Filed under: Credit Union Homeowners Affordability Relief Program, NCUA, foreclosure, mortgages
The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter:
Credit Union Homeowners Affordability Relief Program
By: David A. Wolfe, Associate
In November 2008, the National Credit Union Administration (“NCUA”) announced a new program designed to provide assistance to credit union members who face delinquency, default, or foreclosure on their mortgages and to use low-interest, short-term loans to add liquidity and confidence to the system. In an effort to include borrowers in the “broader government efforts to mitigate the housing and credit market dislocations,” and break the repeating cycle of delinquency, default, foreclosure, and diminished home prices, the Credit Union Homeowners Affordability Relief Program (“CU HARP”) is a two-year, $2 billion program intended to increase homeownership affordability, keep borrowers in their homes and limit the costs of mortgage defaults to the credit unions. This program will lower monthly mortgage payments for struggling low-income and moderate-income credit union members and provide interest rate relief to an estimated 10,000 households. Through the program, the NCUA will funnel federal loans to credit unions through the Central Liquidity Facility (“CLF”) by allowing participating creditworthy credit unions to borrow money at a discount from the U.S. Department of the Treasury at lower rates than those available through private sources. The CLF will provide advances to eligible credit unions to invest in a CU HARP Note guaranteed by the National Credit Union Share Insurance Fund (“NCUSIF”) for a term of one year at a fixed rate, renewable for a term of one year. The credit union, in exchange for the reduced likelihood of borrower default on the mortgage, would be required to match the rate break, doubling the benefit and temporarily lowering monthly mortgage payments for struggling homeowners. More specifically, the credit union would agree to modify loan rates and/or reduce the principal balance for primary-residence home mortgages that are 60 days or more past due, or where the credit union documents a mortgagor’s hardship, (i.e., such as reduced income or illness, or death in household impacting household income or resulting in significant medical expenses, etc.), and have a loan-to-value ratio greater than 80 percent. The criteria for a member’s mortgage modification are:
• Target payment-to-income ratio of 31 to 38 percent
• Minimum mortgage interest rate of 3 percent
• Maximum household income of 150 percent of medium income for the ZIP code, and
• Verified owner occupied residence.
The NCUA would be able to impose standards and requirements for participation to ensure credit unions act as “responsible stewards” of public funds and NCUA examiners and participating state regulators will verify that the benefits are provided to eligible homeowners. Borrowers would also have to meet eligibility standards like income level, default history or danger of default and required occupancy on the properties in question. CU HARP gives credit unions six months to modify loans and the maturity of the modified loan could be extended to 40 years. CU HARP will be administered at no cost to taxpayers and loans are made to credit unions on a fully-secured basis, with all advances to be repaid with interest. The application deadline was extended to December 29, 2008, and funding is expected to begin in early January 2009.
David A. Wolfe is an Associate in the Bankruptcy and Legal Action Recovery departments of the Detroit office. He can be reached at (248) 362-6142 or dwolfe@weltman.com.
By: Scott Fink, Esquire
Yesterday, the House Judiciary Committee approved a slightly modified version of the proposed amendments to the Bankruptcy Code, known as the “Helping Families Save Their Homes in Bankruptcy Act of 2009″ or H.R. 200. The Bill will now move to the full House of Representatives for debate and a possible vote.
The Bill, which closely mirrored the Senate version, was altered to exempt VA and FHA loans from modification and also make provisions for lenders whose loans are modified in bankruptcy to share in a portion of any appreciation on the real estate upon a sale in the future.
We will continue to monitor the situation closely and update you as more information becomes available.
If you have any questions on this information, please contact Mr. Scott D. Fink, Esq. Scott is an associate in the Bankruptcy Department of Weltman, Weinberg & Reis Co., L.P.A. in Brooklyn Heights, Ohio. He can be reached at (216) 739-5644 or via e-mail at sfink@weltman.com.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A. , an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. ©2008
The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter:
By: Matthew M. Young, Esquire
With the start of a new year, we are only months away from everybody’s favorite deadline—April 15th. While filing taxes are among the most dreaded activities, a basic understanding of the Tax Code and what must be reported is essential for any credit union. Credit unions, like any creditor, are required to file Form 1099-C when they cancel a member’s debt in excess of $600. Several events can be viewed as “canceling a debt;” but in this article, the focus will be on non-collection of a debt.
Form 1099-C must be filed regardless of whether the member is required to report the debt as income and must be applied to debtors whether they are individuals, corporations, partnerships, trusts, estates or companies. For purposes of this reporting requirement, the IRS defines a debt as any amount owed to your credit union including the principal, any accrued interest, fees, penalties, administrative costs and fines.
Form 1099-C should be filed the year in which the identifiable event occurs. No additional reporting is required when a second identifiable debt occurs on the same debt. The IRS defines an identifiable event as follows:
1) A discharge of indebtedness under Title 11 of the Bankruptcy Code for business or investment debt. (*Creditors do not need to report a debt discharged in bankruptcy unless the creditor knows that the debt was incurred for business or investment purposes from a review of information included in the creditor’s books and records.)
2) A cancellation of indebtedness that renders a debt unenforceable in a receivership, foreclosure, or similar court proceeding.
3) A cancellation of debt where the credit union’s claim has been determined by a court to be barred by the expiration of a statute of limitations for collection.
4) A cancellation or extinguishment of debt pursuant to an election to foreclose where such proceeding bars collection of any deficiency (only applicable in some states).
5) A cancellation of an indebtedness that renders a debt unenforceable pursuant to a probate or similar proceeding.
6) A discharge of indebtedness pursuant to an agreement between the credit union and the debtor discharging the indebtedness at less than full consideration.
7) A discharge of indebtedness pursuant to a decision by the creditor, or the application of a defined policy of the creditor, to discontinue collection activity.
8) The expiration of the non-payment testing period (defined as being 36 months plus any time the credit union was unable to collect on the debt due to a bankruptcy or other legal stay imposed by state or federal law).
The Tax Code presumes that if no payments have been received for 36 months, then a 1099-C should be filed. However, this presumption can be overcome if the credit union or its collection representative has actively pursued collection activity on the debt within the last 12 months.
In certain jurisdictions, filing a 1099-C can serve as a bar to an otherwise valid collection claim. Even if not barred, the 1099-C’s filing can complicate a straightforward collection claim, allowing the debtor-member to raise a defense to the claim. Thus, the 1099-C is a poor collection tool. Unlike a charge-off, because a debtor has tax consequences when a 1099-C is filed, courts tend to give such a defense more credibility in weighing whether to allow a creditor’s claim to go forward. As a result, credit unions should be proactively pursuing its delinquent accounts and requesting suits be filed timely. By doing so, a credit union will be able to limit the number of 1099-C’s it must file, and more importantly, increase the credit union’s prospect of collecting on its delinquent accounts.
Matthew M. Young is an Associate in the Credit Union department of the Brooklyn Heights operations center. He can be reached at (216) 739-5726 or myoung@weltman.com.
Filed under: The Deceptive Mail Prevention and Enforcement Act, contests, credit unions
The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter:
Contest Considerations
By: Rob Rutkowski, Esquire
Consider the following hypothetical situation:
Steve Sharpe is the marketing director of Anthrax Research Federal Credit Union. Steve remembers that the credit union has not held a contest in a while. The credit union recently acquired a community charter for all of Anthrax County. Steve decides to mail the following information to all county residents on a postcard:
“Enter to win a car at Anthrax Research Federal Credit Union! All you need to do is sign up for a new credit union product in the next 30 days such as a Visa card, a car loan or a home-equity loan. You can also enter by depositing $10,000 in a CD!”
Steve tells his boss, Hugo Bostonian, about the contest after he sends the mailer to all of Anthrax County’s 10,000 residents. Hugo looks at Steve and says, “Did you run this by legal?”
Credit unions love raffles and prize promotions. There’s a lot of confusion, however, with respect to regulatory compliance as to what the credit union can and cannot do. As a rule of thumb, when you put contest advertising in the mail or charge money to enter the contest or require the member to use a product or service to enter the contest, many compliance issues come into play.
From a state law perspective, most states regulate raffles and drawings as lotteries or gambling. A credit union compliance officer should look at whether a credit union giveaway runs afoul of state statutes. This can be complicated. Essentially, though, many states regulate giveaways where a person risks something of value in a contest of chance or in a future event not under his or her control with the understanding that he or she might receive something of value given a certain outcome. Again, this varies from state to state.
All credit unions, however, should be aware of 39 U.S.C.A. §3001 et seq. In April of 2000, Congress amended The Deceptive Mail Prevention and Enforcement Act. This act imposes various requirements on sweepstakes mailings. There is also a name removal notification system required under the act. Severe penalties may result for violating this federal law. Among other things required by the statute, the credit union would need to make certain affirmative disclosures, create prohibitions on certain practices and representations and establish a name removal notification system.
Suffice it to say that Steve Sharpe, in the example above, is in a world of trouble. At the very least, the requirements of making a member sign up for a new product or service in order to enter the contest might violate state law concerning lotteries or gambling. Also, there are privacy issues involved with sending postcards to credit union members and there is no way that the meager disclosures provided on the postcard comply with federal law concerning sweepstakes. (Also, federal credit unions can’t refer to share certificates as CDs).
When your credit union decides to run a promotion that seems to involve a drawing or game of chance, please take the time to review the promotion for compliance with state and federal law.
Rob Rutkowski is the Managing Partner of WWR’s Credit Union department and is based in the Brooklyn Heights operations center. He can be reached at (216) 739-5004 or rrutkowski@weltman.com.
