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FDIC Advises Banks On Managing Interest Rate Risk
On October 8, the FDIC issued Financial Institution Letter FIL-46-2013, which re-emphasizes the importance of prudent interest rate risk oversight and risk management processes to prepare for a period of rising interest rates. The FDIC states that interest rate risk management should be viewed as an ongoing process that requires effective measurement and monitoring, clear communication of modeling results, conformance with policy limits, and appropriate steps to mitigate risk. It believes that for a number of FDIC-supervised institutions, the potential exists for material securities depreciation relative to capital in a rising interest rate environment. FDIC examiners will continue to consider the amount of unrealized losses in the investment portfolio and the degree to which institutions are exposed to the risk of realizing losses from depreciated securities when qualitatively assessing capital adequacy and liquidity and assigning examination ratings.
FDIC Cautions Financial Institutions About D&O Insurance Coverage
On October 10, the FDIC released Financial Institution Letter FIL-47-2013 to caution financial institutions about an increase in exclusionary terms or provisions in director and officer (D&O) liability insurance policies purchased by financial institutions. The FDIC reports that insurers are increasingly adding exclusionary language to D&O policies that has the potential to limit coverage and leave officers and directors personally responsible for claims not covered by those policies. Such exclusions may adversely affect financial institutions’ ability to recruit and retain qualified directors and officers. The FDIC advises institutions to thoroughly review the risks associated with coverage exclusions contained in D&O policies. The letter also reminds institutions that FDIC regulations prohibit an insured depository institution or depository institution holding company from purchasing insurance that would be used to pay or reimburse an institution-affiliated party for the cost of any civil money penalties assessed in an administrative proceeding or civil action commenced by any federal banking agency.
Freddie Mac, Fannie Mae Offer Guidance Regarding Government Shutdown
On October 8, Freddie Mac issued Bulletin 2013-19 to provide guidance related to the federal government shutdown that began on October 1. Fannie Mae recently issued similar guidance in Lender Letter LL-2013-08. The guidance addresses income verification for new loans to government employees and reminds servicers of forbearance options for borrowers impacted by the shutdown.
Freddie Mac Updates Tools and Policies Regarding Disclosure of Property Valuation
On October 8, Freddie Mac issued Bulletin 2013-20, which (i) announces tools and systems that provide estimates of property value generated by Freddie Mac’s proprietary automated property valuation model and (ii) updates requirements related to disclosure of property valuation information. Freddie Mac explains that its property value estimates can help sellers/servicers identify potentially inflated appraised values that may need additional review early in the origination process and also can be used to determine property values for Freddie Mac modifications or refinances, but that use of the valuation information may impact seller/servicers’ obligation to comply with the revised valuation disclosure requirements finalized by the CFPB earlier this year. For sellers, the Bulletin states that Freddie Mac will be adding disclaimers about the property value estimate, and provides additional options for system-to-system users. For servicers, Freddie Mac plans to provide supporting text for use in complying with the new disclosure requirements and to provide to borrowers. The Bulletin identifies certain other changes related to the use of property valuation data.
FHFA Updates Status of Common Securitization Platform
On October 7, the FHFA announced steps to formally establish the common securitization platform for mortgages sold to Fannie Mae and Freddie Mac. The FHFA stated that it has filed a Certificate of Formation with the Delaware Secretary of State to establish Common Securitization Solutions, LLC (CSS)—a limited liability company and equally-owned subsidiary of Fannie Mae and Freddie Mac. The company will be based in Bethesda, MD, and the search for its CEO and Chairman has been initiated.
NCUA Updates Examination Report
This week, the NCUA issued Letter No. 13-FCU-09 to advise federally insured credit unions of changes to its examination report. The NCUA made the changes to “streamline the examination report, better clarify the priority exam action items to be resolved, reduce redundancy, and ensure consistency.” In an effort to help credit union officials clearly differentiate between major and minor problems in order to prioritize corrective actions, and to enhance consistency in the examination process, the Document of Resolution (DOR) and Examiner’s Findings will now be stand-alone documents. For any material problems identified in an examination, the examiner’s concern and documented support for that concern will be included in the DOR, along with corrective action plans. The letter also provides a table that details, document-by-document, other changes to the examination report. Full implementation will begin with examinations starting on or after January 1, 2014.
President Obama Nominates Federal Reserve Chair
On October 9, President Obama nominated Janet Yellen, currently the Vice Chair of the Board of Governors of the Federal Reserve, to serve as Chairman of the Board. President Obama framed the nomination as “one of the most important appointments that any President can make.” He described Governor Yellen as committed to maintaining stable prices, promoting maximum employment, reforming consumer protection, and addressing the issue of “too big to fail.” Ms. Yellen’s nomination is subject to Senate approval.
Florida Insurance Regulator Requires Lender-Placed Insurer to Alter Practices, Decrease Rates
On October 8, Florida’s Office of Insurance Regulation announced that it disapproved a lender-placed insurer’s 2013 rate filing and ordered the insurer to decrease its rate by 10%. The regulator also required the insurer to enter a consent order pursuant to which the insurer agreed to submit annual rate filings until further notice and to not engage in certain delineated business practices, including, for example, (i) paying commissions to a mortgage servicer on policies obtained by that servicer, (ii) paying contingent commissions based on underwriting profitability or loss ratios, (iii) issuing policies on mortgaged property serviced by an affiliate, and (iv) issuing reinsurance on policies with a captive insurer of any mortgage servicer.
California Approves Petition for Personal Privacy Ballot Initiative
Recently, the California Secretary of State announced that the proponents of a new initiative regarding personally identifying information (PII) may begin collecting petition signatures for their proposed ballot measure. The potential ballot measure would propose a constitutional amendment that would create a presumption that an individual's PII—including financial or health information—is confidential when collected for a commercial or governmental purpose, and would create a presumption of harm when PII is disclosed without the subject’s authorization. The measure also would require a collector of PII to use all reasonably available means to protect it from unauthorized disclosure. The ballot measure proponents have until February 14, 2014 to collect 807,615 registered voters’ signatures in order to qualify it for the ballot.
Thirty-Five State Agencies Now Using Uniform Mortgage Test
On October 1, the Conference of State Bank Supervisors announced that five additional state agencies have implemented the new national SAFE MLO test, bringing the total number of participating state agencies to 35. The new test, which was announced in January and launched in April, includes a uniform state component to replace the state-specific component in adopting states.