January 27, 2006

“Some people just don't know how to drive. I call these people ‘Everybody But Me’.”

Successfully completing the daily commute these days is something to celebrate. “Yippee! I survived another one.” Exaggeration is a relative thing, but living and driving in and around D.C. is similar to Russian roulette on wheels, or for the derring-do, it’s more like bumper cars. Then comes yesterday’s Wall Street Journal, informing us that auto-makers and after-market vendors will soon be offering dashboard computers and floorboard mounted laptop docking stations. There’s even a term for this trend: Telematics. Those of us who maintain death-grips on our steering wheels twice a day will soon need sedatives or beg to telecommute when the people we share our roads with start instant-messaging (or whatever) at 65+ miles-per-hour. What’s a good driver to do? We’re ready to launch a new “Just Say No” campaign. Computers belong in the office or at home. Next to the driver’s seat? Not.

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49 States Participate In Ameriquest Settlement

ACC Capital Holdings Corp, parent of Ameriquest Mortgage Co., announced on Monday a $325 million agreement with a committee of state attorneys general and state financial regulators about Ameriquest’s lending practices. Ameriquest is the nation’s largest subprime lender. Under the agreement with 49 states and the District of Columbia, ACCCH will pay $295 million over the next year to compensate borrowers. The funds will be designated for borrowers who obtained loans from Ameriquest between Jan. 1, 1999, and Dec. 31, 2005. In addition, the company will provide $30 million to reimburse the states for legal fees and other investigation costs. An independent settlement administrator will distribute the funds.

Iowa Attorney General Tom Miller led the group of states that negotiated the agreement. They included the attorney general offices of Iowa, California, Washington, New York, and Illinois; the New York State Department of Banking; and California district attorneys.

CSBS President and CEO Neil Milner lauded Miller for his leadership on the settlement. Milner also noted that the states, through the creation of a national licensing system and database, are proactively working to improve the regulation and accountability of state-licensed mortgage brokers and lenders.

In the settlement agreement, Ameriquest acknowledged no wrongdoing, but will take a number of steps to improve its business practices, such as:

1. Ensuring that borrowers receive a simple one-page form clearly describing all loan terms at least three days before closing;
2. Centralizing the appraisal process and instituting random selection of appraisers;
3. Requiring sales associates to follow approved scripts to describe loan terms and conditions and ensuring that competitive claims regarding interest rates are accurate;
4. Agreeing only to refinance a non-prime loan if there is a benefit to the borrower; and
5. Using a mystery shopper program to ensure compliance with company policies and procedures.

For more information, go to http://www.banking.state.ny.us/pr060123.htm

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Around The States

Idaho: A new law in Idaho requires mortgage lenders in the state to obtain a license, said Idaho Department of Finance Director Gavin Gee. The new law went into effect on Jan. 1, 2006, and was sought by the “Idaho mortgage industry as a consumer protection measure to help prevent fraud, implement ongoing education requirements and provide the necessary tools for regulatory oversight,” Gee said.  About half of the states now require licensing or registration of individual mortgage loan originators, including the neighboring states of Montana, Nevada, Oregon, and Utah. The state of Washington is currently considering legislation for loan-originator licensing. Under the Idaho law, mortgage originators have until March 1, 2006, to apply for their individual licenses with applications available from the department’s Web site. Gee said that Idaho is using a national uniform application form for loan originators in anticipation of a national automated licensing system. Loan originators also must obtain individual surety bonds of $10,000 and renew their licenses annually on October 31. In 1990, only 18 states regulated mortgage brokers/lenders, Gee said, but today the mortgage industry is regulated by all but two states.  For additional information, go to   http://finance.idaho.gov/PR/2006/LOlicensing-01-06.pdf

New Mexico: New rules to govern payday and car-title loans in New Mexico were issued on Monday by Attorney General Patricia Madrid. Madrid issued the regulations under her authority in the New Mexico Unfair Practices Act. Under the new rules, interest rates are capped and the loan amount cannot exceed 25 percent of the borrower's net monthly income. Lenders also are required to give borrowers at least four months to repay their loans to avoid a long-term debt trap. The rules will go into effect on Feb. 15, 2006. Madrid noted that before 1983, the maximum interest rate New Mexicans could be charged on a small loan was 36 percent. However, since the late 1990s, New Mexicans have found themselves paying average percentage interest rates of 500 percent. Other provisions in the regulations include limiting charges to no more than $7.50 or 10 percent of the amount loaned for the first 30-day period of the loan; prohibiting charges for application, document preparation or credit checks; and prohibiting balloon payments.   Details are   http://www.ago.state.nm.us/divs/cons/small_loan_ruels_regs/small_loan_regs.pdf

Virginia: Judith Williams Jagdmann has been confirmed for a seat on the Virginia State Corporation Commission (SCC). The three-member commission oversees the Virginia Bureau of Financial Institutions. Judge Jadgmann will succeed Judge Clinton Miller, who will retire at the end of his current six-year term, effective Jan. 31. Jagdmann served for 12 years an as an SCC lawyer and eight years as a representative of consumer interests in the attorney general’s office. She most recently served as attorney general when Jerry Kilgore resigned to run for governor.

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BB&T Announces No Loans For Development On Eminent Domain Properties

BB&T Corporation announced on Wednesday that it would not lend to commercial developers that plan to build condominiums, shopping malls and other private projects on land taken from private citizens by government entities using eminent domain. BB&T said it was changing its commercial lending policy in the wake of a U.S. Supreme Court decision in Kelo vs. City of New London that said governments may seize personal property to make room for private development projects. “The idea that a citizen’s property can be taken by the government solely for private use is extremely misguided, in fact it’s just plain wrong,” said BB&T Chairman and Chief Executive Officer John Allison. “One of the most basic rights of every citizen is to keep what they own,” he added. BB&T noted that 38 states have recently passed or are considering laws that would ban the use of eminent domain for private development. The House passed legislation to apply a federal ban, and President Bush has voiced his support for such reform. The bank’s announcement is at   http://www.bbandt.com/about/media/newsreleasedetail.asp?date=1%2F25%2F06+9%3A48%3A52+AM

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Hurricane-Related Developments

NFIP: The National Flood Insurance Program is expected to need a total of $23 billion to pay claims related to Hurricanes Katrina and Rita and will need an additional $5.6 billion in borrowing authority by mid-February, said NFIP Acting Director David Maurstad in testimony before the Senate Banking Committee on Wednesday. In November 2005, FEMA’s authority to borrow from the Treasury was increased to $18.5 billion from $1.5 billion. A report by the General Accountability Office concluded that the flood insurance program is not actuarially sound because the program does not collect sufficient premium income to build reserves to meet long-term future expected flood losses. The GAO report said it is “highly unlikely” that the program could repay its current debt of $18.5 billion. http://www.gao.gov/new.items/d06335t.pdf

HUD: Housing and Urban Development Secretary Alphonso Jackson announced on Wednesday that the agency would allocate $11.5 billion in disaster funding among five Gulf Coast states. The emergency funding is authorized through HUD's Community Development Block Grants and will provide $6.21 billion to Louisiana, $5.05 billion to Mississippi, $82.9 million to Florida, $74.5 million to Texas and $74.3 million to Alabama. “This program allows states leaders -- who are closest to the people -- to decide exactly how this grant money should be spent,” said Donald Powell, federal coordinator for Gulf Coast Rebuilding. HUD said it would soon provide guidance to these states to assist them in their long-term recovery planning. http://www.hud.gov/news/release.cfm?content=pr06-011.cfm

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Around The Agencies

FDIC: The FDIC is encouraging banks to help educate their customers about identity theft through a new online multimedia teaching tool available on the agency’s Website. The presentation provides information on how consumers may protect their computers and themselves from identity thieves. It also covers what actions consumers should take if their personal information has been compromised. Identity theft continues to be one of the fastest growing crimes in the United States. FDIC urged financial institutions to make the presentation available to their customers through a link from their Websites. Additional information is available at http://www.fdic.gov/news/news/press/2006/pr06008.html

FinCEN: Banks may share Suspicious Activity Reports with a controlling company, whether domestic or foreign, according to guidance issued on Friday by the Financial Crimes Enforcement Network and the federal banking agencies. FDIC explained that a controlling company includes a bank or savings association holding company, or a company having the power directly or indirectly to direct the management or policies of an industrial loan company or a parent company, or to vote 25 percent or more of any class of voting shares of an industrial loan company or a parent company. If an organization’s corporate structure includes multiple controlling companies, SARs may be shared with each controlling entity. While disclosure is permitted, the regulators noted that a depository institution’s anti-money laundering program must have written confidentiality agreements or arrangements, and proper internal controls in place to protect the confidentiality of the suspicious reports. The regulators – FDIC, Federal Reserve, Office of the Comptroller of the Currency and the Office of Thrift Supervision – said they are considering whether a bank may share SAR information with an affiliate other than the controlling company and will issue guidance shortly. For more information, go to http://www.occ.gov/ftp/release/FBAs_SAR_Sharing_Guidance.pdf

FRB: The Federal Reserve Board recently announced that 10 new members have joined its Consumer Advisory Council for three-year terms. The Council advises the Federal Reserve on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters related to consumer financial services. Among the new members are: Dorothy Bridges, president and chief executive officer of Franklin National Bank in Minneapolis, Minn.; Mark K. Metz, senior vice president and deputy counsel of Wachovia Corp., Charlotte, N.C.; Anna McDonald Rentschler, Bank Secrecy Act and Anti-Money Laundering officer for Central Bancompany, Jefferson City, Mo.; and Faith Arnold Schwartz, senior vice president of Option One Mortgage Corp., a subsidiary of H&R Block in Washington, D.C. The Federal Reserve also selected Lori Swanson, solicitor general for the Office of the Minnesota Attorney General, to chair the Council in 2006; and Lisa Sodeika, executive vice president of HSBC North American Holdings Inc. as the vice chair.

FTC: ChoicePoint Inc., agreed on Thursday to pay $10 million in civil penalties and $5 million in consumer redress to settle Federal Trade Commission charges that its security and record-handling procedures violated consumers’ privacy rights and federal laws. The consumer data broker last year acknowledged that the personal financial records of more than 163,000 consumers in its database had been compromised. The settlement requires ChoicePoint to use new procedures to ensure that it provides consumer reports only to legitimate businesses for lawful purposes, to establish and maintain a comprehensive information security program, and to obtain audits by an independent third-party security professional every other year until 2026. “The message to ChoicePoint and others should be clear: Consumers’ private data must be protected from thieves,” said FTC Chairman Deborah Platt Majoras. FTC said at least 800 cases of identity theft arose from the company’s data breach.  Read more http://www.ftc.gov/opa/2006/01/choicepoint.htm

NCUA: The Vice Chairman of National Credit Union Administration pledged on Monday to enhance the federal credit union charter. Speaking before the American Association of Credit Union Leagues, Rodney E. Hood said he is encouraging NCUA, “to enable credit unions to extend their services in more innovative ways so more members have access to lower-cost financial services.” While saying he supports the dual chartering system, Hood said is he is calling on NCUA staff “to look for ways to say ‘yes’ to safe and sound creative regulatory approaches designed to make federal credit unions more competitive – rather than adopting a ‘just say no’ approach.”  For more information, see press release at http://www.ncua.gov/news/press_releases/2006/NR06-0121.htm

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The Week Ahead

January 31

The Federal Reserve Open Market Committee meets to discuss interest rates. Announcement expected around 2:15 p.m.

January 31

The Senate is expected to vote on the confirmation of Ben S. Bernanke to become Chairman of the Federal Reserve Board.

January 31

The House is expected to reconvene at noon.

February 2

The Senate Banking, Housing & Urban Affairs Committee holds a hearing on the National Flood Insurance Program. – 10 a.m., 538 Dirksen Building

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Closing Comments. . .

Federal Reserve Chairman Alan Greenspan’s 18-year tenure as the nation’s central banker is in its waning days. We can only imagine what it’s like at the Eccles Building which serves as the Federal Reserve Board’s headquarters. Accolades and praise about Chairman Greenspan have poured forth since he announced plans to retire at the end of his term. We think almost everything has been said that can be said about “The Maestro.” Come Tuesday, he will preside over his final Federal Open Market Committee, turn the keys to the chairman’s office over to his successor, Ben S. Bernanke, and walk out the doors into the private sector after a stellar career in public service. We at the Conference of State Bank Supervisors salute Mr. Greenspan, not only for his steady hand on the helm of the nation’s economy, but also for his commitment to the Fed’s role in bank supervision and his respect for the nation’s dual banking system.

As our closing comment this week, we’d like to cite an excerpt from a Wall Street Journal article, published December 15, 1993, which quoted Chairman Greenspan as follows:

“Banking supervision and regulation can only benefit from the variety of viewpoints and checks and balances of a system of more than one regulatory authority. A system in which banks have choices, and in which regulations result from the give and take involving more than one agency, stands a better chance of avoiding the extremes of supervision. A single regulator, charged with responsibility for safety and soundness, is likely to have a tendency to suppress risk taking. A system of multiple supervisors and regulators creates checks on this propensity.”