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Current Events - 12/24/2001

NCUA votes to drop community investment requirements

Earlier this month, the National Credit Union Administration voted 2-1 to repeal its community reinvestment requirement...before it had even gone into effect. The requirement, called the Community Action Plan, was much less stringent than the Community Reinvestment Act mandated for banks. The CAP would have only required that credit unions have a plan to address the needs of the economically disadvantaged. Most interesting is the NCUA’s claim that because millions of people have been added to credit unions’ field of membership, it stands to reason that they will then serve more of the disadvantaged. Faulty logic, as banks know too well that potential members aren’t the same as actual customers.

CBA members meet with Governor Davis to discuss privacy legislation

A small contingent of CBA bankers met with the Governor last week to discuss industry concerns with state privacy legislation. It is clear from the meeting that Governor Davis intends to sponsor privacy legislation next year that will give consumers greater control of their personal information when it is being sold to unaffiliated parties for direct marketing purposes. While the Governor had a full appreciation for issues related to information transfers to affiliates, transfers of information to third-parties remained a concern, particularly the “sale” of information for marketing purposes. Mechanics Bank president Bill Reid did an excellent job explaining the need of banks of all sizes to use third-parties to deliver financial products and services to their customers. Although the meeting was originally supposed to last 20 minutes, the governor became very engaged in the discussion and the meeting lasted twice as long as scheduled.

Fed approves final HOEPA changes

The Fed last week issued a final regulation expanding the Home Ownership and Equity Protection Act (HOEPA), which is expected to extend the scope of HOPEA to cover more than one quarter of all mortgage loans made in the U.S. The regulation will be effective October 1, 2002.

The Fed has been under intense pressure to expand HOPEA as a means of combating predatory lending. The new regulations will change the trigger for first mortgage loans subject to the Act from those that are 10 percentage points over the comparable Treasury security to those that are eight points over. The test for junior liens will remain at 10 percent, prompting some speculation that there will be substantial growth in the second mortgage market.

The regs will not change the 8 percentage points and fees test, but they will require lenders to include as part of points and fees the cost of premiums for credit life, accident, health and similar insurance, and they will prohibit a creditor from refinancing a HOPEA loan within the first twelve months unless it can be shown that the refinancing is clearly within the borrower’s interest.

Sixteen Californians co-sponsor bill to prohibit banks from engaging in real estate brokerage

Sixteen members of Congress from California have signed on as co-sponsors of the realtor-backed Community Choice in Real Estate Bill (H.R. 3424) that would prohibit national banks and bank holding companies from engaging in real estate brokerage and management.

A companion bill has now been introduced in the Senate where the effort is being spearheaded by Colorado Senator Wayne Allard. Sen. Hillary Clinton was an original co-sponsor. Neither California Senator has signed on yet. The 16 California House Members are: Republicans Ken Calvert (an original sponsor, and strong promoter of the bill), Elton Gallegly, Duncan Hunter, Lois Capps, and Jerry Lewis. The Democrats are Anna Eshoo, Bob Filner, Diane Watson, Maxine Waters, Brad Sherman, Jane Harman, Steve Horn, Tom Lantos, Barbara Lee and Loretta Sanchez.

Despite the fact that free-standing California state chartered banks, all the state’s savings institutions, and industrial loan banks have had authority to engage in real estate brokerage for many years, the realtors are convinced that dozens of banks will enter the real estate business and drive them out if the Fed and the Treasury proceed with regulatory proposals to authorize the activities. They contend that real estate brokerage, unlike securities or insurance brokerage is not financial in nature.

Congress poised to pass terrorist insurance bill, stimulus package elusive

As the Congress stumbles toward adjournment for the Christmas holidays, it appears that an agreement may be reached on a plan to provide federal backing for insurance losses resulting from terrorist attacks. A major stumbling block has been the adamant refusal of the GOP to agree to use federal funds to pay punitive damages to the victims of terrorist attacks. A possible compromise might allow such actions but prohibit the use of federal funds to pay any awards.

Meanwhile the economic stimulus package appears to be stymied. Republicans have dropped their insistence on a rebate of corporate minimum taxes paid and Democrats have accepted demands for more rapid implementation of lower tax rates for middle class taxpayers. As of the middle of last week, however, it did not appear that the pieces could be put together to pass the package before the recess. There is also less agreement than there may have been six weeks ago about the need for stimulating an economy that some believe is in the process of recovering.

BIF, SAIF drop 1 bp and an update on SAIF reserves

BIF and SAIF reserve ratios declined by 1 bp in the third quarter to 1.32 percent and 1.39 percent respectively. SAIF received an unexpected boost last week though, when the FDIC announced a voluntary agreement with the Pritzger and Dworman families regarding the failure of Superior Bank. The families have agreed to pay $460 million back to the FDIC over a 15 year period, $100 million of it immediately. The down payment alone would hike the SAIF ratio to more than 1.40 percent.

But looming in the background is an effort by more than 250 Okar banks seeking a rebate of premiums they paid as part of the special SAIF assessment in 1996. These banks contend that some deposits for which they were assessed should have been considered BIF deposits. A provision to provide the rebate has the backing of House Majority Leader Richard Armey, and it could be added to legislation moving through the Congress in the final days of this session. The four most recent FDIC chairmen authored an op-ed piece in the December 18 issue of American Banker opposing the so-called Sun Trust Amendment. Several financial trade groups, regulators and key members of the Banking and Financial Services Committee also oppose the amendment.

DeNovo issues forum

Fifteen bankers from 12 DeNovo banks attended a new CBA issues forum for banks formed in the last three years. Alex Sheshunoff led the discussion, focusing on specific strategic issues facing new entrants into the financial services industry. A few key statistics from Sheshunoff:

• Only 20 percent of California banks open for five years or fewer were able to earn at least one percent on average assets.
• Returns on average equity were negative for banks opened in 2000, with 40 percent of banks opened in 1999 achieving positive ROAE results.
• Capitol Valley Bank posted a 12.46 percent return – the highest for banks opened in 1999 – though no others posted more than a 10 percent return.

Sheshunoff’s advice to CEOs of newer banks? To lower the expectations of their directors and focus on growth instead of matching peer level ROAA or ROAE.

Legislators don’t want e-mails from constituents

In a recent article in the New York Times, U.S. senators and members of Congress indicated that they do not have the time or resources to review constituent correspondence sent via e-mail. Given the busy schedules of California’s own State Legislature, it should surprise no one if its members feel the same way. Something we may want to keep in mind as we head into the next legislative cycle: Though e-mail messaging may be one of the most effective ways for CBA to communicate with its members and mobilize them on key issues, it may not be the most effective way to influence legislators.

Neighborhood National Bank honored by Urban League

Neighborhood National Bank was awarded the 2001 Corporate Award at the San Diego Urban League’s annual Equal Opportunity Awards in November. Congratulations to CBA member Robert McGill, president and CEO of Neighborhood National Bank and his staff.

Privacy Exams for Thrift Charter

Rumor has it that the Office of Thrift Supervision (OTS) is using its IT Examinations unit to audit GLB privacy issues, not safety and soundness teams or compliance examiners.