Compliance & Regulation

The housing sector is largely responsible for the slowdown in U.S. economic growth since the spring, but the worst may be over for housing, according to Federal Reserve Board Governor Susan Bies."While much of the downshift in the housing market appears to have occurred already, some further contraction may yet lie ahead," Gov. Bies told students at Drake University in Des Moines, Iowa. However, favorable mortgage rates, income growth, and recent stock market gains "should help to limit any remaining contraction in housing demand," she said. The Fed governor also noted that consumer confidence remains above average and the rest of economy appears to be fine. "This contrasts with previous slowdowns in the housing market, which have typically coincided with widespread economic weakness," she said.

All FDIC-insured banks and thrifts will have to pay at least a 5-basis-point deposit insurance premium starting next year under a final rule approved by the Federal Deposit Insurance Corp. board that completely revamps the premium assessment system.However, the majority of banks (72%) will continue to pay a zero premium again in 2007 because Congress awarded assessment credits to pre-1996 banks. By setting insurance premiums at 5 bps for the strongest institutions and 7 bps for weaker ones, the FDIC plans to burn through the credits over the next two years and rebuild the deposit insurance reserve ratio to 1.25%. As of Sept. 30, the reserve ratio stood at 1.22%. During the comment period, concerns were raised that the FDIC's method for determining a bank's financial condition for premium assessment purposes might penalize institutions holding residential mortgages. But the FDIC said it made adjustments so that institutions holding low-risk and low-yielding assets aren't penalized. "The FDIC's analysis shows that institutions specializing in mortgage lending are not charged a higher average assessment rate than other institutions under the final rule," the agency said.

Rep. Barney Frank, D-Mass, has his eye on being chairman of the House Financial Services Committee next year, but he still wants Congress to pass a GSE reform bill this year that strengthens the regulation of Fannie Mae and Freddie Mac."He wants it done this year," said the congressman's spokesman, Steve Adamske. "Nobody wants to start over from zero next year." As the ranking Democrat on the committee, Rep. Frank would become chairman if Democrats win control of the House on Nov. 7. Nevertheless, Rep. Frank is still working toward passage of a GSE bill when Congress returns Nov. 13 for a lame-duck session. And he is insisting that the bill include a requirement that the government-sponsored enterprises contribute to an affordable housing fund. The Massachusetts Democrat is continuing to work with Sen. Jack Reed, D-R.I., on the AH fund program to accommodate Bush administration objections. Mr. Adamske indicated that a solution has not been worked out yet.

Merrill Lynch Community Development Co., Washington, D.C., has announced that it will use a new ratings tool to place $93 million with community development financial institutions (and mission-related community development entities) across the United States.The tool -- the CDFI Assessment and Ratings System, or CARS -- is a rating system developed by Opportunity Finance Network to aid investors and donors in their investment decision-making. "We believe CARS will reduce the due diligence burden on CDFIs, especially for those who have already been rated, as well as speed up MLCDC's approval process and facilitate the faster deployment of capital," said Dan Letendre, an MLCDC director and CARS advisory board member. MLCDC received a $93 million allocation under the New Markets Tax Credit program in June 2006, and will begin making loans and investments under the program in early 2007.

Banks have tightened their underwriting standards on commercial real estate loans, according to a Federal Reserve Board survey, and more respondents reported weakened demand for CRE loans than did so three months ago.The Fed's survey of senior loan officers in October found that nearly 40% of banks tightened their underwriting of commercial real estate loans and 25% said demand for CRE loans had weakened. Meanwhile, 60% of the banks reported that demand for home loans had continued to weaken since the July survey. Separately, the Census Bureau reported that private construction spending for commercial real estate buildings increased for the seventh straight month, while residential construction declined for the sixth straight month. Since the beginning of the year, the value of CRE construction put in place is up 13.9% to $312.7 billion, and residential construction is down 8.4% to $610.0 billion.

Federally insured reverse mortgages grew by 77% in fiscal year 2006, according to the National Reverse Mortgage Lenders Association.The Federal Housing Administration insured 76,351 Home Equity Conversion Mortgages in fiscal 2006 (ended Sept. 30), compared with 43,131 the year before. NRMLA attributed the dramatic growth to several factors, including high home appreciation rates that allow senior citizens to access greater amounts of equity; a growing number of lenders offering the product; and greater acceptance of reverse mortgages as a wealth management tool. "More seniors are recognizing that traditional retirements tools, such as IRAs, pensions, and 401(k)s, are not providing sufficient income to help fund everyday living expenses and health care," said Peter Bell, president of NRMLA. The Santa Ana, Calif., metropolitan area displaced Los Angeles as the top reverse mortgage market in the country, with 5,825 loans funded versus 3,067 in 2005, NRMLA reported. A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their home without having to sell it or give up title. NRMLA can be found online at http://www.nrmlaonline.org.

The California Association of Mortgage Brokers is promoting what it terms "a comprehensive solution to curbing abusive lending practices."The trade group has issued a "best-practices guide" and conducted a conference call on the subject. "Mortgage brokers are the bridge for consumers in the loan process because they provide loan options that meet the exact needs of the borrower," said CAMB president Jack Williams. "Like a fine tailor, quality mortgage brokers go the extra mile to find a loan that fits the borrower's financial needs or objectives." The guide calls for: uniform licensing standards with mandatory pre-education, continuing education, and criminal background checks for all loan originators; updated information booklets and key disclosures to address nontraditional mortgages; the enforcement of existing abusive lending laws; workplace efforts on integrity and consumer education; and expanded financial literacy programs. Michael Faust, the CAMB's government affairs chairman, said the guide grew out of the recent dialogue over nontraditional products and abusive lending practices. But that dialogue, he said, "has broken down, with everyone taking their sides and screaming their interest points as loud as they can," affecting the ability to reach a compromise.

Robert Steel, the new Treasury under secretary in charge of policies and legislation on government-sponsored enterprises, has pledged to work with all key participants to get results."The reality is that success on these difficult issues will be characterized by collaboration and compromise," Mr. Steel said during a formal swearing-in ceremony. The new under secretary for domestic finance's first challenge will be to forge a compromise on long-stalled GSE legislation that strengthens the regulation of Fannie Mae and Freddie Mac. Treasury Secretary Henry Paulson called Mr. Steel the "ultimate team player" who is "always willing to subjugate his own ego to get something done." The two men were colleagues at Goldman Sachs. Mr. Steel was vice chair when he left the Wall Street firm in 2004, and Mr. Paulson was chairman.

The homeownership rate inched back up to 69% in the third quarter due mainly to a sizable increase in black homeowners, according to the U.S. Census Bureau.The Census Bureau reported that the nation's homeownership rate rose from 68.7% in the second quarter to 69.0% in the third quarter. The last time the homeownership rate hit 69% was in 2005. The homeownership rate for blacks jumped to 48.6% in the third quarter from 47.2% in the second -- the highest rate for blacks since the first quarter of 2005. Meanwhile, the homeownership rate for Hispanics drifted down to 49.7% during the third quarter from 50.0% in the previous quarter.

The Louisiana Recovery Authority expects to use $7.5 billion in Community Development Block Grant funds to help hurricane victims repair and rebuild nearly 100,000 homes.Louisiana's housing assistance grant program is "well under way," LRA Executive Director Andrew Kopplin told a Financial Services Roundtable event in Washington. So far, 465 applicants have received approval for grants averaging $53,000. The maximum grant is $150,000. Mr. Kopplin said another 14,000 people have completed their initial interviews and will be receiving grants in the next six to eight weeks. "This fall, you will be seeing almost 1,000 folks a day being processed and getting assistance," he said. At the same event, the Financial Services Roundtable unveiled a report by a blue-ribbon commission that recommends ways public and private entities can accelerate the recoveries in Louisiana and Mississippi.