Compliance & Regulation

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is also planning to hold hearings on subprime and predatory lending and the impact they have on minority and low-income borrowers."For these consumers, the American Dream can truly become a nightmare," Sen. Dodd said at an annual Rainbow PUSH/Wall Street Project summit hosted by the Rev. Jesse Jackson and business leaders. Sen. Dodd said too many subprime borrowers end up paying "unnecessarily high rates and fees and hidden back-end costs. In the worst instances, homebuyers are slowly robbed of their homes' equity until they, and their families, end up in default and foreclosure." The new chairman did not indicate a timetable for hearings. Besides mortgage lending practices, he also wants the committee to examine credit card practices, wage and salary stagnation among working families, affordable housing, and financial literacy.

Rep. Maxine Waters, D-Calif., says she suspects that subprime lending is responsible for rising foreclosure rates, and she is planning to hold hearings soon."Foreclosures are on the rise, and most evidence points to predatory and subprime lending as a major cause," the chairwoman of the House Financial Services subcommittee on housing told a Women in Housing and Finance luncheon. The chairwoman noted there are some areas with high foreclosure rates where economic problems and job losses cannot be identified. "We are really going to have to take a close look at what is going on with these foreclosures," she said. The housing subcommittee's first hearings will focus on housing problems in the Gulf Coast states that are still recovering from the 2005 hurricanes. Rep. Waters is planning to hold a hearing in New Orleans before the end of January.

A top Federal Housing Administration staffer, Meg Burns, is leaving the agency and joining Potomac Partners, a Washington consulting firm, in February.Ms. Burns is the director of the FHA's single-family program development office, and she has worked on developing legislation to revitalize the FHA mortgage insurance program. She is best known for managing the FHA's reverse mortgage program, according to Brian Chappelle, a founding partner of the mortgage banking consulting firm. "Having Meg join Potomac Partners further strengthens one of our core competencies -- government lending -- and further expands our services into the rapidly growing field of reverse mortgages," Mr. Chappelle said.

House prices are still too high and the inventory of unsold homes too large to believe that the housing correction is over, according to Federal Reserve Governor Donald Kohn.Mr. Kohn told the Atlanta Rotary Club that house prices are "still high relative to rents and interest rates," even though price rises have decelerated nationally and prices have fallen in some markets. While there are tentative signs that housing demand is leveling off, "housing activity may not yet have found a floor, given the sizable overhang of unsold houses," the Fed governor said. He also warned that a possible stabilization in the housing market might not be "immune" from a rise in long-term interest rates. Mr. Kohn commented in this speech that the Fed continues to be concerned about inflationary pressures -- signaling that the markets should not anticipate a cut in the target federal funds rate (the interest rate banks charge each other for overnight loans) anytime soon.

The interest and principal payments on hybrid adjustable-rate mortgages do not increase by 40% to 50% as alleged by consumer groups, the Mortgage Bankers Association says in a letter to the new Senate Banking Committee chairman."Hybrid ARMs are not 'exploding mortgages'," the MBA says in the letter to the chairman, Sen. Christopher J. Dodd, D-Conn. The interest rate on hybrids generally increase by 2-3 percentage points after the fixed-rate period expires, but most lenders cap the adjustment at 1.5% to 2%. MBA stressed that bringing hybrid ARMs under the nontraditional mortgage guidance is "unwarranted" and will only curtail the availability of credit to homebuyers and borrowers seeking to refinance. Sen. Dodd recently joined with five other senators in urging bank regulators to include subprime ARMs, such as 2/28 ARMs, under the nontraditional mortgage guidance. The MBA can be found online at http://www.mortgagebankers.org.

The National Association of Realtors is voicing optimism that Congress can pass a bill to revitalize the Federal Housing Administration's single-family insurance program this year.Last year, officials of the Department of Housing and Urban Development did not have enough time to get the Senate to pass the FHA reform package, according to NAR senior vice president David Lereah. This year, HUD has more time to work with Congress, and "HUD will be more flexible," Mr. Lereah told reporters at a briefing on the association's legislative and regulatory priorities. The NAR is also prepared to support a GSE regulatory reform bill being worked on by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. The NAR is particularly interested in raising the loan limits for the two government-sponsored enterprises (Fannie Mae and Freddie Mac), as well as the FHA, in high-cost areas. "We are anxious to work with Congress to make this [FHA and GSE reform] a higher priority," NAR chief lobbyist Gerald Giovaniello said. The NAR can be found online at http://www.realtor.org.

Democratic congressional leaders have created a new financial services appropriations subcommittee and dismantled the cumbersome "TTHUD" panel, formally known as the Transportation, Treasury, the Judiciary, and Housing and Urban Development subcommittee, to streamline the annual budget process.The financial services subcommittee will approve the budgets for the Treasury Department, the judicial system, the Federal Deposit Insurance Corp., and related agencies. The Department of Housing and Urban Development's budget will be approved by the Transportation, HUD and Related Agencies subcommittee. Sen. Patty Murray, D-Wash., will chair the Treasury/HUD appropriations subcommittee in the Senate and Rep. John Olver, D-Mass, will chair the House panel. Rep. Jose Serrano, D-N.Y. will chair the House Financial Services appropriations subcommittee, and Sen. Richard Durbin, D-Ill., will chair the Senate panel.

Industry groups are warning a group of senators that bringing hybrid adjustable-rate mortgages under the nontraditional mortgage guidance could adversely affect existing homeowners with ARMs, increase defaults, and even put downward pressure on home prices.The Consumer Mortgage Coalition has sent the first letter to the six senators who are urging bank regulators to include hybrid ARMs, such as 2/28 ARMs, under the nontraditional mortgage underwriting guidance. Other trade groups are expected to send letters soon. The CMC warns that such an expansion could harm existing ARM borrowers who are trying to refinance. "Some borrowers would be unable to refinance existing loans because they no longer qualify for a loan -- not because the lending industry has changed its mind about their qualifications -- but because the government had made an arbitrary and unjustified decision to require all lenders to tighten their standards," CMC executive directive Anne Canfield says. The CMC contends that lenders have extensive experience in underwriting ARMs and that tighter underwriting standards are "unjustified." The CMC also warns that tightening underwriting on all ARMs could reduce the pool of potential homebuyers and contribute to downward pressures on home prices.

Freddie Mac chairman and chief executive Richard Syron says a more accommodative stance by the Bush administration has created "some movement" toward a compromise on GSE regulatory reform legislation.The Freddie Mac CEO was referring to recent discussions between Treasury Department officials and Rep. Barney Frank, D-Mass., which he said indicate that the House and the administration are close to agreement on several issues that have tied up government-sponsored enterprise legislation for several years. "In my mind, that would push things somewhat further ahead than they have been in the past." Mr. Syron said. But he stopped short of making any predictions about passage of a GSE reform bill or expressing support for such reforms. Nevertheless, he remarked that Rep. Frank, the new chairman of the House Financial Services Committee, is an able legislator and "extremely well acquainted" with GSE issues. In addition, the congressman has a "passionate interest" in affordable housing, he said. Mr. Syron made his remarks during a conference call with investors and Wall Street analysts.

Washington state regulator Chuck Cross, who exposed Household International's abusive lending practices several years ago, has joined the Conference of State Bank Supervisors to be in charge of special projects.As chief of enforcement at the Washington Department of Financial Institutions, Mr. Cross conducted an investigation of Household's mortgage lending practices that led to a $484 million multistate settlement with the company in 2002. He was also a key negotiator in the settlement talks. HSBC North American Holdings later acquired Household. As director of special projects, Mr. Cross will support the conference's mortgage and nondepository regulatory initiatives, according to CSBS president and chief executive Neil Milner. "Chuck's extensive experience in regulating nondepository institutions as well as his background in training examiners and law enforcement bring a new dimension to the CSBS team," Mr. Milner said.