While the Federal Reserve's monetary policy role caught the headlines in September with the surprise 50 basis point cut in the fed funds and discount rates, the fed as a regulator and the other agencies continued to provide issuances that address credit concerns in the banking industry. Indeed, the rate reductions overshadowed the steps the regulators have taken concerning credit problems.
The 2006 HMDA information issuance provided even more information about the conditions that fueled the mortgage and loan quandary. The agencies also continued to push mitigation strategies for servicers of those with at risk residential mortgages.
The regulators also finalized some rules that community bankers should review. One issuance—which was highlighted in previous regulatory postings—will allow well managed banks (those with CAMEL rating's of 1 or 2) to qualify for an extended examination period.
Another set of final rules involved defining the scope in which securities activities may occur within a banking institution. For the most part the rules allow a bank, subject to certain conditions, to continue to conduct securities transactions for its customers as part of the bank's trust and fiduciary, custodial and deposit 'sweep' functions, and to refer customers to a securities broker-dealer.
September 4, 2007 - Federal Reserve, OTS, OCC, NCUA, FDIC, CBSB
Statement Issued On Loss Mitigation Strategies for Servicers of Residential Mortgages
The federal financial regulatory agencies and the Conference of State Bank Supervisors issued a statement encouraging institutions that service securitized residential mortgages to review and make full use of their authority under pooling and servicing agreements to identify borrowers at risk of default. The statement also encourages institutions to pursue appropriate loss mitigation strategies designed to preserve homeownership.
Many subprime and other mortgage loans have been transferred into securitization trusts that are governed by pooling and servicing agreements. These agreements may allow servicers to contact borrowers at risk of default, assess whether default is reasonably foreseeable, and, if so, apply loss mitigation strategies designed to achieve sustainable mortgage obligations. Servicers may have the flexibility to contact borrowers in advance of loan resets.
Appropriate loss mitigation strategies may include, for example, loan modifications, conversion of an adjustable rate mortgage into a fixed rate, deferral of payments, or extending amortization. In addition, institutions should consider referring appropriate borrowers to qualified homeownership counseling services that may be able to work with all parties to avoid unnecessary foreclosures.
http://www.occ.treas.gov/ftp/release/2007-91a.pdf
September 12, 2007 - Federal Reserve, OTS, OCC, NCUA, FDIC
2006 HMDA Data Now Available
The agencies announced the availability of 2006 data on mortgage lending transactions at 8,886 financial institutions covered by the Home Mortgage Disclosure Act (HMDA) in metropolitan statistical areas (MSAs) throughout the nation. Covered institutions include, but are not limited to, banks, savings associations, credit unions, and independent mortgage companies. The HMDA data made available cover lending activity; applications for loans, loan originations, and purchases of loans from 2006.
http://www.ots.treas.gov/docs/7/777064.html
September 19, 2007 - Federal Reserve, OTS, OCC, FDIC
Federal Financial Regulatory Agencies Request Comment on Proposed Statement of Best Practices on Garnishment Orders of Exempt Federal Benefit Funds
The federal financial regulatory agencies requested public comment on a proposed statement encouraging federally regulated financial institutions to follow best practices to protect federal benefit payments from garnishment orders.
Federal law protects federal benefit payments—such as Social Security benefits, Supplemental Security Income benefits, Veterans' benefits, Federal Civil Service retirement benefits, and Federal Railroad benefits—from garnishment orders and the claims of judgment creditors subject to certain exceptions, such as garnishment orders relating to alimony or child support payments. The proposed statement lists best practices followed by financial institutions in this area, invites suggestions on other practices the agencies should consider, and encourages financial institutions to stay apprised of any future guidance issued by the Social Security Administration or Veterans Affairs regarding garnishment practices and of developments in the courts in their jurisdiction regarding garnishment practices.
http://www.occ.treas.gov/ftp/release/2007-97a.pdf
September 20, 2007 - Federal Reserve, OTS, OCC, FDIC
Final Rules on Expanded Examination Cycle for Certain Institutions Issued
The agencies issued final rules expanding the range of small institutions eligible for an extended 18-month on-site examination cycle. The final rules allow well-capitalized and well-managed banks and savings associations with up to $500 million in total assets and a composite CAMELS rating of 1 or 2 to qualify for an 18-month (rather than a 12-month) on-site examination cycle.
Until recently, only institutions with less than $250 million in total assets could qualify for an extended 18-month on-site examination cycle. The final rules also make parallel changes to the agencies' regulations governing the on-site examination cycle for U.S. branches and agencies of foreign banks consistent with the International Banking Act of 1978.
http://www.occ.treas.gov/ftp/release/2007-99a.pdf
September 24, 2007 - Federal Reserve, SEC
Final Rules to Implement the Bank 'Broker' Provisions
The agencies announced the adoption of final joint rules to implement the 'broker' exceptions for banks under Section 3(a)(4) of the Securities Exchange Act of 1934. These exceptions were adopted as part of the Gramm-Leach-Bliley Act of 1999 (GLB Act).
The rules define the scope of securities activities that banks may conduct without registering with the SEC as a securities broker and implement the most important 'broker' exceptions for banks adopted by the GLB Act. Specifically, the rules implement the statutory exceptions that allow a bank, subject to certain conditions, to continue to conduct securities transactions for its customers as part of the bank's trust and fiduciary, custodial and deposit 'sweep' functions, and to refer customers to a securities broker-dealer pursuant to a networking arrangement with the broker-dealer.
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20070924a1.pdf