“There are some questions that cannot be answered by Google.” – Anonymous Church Sign
At this season, it seems right to pause, reflect and ponder. Daily we’re flooded with data sought and unsought. Lately, the data seem more encouraging: new jobs are being created however slowly, retail sales are back to pre-recession levels, corporations and some people are sitting on great masses of cash. Yes, bankable loans are still pretty rare, and net interest margins are painfully slim. The daily flow of data can be oppressive, but the bigger picture – which not even Google can fully show – seems to be getting brighter.
Fed Releases Interchange Proposal
The Federal Reserve requested comments on a proposed rule to establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions. The plan would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. Certain government-administered payment programs and reloadable general-use prepaid cards would be exempt from the interchange fee limitations. The Fed is requesting comments on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). The agency also is requesting comments on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention. The proposal also would prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The deadline for comments is Feb. 22. Read more
PA Department of Banking and U.S. Attorney File Charges in Foreclosure Rescue Scheme
The Pennsylvania Department of Banking and U.S. Attorney Zane David Memeger announced charges and a civil complaint were filed against Anthony J. DeMarco, III and his real estate companies, DeMarco REI, Inc. and OPM Group, LLC. The charges and complaint alleged a mortgage fraud scheme involving more than $30 million in loans. The indictment charges DeMarco, Michael Richard Roberts, Sean Ryan McBride and Eric Bascove with conspiracy, charges DeMarco, Roberts and McBride with mail, wire and bank fraud, and charges DeMarco with money laundering. According to the indictment, the defendants would scour public records filings to find homeowners in financial distress and pitch a “sale-leaseback” arrangement for them. The defendants would use fraudulent documents to obtain mortgage loans from lenders and steal the equity in the homes. “The Pennsylvania Department of Banking is committed to protecting consumers and we are grateful for the opportunity to work with federal law enforcement officials to investigate and prosecute financial misconduct and abuse,” said Pennsylvania Secretary of Banking Steve Kaplan. “Anyone who would consider taking advantage of the distress being endured by Pennsylvania homeowners during the foreclosure crisis by using such loan modification schemes should take notice and be warned by this prosecution.”
Joe Smith’s Nomination Approved by Senate Banking Committee
The Senate Banking Committee approved the nomination of North Carolina Commissioner of Banks Joseph A. Smith, Jr. to be director of the Federal Housing Finance Agency (FHFA) by a vote of 16 to 6. Smith’s nomination now goes to the full Senate for approval. FHFA regulates Fannie Mae, Freddie Mac and the Federal Home Loan Bank System. If approved by the Senate, Smith would replace Acting Director Edward DeMarco, who has had the position since August 2009. At his confirmation hearing, incoming Senate Banking Committee Chairman Tim Johnson (D-SD), praised Smith. “As commissioner of banks, he was responsible for implementing and enforcing North Carolina’s anti-predatory lending laws, overseeing the state’s foreclosure prevention program and serving on the governor’s task force to increase small-business lending – to name a few of his accomplishments – all while regulating small and large financial institutions in the state,” Johnson said. Read more
Around the States
ID: Legal actions resulted in obtaining more than $6 million in restitution in three investment fraud cases brought by the Idaho Department of Finance. A court ordered nearly $3.2 million in restitution and $160,000 in civil penalties for Wise Enterprises and Wise Lending. The case involved misrepresentations made to investors that their funds would be used to extend secured bridge loans and other short-term loans to individuals and small businesses. A court ordered nearly $2 million in restitution for investors along with prejudgment interest of more than $400,000 against James Catledge, Impact, Inc. and Impact Net Worth. The case involved the promotion of investment interests in resort-related real estate developments located in the Dominican Republic. The state also levied a judgment of $2.1 million and a civil penalty of $40,000 against Sonny L. Jensen. The case involved the promotion of real estate-related promissory notes.
IL: In an effort to clean up the foreclosure process in Illinois, Brent E. Adams, secretary of the IL Department of Financial and Professional Regulation (IDFPR) published a nine-point “affidavit preparation expectations” plan. The plan was prepared in conjunction with the IDFPR’s ongoing investigation of 20 loan servicer for deficiencies in the court documents presented by mortgage companies in the foreclosure process. Read more
Around the Agencies
FDIC: While times are good in the agricultural sector, the FDIC warned banks to use sound underwriting principles and establish effective risk management procedures. In a Financial Institution Letter, the FDIC said the U.S. agricultural sector has benefited from almost a decade of solid farm production, strong demand, and favorable financing costs. Agricultural banks are advised to: place a strong emphasis on borrower cash flow and repayment capacity and not to place undue reliance on collateral; avoid undue reliance on cyclical factors, such as appreciation of land prices; and look for evidence of speculation in agricultural land prices or commodities that are influencing the market. Read more
Fed: The Federal Reserve proposed two rules that would expand the coverage of consumers protection regulations to credit transactions and leases of higher dollar amounts. The proposed rules would amend Regulation Z and Regulation M to put into effect a provision of the Dodd-Frank Act which requires that the protections of the Truth in Lending Act and the Consumer Leasing Act apply to consumer credit transactions and consumer leases up to $50,000, compared with the current $25,000. This amount will be adjusted annually to reflect any increase in the Consumer Price Index. By law, the new amount must be in effect on July 21, 2011. The deadline for comments is Feb. 1.
FOMC: The Federal Open Market Committee voted to maintain the target rate for the federal funds rate at 0 to 1/4 percent and said it will purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The FOMC said it anticipates that conditions will continue to warrant the exceptionally low levels for the federal funds rate for an extended period of time. Read more
Interagency: FDIC approved an interagency proposal to set a risk-based capital floor for large financial institutions. FDIC explained that the advanced approaches of Basel II Capital requirements allowed for reductions in risk-based capital requirements below those generally applicable to insured banks, and needed to be modified to comply with the Dodd-Frank Act. The proposed rules replace the transitional floors in the advanced approaches rule with permanent risk-based capital floors equal to the capital requirements computed using the agencies’ general risk-based capital rules. The proposal has a 60-day comment period. Read more
Interagency: The federal banking regulators adopted changes to Community Reinvestment Act (CRA) regulations to support stabilization of communities affected by high foreclosure levels. The rules encourage banks to support eligible development activities in areas designated under the Neighborhood Stabilization Program administered by HUD. The regulations go into effect 30 days after publication in the Federal Register, which is expected soon. Read more
SBA: The Small Business Administration announced a three year extension of the Patriot Express pilot program. The program offers an enhanced guaranty and interest rate on loans to small businesses owned by veterans, reservists and their spouses. Since the program started in June 2007, it has provided more than $560 million in loan guarantees to nearly 7,000 veterans. Patriot Express loans are offered by participating lenders and are available to qualified borrowers in amounts of up to $500,000. The loans may be used for start-up, expansion, equipment purchases, working capital, inventory and business-occupied real-estate purchases. Read more
Dec. 23 – 24: CSBS will be closed for Christmas. Happy holidays!
“A foreclosure action is something very local, and something that the states have traditionally controlled. It’s very much a local transaction, and should continue to be a fundamental state responsibility to control state litigation. I don’t think that there should be a federal standard that preempts state law.”
--Iowa Attorney General Tom Miller in an interview with American Banker.
Catherine Woody, Editor
Edward Smith, Contributing Editor
Teresa Dean, Contributing Writer