’s (Brick and Associates) challenge question: “Do you really want to play in this Game”? Low yielding long-term mortgages and mortgage backed investments present risk of both lost income and market value risks when rates move north.

Bankruptcy “Cram-down” proposals were defeated in Congress for now, but may be coming back.

Interest rate risk is a major concern. Credit unions with a large percentage of long-term loan and investment assets are at risk. Brick cautions against reaching for yield in a low-yield environment.

Business loans can be an opportunity or an emerging problem. Brick warns against doing business loans as a “Hail Mary Pass” out of desperation for net income. Few CUs have the expertise and the market is risky as ever right now.

Loan modifications in problem loans – credit unions are finding that they don’t usually work unless there is underlying good credit, at least 20% equity in the collateral, etc.

New branches now take about ten years to start being profitable - be realistic in your analysis. Switching financial institutions is not a high priority with anyone, says Brick; few will switch because of a new facility.

Liquidity can be a major risk. Money Market accounts are projected to exceed recent 4.5% 15 year mortgages at some point. Selling mortgages or mortgage backed investments later will not be an option to fix a liquidity problem.

The pace of new regulations has been picking up with no abatement in sight. This can be a drag on efficiency and earnings.

President Obama hosted a conference of all the Native American tribes. I know the U.S. economy's in bad shape, but Obama told the Indians, 'Look, you can have the country back. Okay, fine.' –Jay Leno
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The top ten economic concerns. A quick overview

The Dow Jones Industrial Average has begun to recover. Financial Institutions may see deposits flow out and back into the stock market. When confidence improves, investors are willing to accept more risk.

The ISM Manufacturing Index hit it’s lowest point in decades. However, the index has rebounded and has moved to over “50”. This is indicative of an expanding economy.

The Feds are purchasing debt and, in effect, printing money to finance record deficits. Once “slack” in the economy is . . .
Read the entire article here

Thursday, November 12, 2009

New Overdraft fees Rule. Per Yahoo Finance

WASHINGTON – Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.
The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.
For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.
Under the Fed's new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.
Many consumers do want checks and regular electronic bill payments to be covered in the event of an overdraft, Fed officials said. As a result, those transactions aren't covered by the rule.
Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.
Many larger banks, including Bank of America Corp., JPMorgan Chase & Co., U.S. Bank and Wells Fargo & Co. began instituting similar "opt-in" plans in late September after coming under fire for the fees.
But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, said new rules were still necessary to ensure smaller banks followed suit.
Many lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year's financial crisis. Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.
Dodd also proposed legislation last month that would have imposed limits similar to the Fed's on the banks' ability to charge overdraft fees.

Saturday, November 7, 2009

Why the sinking U.S. dollar is helping the recovery and the stock market


If you have been paying attention to the relative strength of the U.S. dollar, you may have noticed that as the dollar slides, the stock market rises. And with no end to deficit spending in sight, the dollar's decline may have a way to go.


While the Obama administration and Treasury Secretary Henry Paulson claim to support a strong dollar, they may actually support a weak currency because, at least in the short term, it helps the U.S. economy more than the strong one they publicly endorse. The dollar has declined by . . .

Thursday, November 5, 2009

Good news bolsters the stock market, more to come?

The Labor Department reported that newly laid-off workers seeking unemployment benefits fell to 512,000 last week, the lowest level since January and fewer than economists had forecasted. The report also said, though, that many employers remain reluctant to hire.The report fanned optimism that the government's monthly report on employment Friday might prove
click here for entire article.

The story behind the Feds decision to leave rates unchanged

Yes, the Feds kept their benchmark overnight lending rate at between zero and 0.25 percent, where it has been since December. But as always, there is much more to the story. A few things officials said and their potential impact on the economy:

The Fed completed its $300 billion program of purchasing Treasuries last month. By purchasing Treasuries, the Fed was monetizing the debt and, figuratively speaking, printing money. By putting this excess liquidity into the economy, inflation becomes more of a threat. In addition, the Feds are actually in competition with investors who purchase treasuries. A potential side effect is that
click here to see the entire article

Wednesday, November 4, 2009

Mortgage Rates May Hit 6% in March

According to the Kiplinger Letter, 30 year fixed mortgage rates will be in the neighborhood of 6% this Spring, even higher if . . . click here to see entire article

Monday, November 2, 2009

You'd Better Contact Your Corporate. More Losses at US Central.

On October 30th, U.S. Central (USC) released their financial statements for the third quarter. Their cumulative losses over the last three years is now up to $2.6 billion. If your Corporate Credit Union has considerable investments (capital) with USC, then it's a good bet that your Corporate's capital account with USC is impaired more than expected. So who pays the tab? Natural Persons credit unions, of course.

Examples from Cindrich Mahalak & Co, CPAs . . . Corporate CenCorp in Michigan has an unexpected 24% impairment, or $240,000 for each million in you capital account. On the other hand, Corporate One in Ohio has no impairment expected. According to CM&Co, "don't expect any recoveries here like you saw with the NCUSF deposit, as this cannot be written up under current accounting rules."

It is suggested that you contact your Corporate to find out where they stand. I would imagine that your Board of Directors does not like surprises, unless they are good ones.

The economy seems to be improving somewhat - this is the good news. However, with new credit union legislation, potential NSF/Courtesy Pay limitations, record high unemployment, and NCUSIF related expenses, credit unions will be navagating some pretty rocky roads ahead.

Thursday, October 29, 2009

Dodd OD Protection Legislation.

As first reported on this blog on 7/1/09, congress is determined to severely restrict NSF and Courtesy Pay fees. It appears that this issue will be addressed sooner rather than later.

Sen. Chris Dodd (D-Conn.) introduced his version of overdraft protection reform legislation last week. H.R. 1799 would:

• require consumers to opt-in to their bank or credit union's overdraft protection program, and prohibit discrimination against consumers who do not opt-in.
• limit the number of fees that could be assessed to a consumer to one per month and no more than six per year. (What happens if a member exceeds this limit? do we close their account?)
• require fees to be proportional to the cost of processing the overdraft and prohibits the manipulation of debits in order to generate additional overdraft.
• Prohibit institutions from manipulating the order in which they post transactions in order to assess extra fees.
• require the overdraft fee to be considered a finance charge under TILA, but would not include the fee in the calculation of interest for the purposes of the usury ceiling in the Federal Credit Union Act.