Compliance & Regulation

Under various proposals being weighed in Congress, the Treasury could end up overseeing systemic risk, deciding when the government exercises unprecedented resolution powers over giant companies and gaining veto power over what is now the Fed's free hand to aid failing firms. Some observers say giving the administration such a direct role in overseeing the financial markets would inject a more political calculation into the regulatory process. But others said a higher regulatory profile makes sense for the Treasury, noting the department is already at the center of making economic policy, and might be less prone than other regulators to get too close to institutions and could end up being more accountable for the smooth functioning of financial markets. "Treasury was always going to have authority when things blow up because ultimately you are going to need the backing of the taxpayer," said Douglas Elliot, a fellow at the Brookings Institution.

Senate leaders are nearing agreement on a six-month extension of the $8,000 first time homebuyer tax credit. It appears the tax credit will be expanded to more buyers and the income limits will be raised. The current tax credit is limited to first-time homebuyers and expires November 30. Details are still being worked out. But the tax credit extension is expected to be rolled into a manager's amendment and attached to a bill that extends unemployment benefits (H.R. 3548). The Senate is slated to vote on ending a filibuster Tuesday evening so that the senators can vote Wednesday on H.R. 3548 and send the extension bill back to the House of Representatives.

Local, state and national government agencies, nonprofits and other financial institutions gathered in Los Angeles to enter into an alliance that aims to help homeowners protect themselves from loan modification fraud. The "Loan Modification Scam Alert" campaign is the first of a number of other events that will be announced in major cities around the country. Partners include some of the country's largest organizations. NeighborWorks will coordinate the efforts with partner organizations such as the Department of Housing and Urban Development, the Federal Trade Commission, the U.S. Department of Treasury, Fannie Mae, Freddie Mac, and the Lawyers' Committee for Civil Rights Under Law. "As the foreclosure rate grows more and more homeowners are being deceived by scam artists who prey on their fears," said the COO of NeighborWorks, Eileen Fitzgerald. "Knowledge is the best defense, which is why the campaign equips homeowners with the tools they need to minimize their risk."

It is becoming more difficult for some lenders to approve mortgages with balances above $625,500, according to industry groups who are urging Congress to move quickly and extend the current higher loan limit. The $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans is due to expire at yearend. In a letter to House and Senate leaders, three trade groups warn that some lenders are pulling back because they don't want to get caught with loans they can't sell. "The result is that borrowers are being unnecessarily denied financing because of the uncertainty about expiring loan limits," according to a letter by the Mortgage Bankers Association, National Association of Home Builders and National Association of Realtors. "Therefore, we request Congress extend the limits as soon as possible so as not to jeopardize the fragile recovery," the Oct. 26 letter says.

The Department of Labor, working with the Hope Now Unemployment Committee, has developed an online tool so servicers can easily verify a homeowner's unemployment benefits and the duration of those payments. The Obama administration has opened the door for homeowners that have lost their job to include unemployment insurance benefits in their gross income to qualify for a loan modification. But servicers have to verify that the borrower will receive at least nine months of unemployment benefits to be eligible for a modification under the Home Affordable Modification Program. "We have not been able to always get that information until now," said Katie King, who chairs the Hope Now Unemployment Committee. Unemployment has become such a problem, Ms. King said, that Hope Now is including DOL employment and training officials at their outreach events. Servicers also are directing troubled borrowers to the 3,000 local Department of Labor affiliated employment centers for career counseling, job training and placement opportunities. Ms. King is a community outreach manager at SunTrust Mortgage.

Freddie Mac veteran Bob Ryan starts this Monday as the Federal Housing Administration's first senior risk officer ever. Mr. Ryan has worked at Freddie for nearly 26 years and most recently served as vice president of portfolio management and pricing in Freddie's single family credit guarantee division. FHA commissioner David Stevens pledged to install an experienced risk manager to review all FHA programs. "FHA will never be able to fulfill its mission long term or short term if it is under scrutiny for not being well managed from a risk management standpoint," Mr. Stevens said.

The Mortgage Bankers Association has created The Council on the Future of FHA, a 25-member committee to make policy recommendations for the government-run mortgage insurance program's future. In a statement, MBA said it believes it is essential that the Federal Housing Administration must have up-to-date resources, risk management tools, and business practices to meet current and future challenges. Daniel Crockett, president, chief executive and chairman of Franklin American Mortgage Co., Franklin, Tenn., will chair the council. MBA has also retained the consulting services of the Collingwood Group to assist in this project. Managing directors of the Collingwood Group include former Ginnie Mae president Joe Murin and former FHA Commissioner Brian Montgomery. "During the recent run up in business, the folks at FHA have done an incredible job given the limited resources at their disposal," said Mr. Crockett in a statement issued by MBA. "Our members want to help ensure that FHA can effectively manage the risks that come with the increased business the agency is seeing. MBA wants to take proactive steps to ensure the safety and soundness of the agency today and in the future."

Over 100 banks have failed this year and Federal Deposit Insurance Corp. officials expect the failure rate will remain at the current pace for the rest of this year and 2010. Seven small FDIC-insurance institutions were closed over the weekend, including Partners Bank, Naples, Fla. "Partners Bank is the 100th FDIC-insured institution to fail this year, and the seventh in Florida," FDIC said. In six of the seven resolutions, the acquiring banks purchased all or a good portion of the failed bank's assets. Four of the resolutions involved loss-sharing agreements where the acquiring bank agrees to purchase most of the assets and FDIC agrees to cover 80% of the losses. "We have been having very good success in having the acquiring institutions take over all of the assets," said FDIC spokesman David Barr. Overall, FDIC estimates that mounting failures will cost the deposit insurance fund $100 billion from 2009 through 2013, including the $27.3 billion it has already incurred from the 106 failures so far this year.

The Senate is slated to take up a bill this week that extends unemployment benefits and it might include an extension of the $8,000 homebuyer tax credit. Proponents of the first-time homebuyer tax credit that is due to expire Nov. 30 were planning to offer amendments to unemployment benefits bill that would extend and possibly expand the tax credit. But now it appears Senate lenders are working on a compromise that could be tucked into the bill as a manager's amendment. Such an approach would increase the chances that the first-time homebuyer tax credit would be extended by at least six months. And depending on the costs, it might include features of a proposal sponsored by Senators Christopher Dodd, D-Conn., Johnny Isakson, R-Ga., and Joseph Lieberman, D-Conn., that extends the tax credit through June 30. The Dodd-Isakson-Lieberman proposal expands the tax credit to all buyers and raises the income limits to $150,000 for individuals and $300,000 for joint returns.

Federal Reserve Chairman Ben Bernanke believes that home buyers need more counseling on the mortgage process including home purchase and refinancing information. Speaking at a Fed conference in Chatham, Mass., he said having consumers educated about the mortgage process would not be a "major bullet" to preventing another crisis but said counseling is a "large issue" for mortgages and other products. He said "too many households" do not have a basic understanding of financial services. The Fed chairman also once again called for higher capital requirements for financial firms that are "systemically critical firms." However, he did not single out any particular institutions.