Consumer Financial Protection Agency

The Comptroller of the Currency John Dugan recently expressed his thoughts regarding the proposed Consumer Financial Protection Agency. He is in favor of such an agency, but expressed the following concerns:

"It makes sense to consolidate all consumer protection rule writing in a single agency, with the rules applying to all financial providers of a product, both bank and nonbank," Mr. Dugan said in testimony before the House Financial Services Committee. "But we believe the rules must be uniform, and that banking supervisors must have meaningful input into formulating them. Unfortunately, the proposed CFPA falls short on both accounts."

IFRS for SME's Released July 9th

The IFRS issued a press release on July 9th announcing the issuance of IFRS standards for small and medium size entities, referred to as SME’s. SME’s represent 95% of all businesses. This release comes after 5 years of significant work.

These standards are available for free on the IASB website and are comprised of 230 pages especially tailored for smaller businesses which have not yet entered public capital markets (which require full IFRS standard adoption).

Some benefits:
1. Allows improved comparability for users of accounts
2. Enhances the overall confidence in the accounts of SME’s
3. Reduces the significant cost involved of maintaining standards on a national basis.

Compared to full IFRS standards, SME standards:
1. Are simplified.
2. Disclosures are reduced.
3. Topics not relevant to SME’s have been removed.

FFIEC Speaks out on Charter Conversions

Imagine for a moment that your bank is being subjected to a serious or material enforcement action. You are contemplating changing your charter as a result to move to another regulatory authority. Not so fast, says the Federal Financial Institutions Examination Council, better known as the FFIEC. In these turbulent times, the FFIEC recognized that given the current stressed environment, rating downgrades and supervisory actions it is essential that the charter conversions not undermine current or prospective supervisory actions.

The FFIEC purpose is to maintain uniform supervisory principles and standards for all regulated entities, regardless of chartering authority. The FFIEC recently issued a statement in July emphasizing that conversion requests made while there are pending enforcement actions with the current chartering authority should not be entertained.

Chartering conversions are for purposes of business and strategic needs, according to the FFIEC, not for purposes of avoiding enforcement actions.

In the event that a conversion does move forward either through direct conversion or as the result of a merger, the FFIEC recommends:

1. Enforcement actions in place prior to conversion should carry over to the new agency.
2. Current agency should provide prospective agency a summary of existing examination program.
3. If there is not a recent examination to review, the prospective agency should, if deemed necessary, conduct an eligibility examination.
4. Prospective agency should factor existing ratings into their examination planning process as well as in–process ratings downgrades only after the completion of an appropriately scoped on-site examination.

OCC to Allow 50% Risk Weighting on Some Modified Loans!

The OCC has issued an interim final ruling allowing mortgage loans modified under Making Home Affordable Program to retain the same risk weighting that the loan had just prior to modification. Mortgage loans are weighted at either at 50% or 100%, depending on certain criteria, such a delinquency status. Loans with a higher risk weighting require more capital and, as such, are less desirable. Previous OCC guidance required that a 50% risk weighted loan that had been restructured be classified as 100% risk weighted. At a time when banks are under the microscope for their capitalization levels, every little bit helps.

The Making Home Affordable Program, announced on March 4th, is a partnership between the Treasury and lenders with loan services to offer at-risk homeowners loan modifications under which the homeowners may obtain more affordable monthly mortgage payments. The program has stipulations around debt to income levels as well as monetary incentives to both borrower and lender to promote performance of the loan.

The Program requires that a borrower’s front-end debt-to-income ratio on a first-lien mortgage modified under the Program be reduced to no greater than 31 percent—which should improve the borrower’s ability to repay the modified loan—and, importantly, provides for Treasury to match reductions in monthly payments dollar-for-dollar to reduce the borrower’s front-end debt-to-income ratio from 38 percent to 31 percent.

Will all these changes help borrowers and lenders...time will tell.

FASB Codification Access – How much will it cost me?

The FASB recently released information regarding its pricing structure for access to its codification of accounting rules. I was very pleased to see that the FASB offers a FREE tier of service that allows basic access along with a limited selection of features. These basis features include the ability to browse and print topics as well as identify locations of legacy standards. Sign up is easy. Just provide some basic personal information and setup a login and password for access.

For those that want and can afford some nice bells and whistles, the FASB offers a yearly subscription program called the “Professional View” priced at $850 per individual. For this charge, the user acquires enhanced navigation and printing capabilities. A very useful feature, among other features offerred, includes the ability to keep personal notes about selected content.

As with most purchases in life, the more you buy, the lower the price. FASB is no different. Tiered pricing is offered for concurrent multiple users. For example, if 49 associated individuals sign up, the pricing drops to $510 per user (there are multiple tiers from 2 to 49 users). FASB offers even better pricing for 50+ users, but the discount is not disclosed on their website. FASB recommends one person purchase the licenses for the group and then serve as a point of contact.

A very important distinction to be made when considering purchasing multiple liceneses is the concept of “concurrent multiple user”. This is defined as the number of individuals that can access the website at any one time. FASB allows the addition of 9 registered individuals per concurrent license purchased at no additional charge. Therefore, if is makes sense for a business to determine how often individuals need to access system at a given point in time to determine how many concurrent licenses should be purchased. By having users stagger usage, fewer user licenses need to be purchased.

For those in academia, FASB allows FREE enhanced access for students and faculty after the institution pays a $150 fee.

My recommendation: First utilize the free access option to determine if it adequately meets your needs. If the additional features are attractive to you, determine how many concurrent users will be needed and then purchases together to take advantage of lower pricing tiers.

Understanding "Deed in Lieu of Foreclosure" Process

In this tumultuous mortgage market, a lender and borrower may decide to enter a “deed in lieu of foreclosure” agreement. This agreement requires the borrower to relinquish his or her rights in a property to the lender in exchange for being released from liabilities specifically named in the loan documents. In effect, the lender becomes the new owner. Such agreements are a common form of mortgage contract settlement.

A central requirement for this arrangement is that the appraised market value of the property must be less than the outstanding debt from the original agreement. Generally the property must not be subject to any 3rd party creditor claims or liens. A lender should perform a thorough title search. Unlike a foreclosure, other liens are not eliminated if proceeds from a sale come up short.

The borrower is freed from having a foreclosure, and the associated notoriety, on his or her credit history, and generally, the terms are more generous than a formal foreclosure proceeding. From the borrower’s perspective, this usually occurs when mortgage payments cannot be met and selling the property at market value has been unsuccessful.

Advantages to the lender include:
1. Takes title sooner, often by months, than a foreclosure.
2. Considerable savings on legal fees and court costs
3. Savings on other costs associated with the foreclosure
4. Allows lender to resell property sooner

A preferred alternative to the deed in lieu of foreclosure is a short sale. A short sale occurs when the borrower lists the home for less than market value and the lender agrees to accept proceeds less than the loan amount. This method allows the homeowner to avoid the credit impact and the lender can clear a non-performing loan without the associated costs of foreclosure, eviction and property rehabilitation.

A borrower should be aware that there may be tax consequences related to the amount of forgiven debt. The IRS learns of the deficiency generated by the deed in lieu of foreclosure transaction when the lender sends it an IRS Form 1099C. Some relief, however, was recently given as part of the Mortgage Forgiveness Debt Relief Act of 2007. Consult your local CPA to discuss your individual situation.

FASB Codification of Standards Went Live Today!

The FASB indicated today that:

Financial Accounting Standards Board (FASB) today launched the FASB Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards documents are superseded as described in FASB Statement No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles. All other accounting literature not included in the Codification is nonauthoritative.

OCC and OTS Issue Joint Release on Major Mortgage Trends

A joint release by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) was issued on June 30th. The report was for the 1st Quarter 2009 and included information on recent 1st lien mortgage performance.

Trends show:

• The number of loan modifications significantly increased.


• The proportion of payment-reducing modifications also increased


• Modifications that reduce payments have lower delinquency rates over time.


• Seriously delinquent mortgages increased


• Foreclosures in process increased.