The budget was as noteworthy for what it did not include: a proposal to deal with the status of Fannie Mae and Freddie Mac. MBA was quick to provide a summary and analysis of the budget for its members. Meanwhile, the Senate Banking Committee continued its work on regulatory reform, hearing testimony from former Federal Reserve Chairman Paul Volcker on the administration’s newest proposal to limit the size and scope of financial services firms.

Obama Administration Releases $3.8 Trillion FY 2011 Budget; MBA Releases Summary
On February 1, the Obama Administration released (http://www.whitehouse.gov/omb/budget/Overview/) its proposed federal budget for federal fiscal year 2011, which covers October 1, 2010 through September 30, 2011.

MBA has prepared an analysis (http://www.mortgagebankers.org/files/IssueBriefs/FY2011BudgetRequestHousingHighlights.pdf) of key real estate finance provisions contained in the proposal, and also issued a press statement (http://www.mortgagebankers.org/NewsandMedia/PressCenter/71777.htm) making clear that it opposes certain key provisions of the plan, including proposals to:

• Reduce itemized deductions, including the deduction of mortgage interest, for taxpayers reporting income above $250,000 (joint) $200,000 (single);

• Taxing carried interest at ordinary tax rates (as opposed to the capital gains rate, as it is taxed now), as it would discourage capital formation for lending;

• Termination of program authority to allow expensing (for tax purposes) of real estate environmental remediation, or “brownfields” clean up costs;

• Reduce federal support for terrorism risk insurance programs (TRIA); and

• Enactment of a Financial Crisis Responsibility Fee.

Unfortunately, the budget did not offer any indications of the Administration’s plans for the future of Fannie Mae and Freddie Mac. However, the budget did include several provisions applauded by MBA to improve risk management of the Federal Housing Administration. MBA also supports the $20 million budgeted to combat predatory lending and mortgage fraud at HUD, as well as additional funding for housing counseling and foreclosure avoidance.

Congress will now use the President’s plan as a basis for much of its debate this year as it legislates financial services regulatory reform, considers the long-term viability of FHA and other initiatives.

For more information, please contact Josh Denney (202) 557-2816 jdenney@mortgagebankers.org.

MBA Comments on Proposed Rules for Credit Rating Agencies
On January 29, MBA sent a letter to the Securities and Exchange Commission on its proposed rules for credit rating agencies. MBA focused on the portion of the proposal that addresses enhanced reporting requirements for structured securities, which would impose additional requirements on credit rating agencies.

As with previous comments to the SEC, MBA indicated that the unique identifier for structured securities would serve as a disincentive to purchase all categories of structured securities. MBA also requested that the SEC consider whether the unique identifier for structured securities will perpetuate the current liquidity shortages in the housing and commercial real estate finance markets. MBA also indicated its support for robust transparency standards that are consistent across product categories rated by credit rating agencies, but opposes regulations that would require enhanced disclosure requirements for only structured securities. 

For further information, please contact George Green (202) 557-2840 or ggreen@mortgagebankers.org.

MBA Comments on FASB Exposure Draft on Accounting for Loan Modifications Where Unit of Account Is a Pool
On February 2, MBA commented on the Financial Accounting Standards Board’s exposure draft, Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset. The proposed update addresses the present diversity in practice on reporting troubled debt restructurings for loans modified where the unit of account is a pool of loans not individual loans. MBA supports the proposed update, which would not require such loans to be accounted for as TDRs.

For more information, please contact Jim Gross at (202) 557-2860 jgross@mortgagebankers.org

Senate Banking Committee Unanimously Approves Tozer for Ginnie Mae President
In a Feb. 4 vote, the Senate Banking Committee unanimously approved the nomination of Theodore “Ted” Tozer to serve as the president of Ginnie Mae. Tozer’s nomination now must be approved by the full Senate.

Tozer currently serves as senior vice president of capital markets at National City Mortgage, now a part of the PNC Financial Services Group, and has been a MBA leader, serving as chairman of MBA’s Secondary and Capital Markets Committee from 2002-2004. During his time as chairman, he also served on the MBA Residential Board of Governors and worked with Ginnie Mae in the overhaul of the Ginnie Mae II program. MBA continues to urge swift action on Tozer’s nomination.

For more information, please contact Brad Cheney (202)557-2917 bcheney@mortgagebankers.org

MBA Receives Clearance from the SEC on Member’s Proposed Accounting for Ginnie Mae I and II MBS Securities Under FASB Statement 167
Commencing January 1, FASB Statement 167 became effective. It requires that the Primary Beneficiary of a securitization must consolidate the securitization’s assets and liabilities in its financial statements. The primary beneficiar is the party that has the most power to direct those activities that affect the financial performance of the securitization. The primary beneficiary must also own a potentially significant variable interest.

The key issue in the case of Ginnie Mae I and II type securities relates to the fact that a legal entity like a trust is not established for these securities. MBA’s Financial Management Committee worked most of the fall on a lengthy pre-clearance letter to the SEC which described in great detail the Ginnie Mae securitization process and the roles of the issuer/servicer, Ginnie Mae, FHA, VA, the collateral custodian, etc. The paper then presented analysis and arguments under FAS 167 asserting that a securitization was indeed an entity and that the issuer/ servicer was not the PB. MBA issued that letter on December 23, 2009. MBA then had a conference call with SEC and FASB staff early in January. 

SEC staff then requested some follow-up information on how MBA proposed to account for Ginnie Mae I and II securitizations under FAS 166, a companion principle to FAS 167 that contains the rules as to when a transaction can be accounted for as a sale MBA sent a position paper to the SEC and FASB staff on January 29 demonstrating that assuming a Ginnie Mae I or II securitization is deemed to be an entity, that it would also meet sale criteria under FAS 166. MBA had a conversation on February 4, 2010 with FASB and SEC staff. MBA learned that the SEC agrees with MBA’s assertion that the issuer/servicer is not the PB and did not have to include the assets and liabilities of Ginnie Mae I and II transactions it services as part of its consolidated assets and liabilities.

The SEC requested that MBA send a letter to the SEC confirming its understanding of the February 4 conversation and SEC’s conclusions. MBA is very happy with the outcome in this matter. Had issuer/servicers been required to put these assets and liabilities on their balance sheets it would increase leverage ratios. For banks and thrifts, it would impact risk-based capital ratios, and the securitization liability would be subject to the proposed .15 percent tax on non-deposit liabilities recently proposed by President Obama.

For more information, please contact Jim Gross at (202) 557-2860 jgross@mortgagebankers.org

MBA's 2010 National Policy Conference; ADVOCACY IN ACTION!
With unprecedented market conditions, the past two years have been very difficult for the nation's economy and the real estate finance industry. During 2010, the threats to your profession, as well as your ability to serve your customers will intensify.

While MBA and the Mortgage Action Alliance are aggressively representing your interests inside the Beltway and in state capitals across the country, it has never been more important for you to be involved in our grassroots efforts. Our success in the weeks and months ahead will only come with strong participation from you. It is also crucial that you help us bring the industry's message to Capitol Hill by attending the National Policy Conference in Washington, D.C. on April 13-14.

To register for the National Policy Conference, click http://www.mortgagebankers.org/NPC10.htm.

MBA Hires Moritz as AVP Multifamily
On February 1, Douglas Moritz joined MBA staff as Associate Vice President of Multifamily. Moritz will coordinate policy positions on multifamily issues and oversee most multifamily activities of MBA including interaction with members and representation before HUD, Fannie Mae, Freddie Mac and other groups affecting multifamily housing. Moritz is joining MBA from the company he founded, DOMO Consulting LLC, where he served as Principal. Previously, Moritz was Managing Director for Prudential Mortgage Capital Corp., and prior to that was the CEO of WMF Washington Mortgage/The WMF Group.

For more information, please contact John Mechem at (202) 557-2924 jmechem@mortgagebankers.org.

FHA Multifamily Underwriting Standards to be Tightened
During a panel session at MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo last week in Las Vegas, HUD Deputy Assistant Secretary for Multifamily Housing Carol Galante, announced that HUD would be implementing new guidelines to tighten its multifamily underwriting standards.

The proposed changes include a debt service coverage increase for FHA's 221 (d)(4) and 223(f) programs to 1.20 for market rate properties, an increase of initial operating deficit reserves to four months’ principal, interest and mortgage insurance premium and a decrease in maximum underwriting occupancy to 93 percent from 95 percent. A number of additional steps were also announced for increased oversight of lenders and borrowers.

The changes are being proposed, Galante indicated, because market-rate multifamily properties in FHA's portfolio showed increased vacancy rates nationwide, particularly in Texas, Nevada, Arizona, Georgia and the Carolinas. Claim rates on apartment loans doubled to 1.2 percent from 2007 at $225 million to 2009 at $442 million. HUD forecasts $891 million in claims and partial payments of claims for FY 2010. FHA multifamily volume increased by more than 487 percent in the past 15 months, up to $3.182 billion in demand from October 2009 through January.

While remaining open to comments on the proposal, Galante expects new guidelines to take effect in 90 days, as soon as they are published in final form. The new guidelines, however, would not apply to applications submitted before that time.

For more information, please contact Doug Moritz at (202) 557-2747 dmoritz@mortgagebankers.org.

Senate Banking Committee Examines Proposed Volcker Rules
The Senate Banking Committee held two hearings last week to examine the administration’s proposals that would limit the size of our nation’s largest financial firms and prevent them from engaging in proprietary trading--known as the “Volcker Rule.” 

On Tuesday, Paul Volker, former Federal Reserve chairman and current chairman of the President’s Economic Advisory Board; and Treasury Deputy Secretary Neal Wolin testified on the need for the Volcker Rules to be included in the Senate financial reform package. The hearing was very lively with senators agreeing that financial reform was necessary, but there were strong comments from Committee Chairman Chris Dodd, D-Conn., that the administration’s pushing of the Volcker Rule appeared to be politically motivated and that making such requests so far into the debate was not helpful. In addition, Dodd expressed frustration at the Treasury Department’s lack of answers on a number of questions. 

On Thursday, the Committee heard testimony from several of the largest financial institutions and top academics that represented both sides of this complex issue. Dodd and his fellow Democrats focused on the idea of financial institutions being “too big to fail” and how the Volcker Rule would address those concerns. Republicans generally seemed to be opposed to the proposal, arguing that regulators already have the authority to address this problem and do not need additional legislation and that no financial institution should be too big to fail. It is clear from Thursday’s hearing that the committee lacks consensus.

The Committee is expected to move forward with a markup of a bipartisan regulatory reform package as early as the end of February. While negotiations remain sensitive, there is support for reform from both Dodd and Ranking Member Richard Shelby, R-Ala. MBA continues to work with members of the committee and their staff on a number of issues.

For more information, please contact Pace Bradshaw at (202) 557-2886 (pbradshaw@mortgagebankers.org) or Brad Cheney at (202) 557-2913 (bcheney@mortgagebanks.org).

Treasury Secretary Defends Obama Administration Budget Proposal
Treasury Secretary Timothy Geithner faced tough questions on both sides of Capitol Hill this week during his testimony (http://www.treasury.gov/press/releases/tg531.htm) in support of the administration’s budget proposal.

During testimony before the Senate Finance Committee, Senate Budget Committee and the House Ways and Means Committee, lawmakers from both parties expressed concern about spiraling deficits, and whether proposed tax changes would hurt the economy. Geithner laid out the administration’s three–pronged approach to economic recovery; get the economy growing again; impose fiscal discipline with spending restraints and tax hikes; and create a bipartisan commission to make tougher decisions on how to curb federal deficits. It was clear from the hearings that the administration faces skepticism on both sides of the aisle to that approach moving forward.

For more information, please contact Brad Cheney at (202) 557-2913 (bcheney@mortgagebanks.org).

HAMP Imminent Default Guidance Issued for Fannie Mae Servicers
On February 1, Fannie Mae released (https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1002.pdf) SVC-2010-02: Update to Imminent Default Guidance for Mortgage Loans Evaluated for the Home Affordable Modification Program. This announcement introduces the use of the Freddie Mac Imminent Default Indicator and describes Fannie Mae servicers' use of IDI when evaluating loans under the Home Affordable Modification Program. 

IDI is a statistical model that predicts the likelihood of default or serious delinquency for mortgage loans that are less than 60 days past due. In addition to announcing the use of IDI through Fannie Mae’s HomeSaver Solutions Network, SVC-2010-02 requires the use of verified income documentation before entering the borrower into a trial period plan, and changes the amount of maximum cash reserves that are allowed in the imminent default screen as outlined in Announcement 09-05R, Reissuance of the Introduction of the Home Affordable Modification Program, HomeSaver Forbearance and New Workout Hierarchy. (https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0905.pdf).

In addition, Announcement 09-05R instructed servicers to use the imminent default screen to evaluate borrowers who are current or less than 30 days delinquent. Fannie Mae is changing the requirement for the imminent default screen to require an imminent default evaluation for all borrowers that are either current or in default but less than 60 days delinquent. This policy change achieves consistency in the treatment of Fannie Mae loans with the treatment of non-GSE loans under the Treasury Department’s Supplemental Directive 09-01 (https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0901.pdf).

For more information, please contact Vicki Vidal (202) 557-2861 vvidal@mortgagebankers.org. 

White House Announces Creation of New Small Business Lending Fund
On February 2, during a town hall meeting in New Hampshire, President Obama announced (http://www.whitehouse.gov/the-press-office/president-obama-outlines-new-small-business-lending-fund) a new Small Business Lending Fund, which will be created by transferring $30 billion from the Troubled Asset Relief Program to support lending to small businesses.

The program would be limited to community and smaller banks (assets under $10 billion) and would be kept separate and distinct from the TARP program and its restrictions to encourage broad participation. The announcement follows-up on the President’s State of the Union message and proposed FY2011 budget release. The White House indicated that there are 8,000 banks with under $10 billion in assets that could participate in the program.  The program will have to be approved by Congress.

For the White House’s detailed fact sheet, click http://www.whitehouse.gov/sites/default/files/FACT-SHEET-Small-Business-Lending-Fund.pdf.

For more information, please contact Josh Denney (202) 557-2816 jdenney@mortgagebankers.org.