Compliance & Regulation

House and Senate conferees have come up with a new way to pay for the Dodd-Frank Wall Street Reform bill as the Democrats struggle to move the legislation across the finish line. Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., re-opened the conference due to opposition to a tax on large banks and hedge funds to cover the $18 billion cost implementing the 2,100-page regulatory reform bill. On Tuesday evening, the conferees approved an alternative "pay for" by using savings from terminating the Troubled Asset Recovery Program early and imposing an additional deposit insurance assessments on banks with more than $10 billion in assets. The House is slated to vote Wednesday on final passage of the bill. The Senate has delayed its vote until Congress returns from the July 4th recess.

The House has passed a bill to extend a closing deadline for the homebuyer tax credit to Sept. 30, but similar action in the Senate is uncertain. By a 409-5 vote, the House passed a stand-alone bill (H.R. 5623) to ensure homebuyers who are expecting to receive the tax credit are not disqualified because delays have pushed their closing past a June 30 deadline. Under the homebuyer tax credit that expired April 30, first-time buyers had until today (June 30) to close and qualify for the $8,000 tax credit. Repeat buyers are in line for a $6,500 tax credit. The National Association of Realtors estimates that 75,000 buyers won't meet the closing deadline due to loan processing delays and lapses in the National Flood Insurance Program and Rural Housing Service single-family loan program. "We are strongly urging the Senate to act quickly to pass their legislation and ease the minds and pocketbooks of these homebuyers," said NAR president Vicki Cox. Senate Democrats' leaders have inserted the homebuyer closing extension in a larger bill that extends benefits for unemployed workers through November. But a Republican filibuster has blocked passage of the $34 billion unemployed benefit package for several weeks. A House-passed bill (H.R. 5569) to re-start the National Flood Insurance Program also is pending in the Senate.

The death of Sen. Robert Byrd, D-W.Va., is likely to postpone a final vote on the sweeping regulation reform bill until the governor of West Virginia appoints a new Democratic senator. The 92- year senator had been ill for some time. But Democratic leaders were counting on Sen. Byrd and a few Republicans to muster the necessary 60 votes to pass the bill. Some key Republicans are having second thoughts about the bill because it includes an assessment on large banks and hedge funds to raise an estimated $19 billion. The bill creates a new resolution process to deal with the failure of large financial institutions, imposes risk retention on mortgage securitizations and creates a consumer protection agency. The assessments would cover the costs of implementing the legislation and two multi-year programs to prevent foreclosures and help municipalities deal with abandoned homes. One program, modeled after a Pennsylvania state program, would receive $1 billion annually to make loans to unemployed homeowners so they can make their mortgage payments. The other $1 billion program would renovate foreclosed homes so they can be rented. The House may vote on final passage of the bill on Tuesday.

Farmer Mac's Class C non-voting common stock is now part of the Russell 3000 Index. Michael Gerber, Farmer Mac president and chief executive, said the company expects that being included in the index will increase its exposure to the investment community and to potential investors. Russell Investments reconstituted its indices on June 25. Membership in the Russell 3000 also means Farmer Mac's stock is included in the small-cap Russell 2000 index (Russell 3000 members with larger capitalization are included in the Russell 1000).

The financial services reform bill does little to help consumers shop for a loan, according to the National Association of Mortgage Brokers. NAMB chief executive Roy DeLoach said the government is trying to impose its choices on consumers. An amendment by Sen. Jeff Merkley, D-Ore., restricts the way brokers can be paid by lenders and consumers. It is "too big brotherish," he said. NAMB feels regulators should be given the flexibility to make changes to the compensation provisions. The trade group also is worried about a safe harbor provision that limits points and fees to 3% of the loan amount. Congress directed regulators to make adjustments, giving lenders an incentive to make loans under $100,000, a move that helps low- and moderate- income homebuyers. "This will help to counter any unintended consequences for consumers," DeLoach said in an interview conducted during NAMB's annual meeting in Phoenix.

Due to opposition from the Treasury Department, Sen. Christopher Dodd, D-Conn., blocked an amendment that would allow covered bonds to get a start in the U.S. mortgage market. Treasury is "strongly opposed" to covered bonds. "We will probably go with a study," Sen. Dodd said late last week during the House-Senate conference on the regulatory reform bill. Sen. Bob Corker, R-Tenn., said a study would be "worse" than doing nothing, because it would delay legislative action for two years. The House conferees approved an amendment by Rep. Scott Garrett, R- N.J., that would create a legal and regulatory framework for the development of a covered bond market in the United States. But the Senate conferees rejected the Garrett amendment by one vote, according to sources. This was a disappointment for banking consultant Bert Ely and other covered bond supporters. "It prevents the emergence for a new way to finance housing in this country that would actually help to facilitate the resolution of Fannie Mae and Freddie Mac," Ely said. Covered bonds won't replace the GSEs or securitization, he added, but it will "help to fill that funding gap." Meanwhile, House Financial Services Committee chairman Barney Frank, D-Mass., said he will hold a markup on Garrett's covered bond bill in July. Senate Banking Committee chairman Dodd said he would hold a hearing on covered bonds. Under the Garrett bill, the Treasury Department would be the primary regulator of covered bonds, and set standards and reporting requirements for issuers.

If anyone in the mortgage broker industry thinks that the bills being proposed and/or passed by Congress are bad, they should have seen what the National Association of Mortgage Brokers' lobbying team and staff were able to keep out of them, newly-installed president Bill Howe told the audience at the group's annual meeting in Phoenix. In his final speech as president, Jim Pair elaborated on some of those successes during the past 12 months. They included changes in the Federal Housing Administration program that takes away the need for audited financials and opens up the program to more mortgage brokers. The SAFE Act created national education standards and the loan originator registry system, both of which Pair pointed out, were long-held positions by NAMB. As for the Home Valuation Code of Conduct, Pair lauded the results of the financial services reform bill conference committee and said that it will be likely that in the future, mortgage brokers would once again be able to order appraisals. The future of the industry is good, he said, declaring, "consumers still need us, wholesalers still need us." Brokers are the originators who need to meet education standards and be licensed, and they need to take pride in NAMB's Lending Integrity seal. As for NAMB itself, Howe said the organization has downsized and now operates out of a virtual office. It is working on several initiatives to improve communications with its members, including the use of video e-mails. Howe also announced a deal with the University of Phoenix, where members who hold the CMC and CRMS designations would be able to receive school credit for them towards a degree.

Federal Housing Administration mortgage volume could get a boost from regulatory reform, because loans insured by government agencies are fully exempt from the bill's risk-retention requirement.

Morgan Stanley & Co. Thursday afternoon agreed to pay $102 million to Massachusetts homeowners and the state, settling allegations that it aided and abetted subprime lender New Century Financial Corp. in taking advantage of consumers. State attorney general Martha Coakley, announcing the settlement at a press conference, said Morgan provided billions of dollars in credit lines to New Century "which used Morgan funds to target lower-income borrowers and lure them into loans that consumers predictably could not afford to repay." She added that some Morgan executives referred to New Century as Morgan's "partner" in subprime lending. The Irvine, Calif.-based NCFC filed for bankruptcy in early 2008. For much of the decade it was one of the largest subprime lenders in the nation, according to figures compiled by National Mortgage News. As part of the settlement, Morgan agreed to "change its business practices" and to provide the AG's office with "information and materials" as part of its ongoing probe of subprime lenders and the securitization process. In a court filing AG Coakley notes that other Wall Street firms are under investigation regarding their securitization practices. Morgan agreed to the deal without admitting or denying any wrongdoing.

The Office of Thrift Supervision's watchdog said the agency was ineffective in regulating BankUnited -- a major player in the payment option ARM market -- before the thrift's 2009 failure and improperly allowed the Florida lender to backdate a capital infusion. The Treasury Department's inspector general said in a report that while the $13 billion-asset thrift's failure stemmed largely from high-risk lending, the OTS failed to clamp down on BankUnited's aggressive strategy. "OTS did not impose limits or restrict BankUnited's concentration and growth in high-risk option" adjustable-rate mortgages, said the report, which was made public Thursday. The inspector general report, which was required because the failure caused a "material loss" to the Deposit Insurance Fund, said the OTS also "did not adequately assess" poor underwriting at the thrift and failed to address BankUnited's "inaccurate risk-weighting." "We also found that OTS improperly directed the thrift to backdate a capital infusion from its holding company," the IG said. The report followed past criticism of the agency for allegedly encouraging backdating at troubled thrifts, which forced the dismissal of two senior OTS officials, former West Regional Director Darrel Dochow and former Senior Deputy Director Scott Polakoff.