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CSBS Examiner

A weekly report of events affecting the state banking system from the Conference of State Bank Supervisors

2/11/2011 

 In This Issue...

 Upcoming Events...

Money Service Business Examiner Online Course, February 28 – April 9:  The student will be exposed to a variety of topics on money service businesses (MSBs): money transmitters, check cashers, and money exchangers.  Topics include the role MSBs play in the financial services industry; their interaction with banks; and broad concepts in the areas of registration/licensing, supervision and examination environment.

Real Estate Appraisal Review Online Course, March 7 – April 8:  This course is a MUST for financial institution professionals who use appraisal reports in their job assignments.

Trust Examiner School, March 7 – 11:  The 4½ day Trust Examiner School is designed for new and inexperienced examiners and may be beneficial for other examiners or supervisory staff members who have not had formal training in conducting exams of trust departments and trust companies.

Residential Mortgage Examiner School, March 28 – April 1:  This blended-learning program provides participants with a practical overview of the residential mortgage industry and lays the groundwork for the participants to conduct examinations of mortgage brokers or lenders.  In order to leave adequate time to complete the pre-residence session assignments, please register for this course no later than February 15, 2011.   

Annual Washington Fly-In, March 28 – 29:  CSBS is pleased to invite you to participate in our 2011 Annual Washington Fly-In to be held at the Hilton Washington Embassy Row Hotel, 2015 Massachusetts Avenue NW, Washington, DC 20036.

"If your company has a clean-desk policy, the company is nuts and you're nuts to stay there."

-- Thomas Peters, management expert 

Actually, we encourage clean desks for those who handle others’ money and for their examiners as well. But some of us toil in other types of vineyards, and for us, there is a certain comfort in piles of paper: what you need is literally at your fingertips, it’s arranged chronologically (top of the pile is the latest, bottom the oldest), there’s no need to search a database step by wretched step, piles of paper can be placed strategically to block icy blasts of air from manic HVAC systems, and so forth.  Perhaps it’s fair to say that one size or approach does not necessarily fit all. Or, at least in our paper-challenged condition, we surely hope so.

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Smith Addresses NMLS User Conference 

Joseph A. Smith, Jr., North Carolina Commissioner of Banks, addressed the Nationwide Mortgage Licensing System and Registry (NMLS) User Conference & Training on Wednesday on the future of mortgage regulation.  In his remarks, Smith discussed the NMLS as a model of cooperative federalism; the coordination between state and federal regulators called for by the recently-enacted Dodd-Frank Wall Street Reform and Consumer Protection Act; and significant issues facing the banking and mortgage industries, including the future of the GSEs and servicing issues, such as robo-signing and weaknesses in loss mitigation and foreclosure prevention efforts. 

Noting continuing challenges for mortgage regulators and the mortgage industry, Smith highlighted the importance of efforts to examine servicing practices and the current structure of the servicing industry.  Smith also called upon attendees—regulators and members of the industry alike—to work together to improve mortgage supervision and enhance the performance of the mortgage industry.   

Smith’s address was part of the NMLS User Conference & Training, which brings together state and federal mortgage regulators, industry professionals, compliance companies, top law firms, and education providers to learn about the latest developments in mortgage supervision and to discuss key issues confronting the industry.  Read more

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Latest Developments in GSE Reform 

The long-awaited report on the restructuring of GSEs was released today.  CSBS staff is still reviewing the proposal, and predictions of the contents of the report have been scattered across the media, but little remains consistently predicted thus far.  However, the one general consensus many seem to agree on is the simple notion that Fannie Mae and Freddie Mae should eventually disappear.  While a number of scenarios could play out, two basic options exist for GSE reform: an approach utilizing some form of federal support or the less likely, complete privatization of the mortgage market.   

The report is expected to provide a variety of options, with implementation occurring over the course of the next decade.  While predictions have varied greatly, several media sources have indicated that the loan limit for “high cost areas” will be reduced from $729,000 to $625,500.  In addition, numerous sources have speculated that the GSE report issued by the Administration will highlight options tailored towards reducing the government’s role in the mortgage market considerably.  The Administration has already instructed Fannie and Freddie to raise the fees assessed to lenders, in an effort to curb the appeal of selling loans to the government and promote private options instead.  

While most agree action needs to be taken where Fannie and Freddie are concerned, the availability of future loans remains a critical matter. Some House Republicans have suggested that a fully privatized market is a viable option, but Democrats are leery of proposals consistent with this thought process.  While traditional mortgages would likely remain available in a fully privatized market, it is also probable such mortgages would be more limited and expensive.  Some are concerned that without some level of government support the access to consumer credit will be restricted substantially, especially during a depressed market. Regardless of whether the Administration leans towards a plan that continues to provide federal support or full privatization, the one certainty that remains is the magnitude of this decision and the reverberations – whether positive or negative – for years to come.  Read more

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FDIC Approves Rules on Assessment System: Proposes Training Rules & Compensation Limits 

It was a busy week for the FDIC, as a final rule on Assessments, Dividends, Assessment Base, and Large Bank Pricing was adopted on Monday, in addition to the announcement of multiple proposals: one on bank personnel training on deposit insurance coverage and another on incentive-based compensation.  The much-anticipated deposit insurance assessment modifications will change the assessment base for all banks and center the assessments on domestic assets less tangible equity as opposed to domestic deposits.  Under the new large-bank pricing system, banks with high-risk asset concentrations, less stable balance sheet liquidity, or those with potentially higher loss severity in the event of failure will receive higher assessment rates.  The new rule will alter the amount each bank pays in assessments in such a way that the largest percentage of assessments will now be paid by the largest banks, although the amount collected from the industry overall is said to remain unchanged. 

The FDIC proposal on bank employee training is intended to improve consumer awareness of deposit insurance coverage. Under the proposed rule, bank personnel who open new accounts or are authorized by the bank to answer deposit insurance questions, would receive annual computer-based training on the basic principles of deposit insurance coverage. Furthermore, the proposal would require an employee opening a new account to inquire as to whether the customer has other bank accounts and whether the customer’s aggregate deposits are in excess of the deposit insurance limits of $250,000.  The proposal is intended to inform consumers of the simple ways to ensure deposits are protected. 

The second proposal issued by the FDIC this week aims to prevent excessive risk taking and restricts incentive-based compensation.  The proposal was a joint ruling by the five federal members of the FFIEC, the SEC, and the FHFA, and would apply only to banks with assets over $1 billion. In addition, the proposal contains heightened standards for institutions that have $50 billion or more in total consolidated assets. For these institutions, the proposed rule would: require at least 50 percent of incentive-based pay be deferred for a minimum of three years for specific executives; prohibit incentive-based compensation for employees that would encourage inappropriate risks by providing excessive compensation; prohibit incentive-based compensation that would expose the institution to inappropriate risks by providing compensation that could lead to a material financial loss; require policies and procedures for incentive-based compensation that correspond to the size and complexity of the institution; and require annual reports on incentive compensation structures to federal regulators.  All in all, the proposal is the latest step by federal regulators aimed at ensuring safety and soundness and preventing another financial crisis.  Read more   

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Around the States 

Connecticut: Commissioner Howard F. Pitkin was appointed to the Board of Directors of the National Association of State Credit Union Supervisors (NASCUS), the national organization of state officials responsible for chartering, supervising, and regulating the nation’s state-chartered credit unions. Pitkin previously served on the NASCUS Board from 2003-2005. Pitkin was appointed by NASCUS Chairman Tom Candon and will serve a one-year term.  Read more

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Around the Agencies 

INTERAGENCY: Comments are being requested on four proposals that would collectively create a universal system of regulatory reporting for all insured depository institutions.  The joint proposals between the Office of the Comptroller of the Currency (OCC), Department of the Treasury, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) would: require the adoption of call reporting; standardize holding company reporting; put an end to the OTS Cost of Funds Index; and require a summary of deposit data. The modifications are consistent with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the provisions that will transfer functions of the OTS to the OCC, the Federal Reserve Board, the FDIC, and the new Consumer Financial Protection Bureau on July 21, 2011.  The deadline for comment is April 11th.  Read more 

FRB: Kevin Warsh announced his resignation from the Federal Reserve Board of Governors, effective “on or around” March 31 of this year. During his tenure on the Board, Warsh generally concentrated on issues related to financial markets and monetary policy.  “I deeply appreciate his insights and wise counsel and, most especially, his fortitude and friendship during the difficult days, nights, and weekends of the crisis,” commented Fed Chairman Ben Bernanke.  "In particular, his intimate knowledge of financial markets and institutions proved invaluable during the recent crisis. And he worked energetically and effectively behind the scenes overseeing the operations of the Board and the Federal Reserve System.”  In his resignation letter to President Obama, Warsh mentioned he was “honored to have served at a time of great consequence.”  Read more 

FRB: On Tuesday, the Federal Reserve Board requested public comment on a proposal that would implement two provisions on consolidated supervision of “systematically important nonbank financial companies” via the Financial Stability Oversight Council. The proposal would establish requirements for deciding whether an organization is “predominantly engaged in financial activities,” which is typically defined as “85 percent of more of the company’s assets are related to activities that have been determined to be financial in nature under the Bank Holding Company Act.” The proposal would also define the terms “significant nonbank financial company” and “significant bank holding company.” The deadline for comment is March 30th.  Read more 

FRB: On Wednesday, the Federal Reserve Board announced the approval of a statute that would give banking institutions a set period of time to convert their investments and activities to comply with the restrictions and exclusions of the Volcker Rule, under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Volcker Rule generally prohibits banking entities from participating in “proprietary trading in securities, derivatives, or certain other financial instruments and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund.”  The final rule would allow banking organizations two years to comply, and under specific circumstances the Board would be allowed to extend this period of time.  Read more 

FTC: The FTC’s Mortgage Assistance Relief Services (MARS) Rule took effect on January 31st. The rule bans advanced fees to protect financially distressed homeowners from the mortgage relief scams that have become prevalent during the mortgage crisis. Under the newly imposed rule, a mortgage assistance relief company may not “collect a fee until the consumer has signed a written agreement with their lender that includes the relief acquiring from the company.” Additionally, the company must present the lender or servicer of the mortgage with written notice of how the “relief” will change the terms of the consumer’s loan.  In general, the rule exempts attorneys if: they provide mortgage assistance relief services as part of the practice of law; are licensed in the state where the consumer or dwelling is located; and comply with state laws and regulations governing attorney conduct related to the rule.  Read more

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Upcoming Events 

Feb. 15: The U.S. House of Representatives Financial Services Committee will hold a full committee hearing titled “Assessing the Regulatory, Economic and Market Implications of the Dodd-Frank Derivatives Title” at 10 am in Room 2128 of the Rayburn House Office Building. 

Feb. 15: The Oversight and Investigations Subcommittee of the House Financial Services Committee is holding a hearing titled “An Analysis of the Post-Conservatorship Legal Expenses of Fannie Mae and Freddie Mac Legal” at 2 pm in Room 2128 of the Rayburn House Office Building. 

Feb. 16: The House Financial Services Committee will hold a full committee hearing on the final report of the Financial Crisis Inquiry Commission at 10 am in the Rayburn House Office Building.  

Feb 16: ComplianceEase will host the next in its series of TOTAL Compliance webinars, “Preparing for a New Era of State Regulatory Exams in 2011” at 11:00 am EST. The webinar will incorporate speakers representing CSBS and state banking agencies, as well as legal and compliance experts who will review the new state e-Exam requirements many mortgage licensees will need to be in compliance with in 2011.  Read more  

Feb. 16: The Insurance and Housing Subcommittee of the House Financial Services Committee is holding a hearing titled “Are There Government Barriers to the Housing Market Recovery?” at 2 pm in Room 2128 of the Rayburn House Office Building. 

Feb. 17: The Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee is holding a hearing called “Understanding the Federal Reserve’s Proposed Rule on Interchange Fees: Implications and Consequences of the Durbin Amendment” at 10 am in Room 2128 of the Rayburn House Office Building. 

Feb. 17: The Senate Banking Committee will hold a full committee hearing titled “Oversight of Dodd-Frank Implementation: A Progress Report by the Regulators at the Half-Year Mark” at 10 am in Room 538 of the Dirksen Senate Office Building. Witnesses will be Ben Bernanke (FRB), Sheila Bair (FDIC), Mary Schapiro (SEC), Gary Gensler (CFTC) and John Walsh (OCC).

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Closing Comment 

“If there are rules on the books that are needlessly stifling job creation and economic growth, we will fix them.  But we have a responsibility to protect the health and safety of the American people, and rolling back regulations that ensure access to clean drinking water, protect children from lead poisoning and put in place a safe and secure financial system on the heels of the worst financial crisis in a generation is not a responsible approach to governing.” 

--Jen Psaki, deputy White House communications director in a Washington Post article about Rep. Darrell Issa’s (R-Calif.) announced goal of making federal regulations friendlier to business. 

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Catherine Woody, Editor
Edward Smith, Contributing Editor
Andrea Corson, Contributing Writer

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