Washington News

Rep. Scott Garrett, R- N.J., has reintroduced a bill to create a legal and regulatory framework for development of a covered bond market in the U.S. Covered bonds are used in Europe and Canada to fund commercial and residential mortgages. But unlike mortgage-backed securities in the U.S., covered bond issuers continue to hold the mortgages on their balance sheets. Under the Garrett bill, the Treasury Department would be the primary regulator of covered bonds and set standards and reporting requirements for issuers. "Once members understand how a covered bonds marketplace works and the benefits that it can offer homeowners, I believe Republicans and Democrats can come together and provide the legislative framework necessary to create a robust covered bonds marketplace here in the U.S.," Rep. Garrett said. Reps. Paul Kanjorski, D-Pa., and Spencer Bachus, R-Ala., are co-sponsors of the Garrett bill. Rep. Garrett is pushing for passage of his bill this year, possibly as a part of the financial services regulatory reform package. The House passed its reform bill in December and now it is in the Senate's court. If the Senate ever passes a bill, a House-Senate conference might present an opportunity. However, a spokesman for House Financial Services Committee chairman Barney Frank, D-Mass, indicated that the congressman may have missed his chance. "The House, without the support of Rep. Garrett, passed a comprehensive Wall Street Reform bill so that ship has sailed. As you may recall, Mr. Frank held a [covered bond] hearing at the request of Rep. Garrett in December. We have a very crowded calendar right now, so it is impossible at this time to say if we would be moving this legislation," the spokesman said.

Republicans on the House Financial Services Committee Friday released a bare bones blueprint for the future of the nation's housing finance system, saying "private capital" should be the "primary source" of home mortgage money, replacing Fannie Mae and Freddie Mac. According to a document entitled "Goals and Principles for GSE Reform," Republicans, led by ranking member Spencer Bachus (R-Ala.), said Fannie and Freddie should wind down their operations within four years. Under its blueprint, the GOP thinks a covered bond market should replace the secondary market role currently played by the GSEs. They also want to see an end to GSE "jumbo loan limits" which they say is a taxpayer subsidy for mortgages made to millionaires. To date, the government has provided $127 billion in capital to Fannie and Freddie through the purchase of preferred stock. The cash has kept their net worth positions above zero. Next year the Obama Administration will release its official plan on restructuring the GSEs. Fannie and Freddie were taken over by the government in September 2008.

Wells Fargo & Co. became the second mortgage servicer to agree to a government plan to modify the second liens of borrowers who have received a modification of their first mortgage. Bank of America signed up for the plan, known as "2MP," in January. "When a customer has reduced payments, it frees up the cash flow to benefit everybody," Kevin Moss, an executive vice president of Wells Fargo's home equity group, said in an interview. "This program will simplify the process." First-lien servicers participating in the plan are required to notify second-lien holders that a first lien has been modified through the Home Affordable Modification Program. The company said at the end of February that it had modified second liens for 180,000 customers and first liens held by 500,000 customers through various internal and government programs, including HAMP.

A federal consumer protection bureau should be under the oversight of banking regulators and coordinate its activities with those regulators, according to Sen. Richard Shelby, R-Ala. The ranking Republican on the Senate Banking Committee wants to restructure a Democratic proposal that creates a new and independent Consumer Financial Protection Bureau. "I will do everything I can to make sure it is not running out on its own, causing a heck of a lot of trouble," Sen. Shelby told an American Bankers Association summit on Thursday. Banking committee chairman Christopher Dodd, D-Conn., wants to house a CFPB at the Federal Reserve Board but keep it independent with a director appointed by the president and confirmed by the Senate. This new consumer regulator would have enforcement and examination powers, along with the ability to act quickly to stop abusive lending practices. Only a two-thirds vote by a new nine-member Systemic Risk Council chaired by the Treasury secretary could overturn a CFPB rule. Sen. Shelby contends the CFPB is too independent. Consumer protection should not "trump safety and soundness," the Alabama senator said.

The Department of Housing and Urban Development is getting deluged with many questions from mortgage bankers regarding the new good-faith estimate form, in particular the treatment of the real estate transfer tax, according to a top official at the agency. Speaking at a regional mortgage banking trade show in Atlantic City, HUD's RESPA director Ivy Jackson gave attendees a quick list of questions the agency has received since the new GFE and HUD-1 forms went into effect Jan. 1. After disclosing the list, audience members bombarded Jackson with questions, showing-as one questioner put it-the industry's frustration with HUD over how to implement the new forms. (The questioner admitted, however, that he liked the new forms.) In her formal presentation to the trade show, Jackson said the revised forms are a new concept for the mortgage industry and professionals must learn how to do things differently. The "worksheet" issue was discussed during the audience question-and-answer portion. Jackson said the Real Estate Settlement Procedures Act does not prohibit the use of a worksheet, but she warned that it must not look like the new GFE. If it does, HUD will be paying a call on the originator. She also reiterated that the lender is responsible for the GFE in a wholesale transaction, not the mortgage broker.

Despite efforts by appraisers to discredit broker price opinions, there is no reason why the Treasury Department should ban the use of BPOs on short sales, according the National Association of Realtors. "There is no evidence that BPO exacerbates mortgage fraud or abuse," NAR says in a letter to Treasury secretary Timothy Geithner. The Realtors point out that BPOs are used to analyze mortgage loan portfolios for risk management and fraud detection. Home Affordable Modification Program servicers are gearing up to implement a new process to expedite short sales and Treasury has authorized the use of BPOs. Three appraisal groups recently warned Treasury that its decision to use BPOs could exacerbate mortgage fraud. "There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents," NAR president Vicki Cox Golder said in the letter to Geithner. The Appraisal Institute, American Society of Appraisers and National Association of Independent Fee Appraisers claim that real estate agents and brokers generally are not independent or properly trained valuation specialists. "They have an inherent bias toward quick results which produces a fee for themselves," the appraisal groups said in a March 8 letter.

The Federal Open Market Committee issued a statement Tuesday indicating that the Federal Reserve will follow through with its plans to end its purchases of agency mortgage-backed securities this month as well as with plans to end a program supporting loans backed by new-issue commercial MBS in June. The agency MBS and debt purchases "are nearing completion, and the remaining transactions will be executed by the end of this month," the FOMC said. However, the committee also noted that it will "continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability." The FOMC also said in its statement that the Fed plans to follow through with its plans to close its Term Asset-Backed Securities Lending Facility program for loans backed by new-issue commercial mortgage-backed securities on June 30 and close the TALF program for loans backed by other types of collateral by March 31.

If Sen. Christopher Dodd cannot get any Republican support for his new financial services regulatory reform bill, it is highly unlikely the legislation will ever reach the Senate floor, according to a top banking lobbyist. The Senate Banking Committee is slated to begin a markup of the massive reform bill on Monday (March 22). Right now Chairman Dodd has no Republican support for his bill, according to Floyd Stoner, chief lobbyist for the American Bankers Association. If the committee approves Dodd's bill on a straight party-line vote, "it is almost certain not to get to the Senate floor, unless there are further negotiations after that point," Stoner told his bankers at ABA's Washington summit. After the committee starts the markup, the members might realize "it is possible to work out a bipartisan agreement," he said. In that case, the negotiations would begin again in private. ABA opposes Dodd's latest bill and his proposal to create a Consumer Financial Protection Bureau that would be housed at the Federal Reserve Board. Stoner said the CFPB would be too independent of the Fed and other banking regulators. ABA lobbyists are amazed that some liberals are attacking Dodd's CFPB proposal.

The changes in the Real Estate Settlement Procedures Act and the implementation of the SAFE Act mean that in the future there will be a viable mortgage broker industry that will grow in size again, declared Federal Housing Administration commissioner David Stevens. Speaking at the Regional Conference of Mortgage Bankers Associations in Atlantic City, in response to an audience member's question, he said that in his opinion, "mortgage brokers play a valuable role in the marketplace." This is because it is a scalable business model that can grow when the mortgage industry as a whole grows and because brokers service areas where other lenders will not serve. But like other parts of the mortgage industry, Stevens said he did not believe mortgage brokers policed themselves well during the run up to the crisis. As for the proposal by FHA to allow wholesale lenders to approve the mortgage brokers they wish to do business with, rather than the agency itself, he told the attendees he believes the end result will be more mortgage brokers being able to originate FHA-insured loans.

A new Consumer Financial Protection Bureau could examine any mortgage banking company, servicer or mortgage brokerage and take enforcement actions against those entities if the Senate passes a bill crafted by Banking Committee chairman Christopher Dodd, D-Conn. The CFPB would be housed at the Federal Reserve Board but operate as an autonomous unit when writing rules to curb abusive mortgage lending and credit card practices at banks and nonbanks. If a banking regulator objects to a CFPB rule, it would take a two-thirds vote of the members of the new Systemic Risk Council to kill the rule. The CFPB's authority over banks and credit unions depends on size. Institutions with assets over $10 billion could be subject to the bureau's exams and enforcement actions. The primary regulators of smaller institutions would retain that authority. Sen. Dodd said he wants the banking committee to markup and vote on his "Restoring American Financial Stability" bill next week. The massive bill merges the Office of Thrift Supervision into the Office of the Comptroller of the Currency, regulates derivatives, increases oversight of credit rating agencies and establishes risk retention for mortgage-backed securities.