DFI Monthly Bulletin – March 2008
Volume 11, Number 9
William Haraf Appointed as Commissioner of Financial Institutions
On March 10, 2008, Governor Arnold Schwarzenegger announced the appointment of William Haraf,
Ph.D, as Commissioner of Financial Institutions on March 10, 2008. Since 2005, he has served as an
independent consultant with the Promontory Financial Group and a visiting professor of economics and
finance for the Graduate School of Management at the University of California, Davis. From 1999 to
2003, Mr. Haraf was managing director at Banc of America Securities and, from 1994 to 1999, was
senior vice president of strategic policy development and planning for Bank of America, N.T & S.A.
From 1989 to 1994, he was director of policy analysis with Citicorp and, from 1985 to 1989, was J.
Edward Lundy Scholar and director of the financial markets project at the American Enterprise Institute
for Public Policy Research in Washington D.C. From 1984 to 1985, Mr. Haraf was special assistant to
the chairman of President Ronald Reagan’s Council of Economic Advisors and, from 1983 to 1984, was
senior staff economist at the Council. From 1979 to 1983, Mr. Haraf was assistant professor of
economics at Brown University.
He is a past board member of the Bank Administration Institute and past chair of the institute’s strategic
issues and regulatory affairs committees. Mr. Haraf will take office effective April 7, 2008.
Marilyn Davis Appointed Deputy Commissioner of
Marilyn Davis was appointed Deputy Commissioner of Legislation on March 7, 2008. Ms. Davis joined
the Department of Financial Institutions in 1999 as a Financial Institutions Examiner. She was promoted
to Financial Institutions Supervisor in 2006.
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Prior to joining the Department, Ms. Davis worked at a local Certified Public Accounting firm for 12
years. She also worked for a Sacramento newspaper and spent time advocating for a non-profit
Ms. Davis earned a BS degree in business administration with a concentration in accounting from
California State University, Sacramento. She will be located in the Sacramento Office.
Managing Commercial Real Estate Concentrations
On March 17, 2008, the FDIC issued FIL Letter 22-2008 on “Managing Commercial Real Estate
Concentrations in a Challenging Environment.”
The purpose of the guidance is to re-emphasize the importance of strong capital and loan loss allowance
levels, robust credit risk-management practices, and to recommend several key risk-management
processes to help institutions manage CRE loan concentrations in this challenging environment.
The FDIC suggests five key risk management processes to help institutions with significant
Construction and Development (C&D) and CRE concentrations manage through changes in market
¾ Increase or maintain strong capital levels
¾ Ensure that loan loss allowances are appropriately strong
¾ Manage C&D and CRE Loan Portfolios closely
¾ Maintain updated financial and analytical information
¾ Bolster the loan workout infrastructure
The Department strongly recommends that all of our depository institutions with significant CRE
concentrations follow the guidance. This FIL can be view at
Real Estate Risk Management Practices
In the January 2007 and July 2007 issues of the Monthly Bulletin, the Department of Financial
Institutions directed all licensees to comply with the Interagency “Guidance on Nontraditional Mortgage
Product Risks” and “Statement on Subprime Mortgage Lending” (Statements). These Statements are
designed to protect consumers while addressing prudent underwriting and risk management practices for
non-traditional or exotic mortgage, and subprime mortgage lending. Additional helpful guidance may
also be found in the 2005 FFIEC “Statement on Credit Risk Management Guidance for Home Equity
As of December 31, 2007, the real estate portfolios of California state-chartered credit unions totaled
$29.8 billion, reflecting 58% of the total loans. Real estate delinquency increased significantly by
204%, from $57.2 million in 2006 to $173.7 million at year-end 2007. As a percentage of total loans,
real estate delinquency was 0.58% at 12/31/2007, up from 0.21% the prior year. Although overall
delinquency levels are still low, recent call report data and our examinations also reveal that loan
3 Monthly Bulletin March 2008
problems are starting to spread over to the traditional residential real estate as well as non-real estate
loans. These trends emphasize the importance of strong policies and monitoring to proactively manage
risk exposure, particularly for credit unions with increasing or large real estate loan concentrations.
The following identifies certain practices that credit unions should address in your risk management
program, but are not limited to:
• Products offered; clear risk limits, expectations, and monitoring tools.
• Portfolio limits in relation to assets and net worth; growth limits.
• Concentration limits, including portfolio, property type, geographic location, and risk grade (e.g.,
combined loan-to-value (CLTV) ratio, credit score, debt-to-income (DTI) ratio).
• Regular quality controls, audits and compliance procedures that focus on high-risk real estate or
other lending activities. Sample review of all loan originations and exceptions to confirm
adherence to policy.
• Segregation of duties in lending administration.
• Strong controls over loan servicing and collections. Oversight over third-party, such as
mortgage brokers, appraisers and loan servicers; and due diligence reviews.
• Clear guidance for timely identification of problems, corrective actions, accountability, and
escalation of unresolved issues, as necessary.
UMonitoring and Reporting
• Tracking performance of key loan products against policy limits. Depending on risk, the
following information should be available, at a minimum:
¾ Loan type (e.g., concentrations of indirect HELOC, loans subject to sizeable payment
shocks, loans with the potential for negative amortization, re-pricing concentrations for
interest only, etc.)
¾ Risk layering features (e.g., concentrations of interest only loans with a simultaneous
¾ Underwriting characteristics (e.g., loans with high DTI, high CLTV, and/or low FICO
¾ Borrower’s performance (e.g., current payment status, loans with first payment defaults,
current balance over original balance, delinquency and charge-offs).
• Stress test on key portfolio segments to identify or quantify potential rising risk:
¾ Valuation of portfolios and collateral values under various stressed scenarios (e.g., rise in
interest rates and/or fall in home values in the area)
¾ Portfolio volumes by industry or select employer’s group (SEG), property location, zip
• Adequacy of the allowance for loan and lease losses. Consider not just historical losses, but also
the qualitative and environmental factors, including current economic conditions. Support any
loss reserve adjustments.
• Reporting system should allow management to timely detect changing risks and to recognize any
deteriorating performance in any of these loans. Examples of monitoring reports that could be
¾ Value Deterioration – Monitor real estate loans by zip code, and compare the original
LTV to the estimated value declines in the area.
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¾ Performance – Monitor loans by risk tier and loan origination, loan officer or broker, repricing, and/or a combination of these attributes. Monitor high risk loans by grade and
CLTV. Monitor delinquency and charge-offs by risk tier. Monitor high-risk loans, such
as high CLTV, in relation to net worth. Also see Tracking Performance above.
Credit unions should asses the extent of your loan portfolio risk, and develop controls and monitoring
programs to address that risk and mitigate potential losses. While the interagency Statements establish
guidance for non-traditional and subprime mortgage lending, the Department encourages credit unions
to adopt those guidelines for all real estate and other lending activities, as warranted.
Statewide Foreclosure Prevention Consumer
The State and Consumer Services Agency and the Business, Transportation and Housing Agency have
coordinated a series of statewide foreclosure prevention consumer workshops. The primary goal is to
facilitate a solution to prevent existing loan customers from foreclosure. The events started in July of
2007 and have been well attended. Events are hosted by local representatives such as members of the
legislature, city council members, city offices and local businesses.
Credit counselors, loan servicers and lenders provide on-site loan counseling to borrowers who are
having difficulties making their mortgage payments and information on available options with their
mortgages. Consumers are provided with forms to file complaints against fraud when suspected.
State departments, including the Department of Financial Institutions (DFI), Departments of Real Estate
and Corporations also attend and provide information and materials for consumers.
The California Mortgage Brokers Association, along with community organizations including
NeighborWorks America, Acorn and Springboard have attended the events and are available to counsel
and assist borrowers.
The next event scheduled is:
• Hosted by Governor Schwarzenegger’s Task Force on Non-Traditional Mortgages
Saturday, April 26, 2008
10:00 a.m.- 2:00 p.m.
California Science Center
Wallis Annenberg Building
Erteszek Family Foundation Muses Roo at Exposition Park
Los Angeles, CA 90037
Additional information on events is available on the DFI Web site
Information on the statewide initiative is available at HUhttp://www.yourhome.ca.gov/UH.
5 Monthly Bulletin March 2008
April 2008 is Financial Literacy Month
Financial literacy empowers Californians to make wise financial decisions and become responsible
workers, heads of households, investors, entrepreneurs and business leaders. A strong education in
finance is also the first line of defense against consumer fraud, abuse and mismanagement of funds.
Increasing our knowledge in financial services, budgeting, saving and investing, credit cards, and loans
including mortgages help prepare us for the future. Without this knowledge, we do not have the tools to
build wealth, pay for college, start a business or purchase a home. Families who lack basic financial
skills are exposed to magnified financial hardships when they are forced to manage unexpected
situations including healthcare emergencies or job loss.
During California Financial Literacy Month, the Department of Financial Institutions and Department of
Corporations will partner with educational and governmental entities, private sector financial
institutions, community groups and non-profits and others to support this year’s theme to “Start learning
today for a strong financial tomorrow – Financial literacy: it pays.” All citizens are encouraged to take
full advantage of free financial education programs and activities provided throughout the state.
For more information, please visit the California Financial Literacy Month page on the DFI web site at:
California Summit on Financial Literacy
The California Society of CPAs and the California Jump$tart Coalition are hosting a second California
Summit on Financial Literacy at the Sacramento Convention Center on April 23, 2008. Over 600
attendees are expected.
Participants will connect with a variety of programs, organizations and dedicated individuals working to
improve the level of personal financial education of all Californians.
DFI will attend and participate in panel discussions on adult financial literacy and community
To learn more about the Summit, you can visit HUhttp://www.calcpa.org/summitUH.
6 Monthly Bulletin March 2008
Commercial Bank Activity
31351 Rancho Viejo Road, San Juan Capistrano, Orange County
(949) 489-4205 – fax
Officers: J.M. “Mike” Justice, Jr., President and Chief Executive Officer
John R. McGill, Executive Vice President and Chief Operating Officer
Frank J. Ford, Jr., Executive Vice President and Chief Credit Officer
Amy K. Dickerson, Senior Vice President and Chief Financial Officer
UAcquisition of Control
James M. Ryan, to acquire control of Exchange Bank
Industrial Bank Activity
UAcquisition of Control
Community Bank Investors of America, L.P., to acquire control of Silvergate Bank
Markel Corporation, to acquire control of Centennial Bank and LandAmerica Financial Group, Inc.
Premium Finance Company Activity
UNew Premium Finance Company
Xpress Premium Finance, Inc.
5862 Wedgewood Drive, Granite Bay, Placer County
UAcquisition of Control
Premium Financing Specialists, Inc. to acquire control of AMGRO, Inc.
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UAcquisition of Control (Continued)
Spectrum Equity Investors, to acquire control of AGIA Premium Finance Company, Inc.
UVoluntary Surrender of License
APFS, Inc. dba American Pioneer Financial Services
Foreign (Other State) Bank Activity
Irwin Union Bank and Trust Company (Facility – Insured Bank)
12677 Alcosta Boulevard, San Ramon, Contra Costa County
UDiscontinuance of Facility
Manufacturers and Traders Trust Company
15635 Alton Parkway, Irvine, Orange County
Credit Union Activity
UField of Membership
Two credit unions received approval to add three new fields of membership during February 2008.
Six credit unions received approval for seven bylaw amendments during February 2008.
Arrow Credit Union, San Leandro, to merge with and into Spectrum Federal Credit Union, San
First Future Credit Union, to merge with and into California Coast Credit Union, San Diego
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It was erroneously reported in the February 2008 Monthly Bulletin that one credit union received
approval to add three new fields of membership, and that three credit unions received approval for three
bylaw amendments during January 2008. Five credit unions received approval to add 29 fields of
membership during January 2008. Four credit unions received approval for four bylaw amendments
during January 2008.
Transmitter of Money Abroad Activity
Trans-Fast Remittance, Inc.
CAROL D. CHESBROUGH
Interim Commissioner of Financial Institutions
Bulletin for Month ended
March 2008, issued pursuant
to Financial Code section 258
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