FCA Attempts End-Run of Limits on Farm Credit Investments October 24, 2014
AmBA and the state bankers associations yesterday rebuked the Farm Credit Administration for attempting to cloak major changes in investment policies for Farm Credit System institutions in a proposed rule ostensibly intended to review credit rating regulations.
“This broad-based investment expansion being conducted without express authorization from Congress is exactly the type of action that creates significant risk for all FCS institutions and American taxpayers could ultimately be on the hook for failures in the investment portfolios of FCS institutions if the proposed rule is adopted,” the groups said.
The proposed rule would allow the FCA to determine on a “case-by-case” basis if otherwise ineligible investments by an FCS lender are permitted, while also giving more flexibility to FCS institutions to make a variety of investments for risk management purposes.
AmBA and the state associations called on the FCA to withdraw its proposed rule and fully explain why FCS lenders need additional investment authority. “If FCS institutions are able to leverage their tax-preferred, government-sponsored enterprise status to make investments outside of the congressionally mandated mission of the FCS, it will inevitably lead to more risk to FCS institutions, more risk to taxpayers, and more uncertainty for ... farmers and ranchers,” they added. Click here to read AmBA's letter.
Clearing House to Develop Real-Time Payments System October 23, 2014
The Clearing House, a bank-owned association that operates the largest private ACH network in the United States, has announced that it and its member banks will, over the next several years, develop a real-time payments system to meet customers’ expectations. The newer platform is intended to replace the fast but not real-time technologies on which today’s clearing system is based.
Features of this system will include direct person-to-person payments, immediate notification of funds availability and transfer, lower costs than other payment options and greater control over cash flow for cash-constrained customers, the Clearing House said. To enhance security and privacy, payments will be routed with one-time “tokens” so that account information is not compromised.
“The digital economy moves in real time and our customers expect us to keep pace,” said Clearing House Chairman Richard Davis, who is chairman, president and CEO of U.S. Bancorp, Minneapolis. “We will work with the industry to build a real-time payment infrastructure, which will enable consumers to pay and get paid securely and conveniently.” Click here to read more.
Agencies Finalize Risk Retention Rule Aligning QRM with QM October 23, 2014
Federal regulators have finalized the Dodd-Frank Act’s mortgage risk retention rule, aligning the qualified residential mortgage, or QRM, standard with the Consumer Financial Protection Bureau’s Qualified Mortgage rule. The original QRM proposal would have included a more restrictive down payment requirement, but aggressive advocacy by AmBA and others - with comments from more than 10,000 institutions or individuals — persuaded the regulators to re-propose the rule last year.
The agencies said that QM loans satisfy the low default risk required of QRMs by the Dodd-Frank Act. A QM has no down payment requirement and caps the debt-to-income ratio at 43 percent, with some exceptions. Instead, lenders and investors will maintain underwriting criteria that will likely address down payments and other prudential standards. The final rule applies 5 percent risk retention requirements only for non-QM mortgages. All mortgages that qualify for sale to Fannie Mae and Freddie Mac will be exempt from risk retention as long as the GSEs are under federal conservatorship.
The final rule allows any combination of vertical and horizontal integration of first-loss interests among market participants that adds up to 5 percent risk retention. The agencies made several small changes to the final rule by removing cash flow restrictions on horizontal residual interest, not requiring fair value calculations of eligible vertical interest and adjusting risk retention options for specific asset classes.
The rule was issued after a 4-1 vote by the FDIC board. Other agencies issuing the rule were the Federal Reserve, OCC, SEC, Federal Housing Finance Agency and HUD; the Fed board and SEC also voted to approve the rule on Wednesday. The rule takes effect one year after publication in the Federal Register. Click here to read the final rule.
Apple Pay to Launch Monday with 500 New Banks October 17, 2014
Apple Pay will launch on Monday, Oct. 20, according to Apple CEO Tim Cook. He stated that Apple Pay has signed up 500 new banks in addition to the six largest card-issuing U.S. banks that were included in the original announcement of Apple Pay in September.
Apple Pay will be available Monday with the iOS 8.1 software update for the iPhone 6. The new iPhone is equipped with near field communication technology that allows a user to make payments at participating merchants using the existing card network system.
To increase security, Apple Pay uses tokens that create one-time card numbers for each transaction and requires a biometric fingerprint scan to complete the payment. Even if card transaction data were breached at a point of sale, the card issuer would not need to reissue the card.
AmBA has issued a staff analysis to update bankers on the new payment platform, including cost considerations, revenue projections, security enhancements, customer demand and next steps. Click here to read the analysis.
USDA Guaranteed Farm Loan Scandal Triggers Banker Worries October 17, 2014
Alleged fraud on the part of a nonbank U.S. Department of Agriculture guaranteed farm loan originator has raised concerns that community banks that invest in USDA-guaranteed loans may be on the hook for losses.
The scandal, detailed in the October 16 issue of The American Banker newspaper, involved allegedly fabricated loan guarantee forms issued by a USDA-approved originator and purchased by an investment company in which banks invest. At least one bank has disclosed that it may face fraud losses nearly equivalent to its equity capital, the newspaper reported.
Concerned bankers holding USDA-guaranteed loans are encouraged to contact the entity from which they were purchased, as well as the local USDA office that issued the guarantee, to verify that the loans they hold are genuine.
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