O'Connor, Steve
Senate Banking Committee Chairman Christopher Dodd, D-Conn., unveiled his financial regulatory reform bill last Tuesday, officially kicking off the Senate's work on regulatory reform.

The 1,136-page Restoring American Financial Stability Act would create a single federal banking regulator--a key difference from both the House and Obama administration proposals. It would also create a separate Consumer Financial Protection Agency and another independent agency to address systemic risks throughout the financial system, while increasing regulation of over-the-counter derivatives, hedge funds, credit rating agencies and executive compensation.

The House and Senate are now acting quickly to move financial services regulatory reform legislation out of committee and to final votes, setting the stage for a busy holiday season on Capitol Hill.

Also last week, HUD Secretary Shaun Donovan and FHA Commissioner David Stevens released FHA’s actuarial report indicating that the agency’s capital reserves had taken a hit from projected loan defaults related to the economic recession. Through statements to the media and messages to Congress, MBA defended the important role of FHA while also underscoring the need for continued risk management reforms.

Lastly, HUD announced Friday that it “will exercise restraint” in enforcing new regulatory requirements under the Real Estate Settlement Procedures Act during the first four months of 2010. The announcement is an important step in helping the industry transition to the new RESPA requirements.

HUD Announces Restraint in RESPA Enforcement through April 2010
Late Friday November 13, HUD announced (http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-215) that for the first four months of 2010, the staff of the Mortgagee Review Board will exercise restraint in enforcing new regulatory requirements under the Real Estate Settlement Procedures Act, due to take effect on January 1.

HUD asked other federal and relevant state enforcement agencies to exercise the same 120-day restraint in enforcement for non-FHA originators and other settlement service providers that demonstrate the good faith effort to implement RESPA's new rules. In determining whether a mortgagee has made a good faith effort, MRB staff will consider whether the mortgagee has relied on the new RESPA rule and other written guidance issued by the Department, and the extent to which the mortgagee has made sufficient investment and commitment in technology, training and quality control designed to comply with the new rule.

MBA has long sought a reasonable implementation period for the RESPA rule, pointing out that there have been many unresolved issues and HUD’s detailed guidance came late in the process. MBA appreciates HUD’s announcement and has scheduled intensive RESPA workshops, Dec. 1 in Denver, Dec. 2 in Irvine and tentatively Dec. 11 in Philadelphia, to provide strategies to ensure effective compliance.

For more information, please contact Ken Markison at (202) 557-2930 kmarkison@mortgagebankers.org

Dodd Releases Financial Reform Blueprint; MBA Points Out Concerns and Areas for Improvement
On November 10, Senate Banking Committee Chairman Christopher Dodd, D-Conn., released (http://dodd.senate.gov/?q=node/5321) his long-anticipated financial regulatory reform proposal. The discussion draft of the Restoring American Financial Stability Act goes further than the Obama Administration proposal, as well as legislation developed by the House, in creating three new federal agencies and giving them broad regulatory and consumer protection authority. The proposal retains the dual banking system and does not preempt state mortgage banking laws. Among its provisions, the bill would:

--Create a new Consumer Financial Protection Agency (run by a five-member board);

--Create a new Financial Institutions Regulatory Administration that would take the bank holding company supervision authority from the Federal Reserve, take the state bank supervisory functions from the Fed and the Federal Deposit Insurance Corp. and eliminate the Office of Comptroller of the Currency and the Office of Thrift Supervision;

--Address “too big to fail” concerns by creating a new Agency for Financial Stability responsible for identifying, monitoring and addressing systemic risks posed by large, complex companies as well as products and activities that can spread risk across firms;

--Propose a new “skin in the game” requirement by making companies that sell mortgage-backed securities retain at least 10 percent of the credit risk; and

--Create a new Office of Credit Rating Agencies at the Securities and Exchange Commission to strengthen regulation of credit rating agencies.

In a statement (http://www.mortgagebankers.org/NewsandMedia/PressCenter/70942.htm) released Tuesday, MBA commended Dodd for the comprehensiveness of the draft bill and indicated support for improved federal oversight of independent, non-depository mortgage lenders as this could offer consistent uniform regulation to all lenders and brokers. MBA also pointed out the challenges such a regulatory structure would bring and that there are some agencies that may not warrant inclusion in such a new regulator.

MBA also indicated in strong terms that: the bill does not provide for a uniform national standard to protect all consumers consistently, regardless of where they live; that the broad “skin in the game” provisions included in this proposal would put certain business models at risk; and rating agency reform should strike the delicate balance of providing a robust regulatory framework that avoids stifling the introduction of new and innovative commercial and residential mortgaged-backed security products.  

The Banking Committee is expected to begin a mark-up next week to hear comments from senators and proceed with amendments in early December. MBA continues to work with members of the committee and their staff to address several areas of concern. 

For more information, please contact Tom Koonce at (202) 557-2736 tkoonce@mortgagebankers.org.

FHA Releases Actuarial Report; MBA Sends Messages of Support
On November 12, FHA released (http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-214) its annual independent actuarial study, which revealed that FHA has sustained significant losses from loans made before 2009, and the capital reserve ratio has fallen below the two percent congressionally mandated threshold to 0.53 percent. 

The report also concludes that under most economic scenarios FHA’s reserves would remain above zero. In a coordinated effort with a politically diverse group of 15 other organizations and associations, MBA signed on to a pair of strong letters of support to each member of the House and Senate reminding them of the critical role FHA plays in the housing market and urging them to support FHA and the risk management efforts currently underway at the agency. MBA and the groups also cautioned Congress that unnecessary changes or restrictions to the program would only hamper the economic recovery and hurt millions of families who rely on FHA insurance to obtain safe, affordable mortgage financing.

In a statement (http://www.mortgagebankers.org/NewsandMedia/PressCenter/70945.htm) released the same day, MBA went into greater detail by noting that the 2 percent reserve requirement was established in order to ensure that FHA could stand the stress of a major housing and mortgage market event, which the country is now facing. 

The statement also pointed out that FHA has taken, and plans additional, corrective actions, and that MBA and its members will continue to fight to give FHA the tools it needs to best serve its mission, such as critical funding to hire and maintain staff and update its technology.

For more information, please contact Tamara King at (202) 557-2758 TKing@mortgagebankers.org.

MBA Letter to Treasury Requests Clarification of Tax Treatment for Loans Modified Under HAMP
On November 9, MBA sent a letter to Treasury as a follow-up to several conversations that MBA’s Tax Subcommittee has had with Treasury officials on the tax treatment of loan modifications. MBA requested that Treasury issue guidance providing that the IRS will not challenge a holder’s position that a loan modification under HAMP does not constitute a deemed exchange within the meaning of Treas. Reg. 1.1001-3. This would preclude adverse and inadvertent tax consequences to some investors in mortgage-backed securities as a result of granting relief to borrowers under the HAMP program.

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

MBA Joins Industry Coalition to Support Estate Tax Relief Legislation
On November 5, MBA joined the Family Business Estate Tax Coalition in a letter to Reps. Shelley Berkley, D-Nev.,Kevin Brady, D-Pa., Artur Davis, D-Ala., and Devin Nunes, R-Calif., to commend them for their leadership to provide estate tax relief to family-owned businesses and farms.

The letter expressly supported H.R. 3905, the Estate Tax Relief Act of 2009, and pledged help to secure its passage. H.R. 3905 not only grants additional estate tax relief, but also provides certainty to family businesses and farms by instituting a permanent estate tax rate and exemption level. The bipartisan legislation increases the exemption level to $5 million, and reduces the top rate to 35 percent, both phased-in over 10 years. The FBETC has previously supported a $5 million exemption and 35 percent top rate and believes this relief is critical for family businesses and farms that are struggling to grow their businesses and create jobs.

The goal of the FBETC continues to be permanent repeal of the estate tax, but this legislation will provide much needed relief above the current law. The higher exemption level and reduced rate will lessen the burden of the estate tax and provide family businesses and farms with more capital to reinvest in their business.

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

HUD Releases New Condo Policies
On November 6, HUD issued two Mortgagee Letters (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/) on condos. ML 2009-46B implements a new approval process for condominium projects and insurance requirements for mortgages on individual units. The requirements outlined in this ML are effective on December 7. The ML specifies Federal Housing Administration concentration levels, insurance requirements and loan approval procedures.

ML 2009-46A waives five provisions of the permanent baseline guidance for condominium project eligibility, as described in ML 2009-46B. This letter also serves as a temporary directive to address current housing market conditions.  This temporary guidance is effective for all FHA case numbers assigned on or after December 7 through December 31, 2010, except as noted under the “Spot Loan” approval process. 

MBA worked with FHA to revise its previously issued condo ML (ML 2009-19). Specifically, MBA advocated for policies, such as the FHA concentration and pre-sale requirements, to be amended or clarified. These new MLs represent policy changes that were a direct result of this effort. 

For more information, please contact Tamara King at (202) 557-2758 tking@mortgagebankers.org.

Joint MBA/MBA of Carolinas Letter Urges Reconsideration of Proposed Rules
On November 13, MBA and the MBA of the Carolinas sent a letter to North Carolina Commissioner of Banks Joseph Smith Jr., pointing out that proposed rules (http://www.nccob.org/NR/rdonlyres/B25AFA32-607E-42D3-94EF-EFA8F5543711/0/rulespressrelease10313.pdf) issued last week were duplicative of efforts currently underway in, or rejected by, Congress and the Obama Administration.

While MBA plans to offer formal comment on the proposal, the purpose of this letter was to urge the Commissioner to reconsider the rules entirely. The letter gives specific examples, including the provision of the rule that would prohibit compensation based on the rate or terms of loans, which has already been proposed by the Federal Reserve and is currently out for public comment. The letter goes on to point out that while MBA recognizes the importance of addressing concerns involving the lending market to protect consumers, MBA believes that the best way to do this is through uniform national standards, which should be developed through a partnership of federal and state officials. 

For more information, please contact Ken Markison at (202) 557-2930 kmarkison@mortgagebankers.org or Chris Oswald at (202) 557-2866 coswald@mortgagebankers.org.

FDIC Provides Safe Harbor for ABS of Failed Banks
The November 12 FDIC Board of Directors meeting (http://www.fdic.gov/news/board/notice12NOV2009.html) addressed the treatment of securitized assets that are on the balance sheets of failed banks. The FDIC proposes a safe harbor through March 31, 2010, for all ABS. This safe harbor will prevent the FDIC from seizing securitized assets from failed banks. The FDIC will issue for comment the proposals to impose conditions on future securitized assets in order to keep the safe harbor. Such conditions could potentially include skin in the game, deferred compensation requirements and more disclosure.

For more information, please contact George Green at (202) 557-2840 ggreen@mortgagebankers.org or Jim Gross at (202) 557-2860 jgross@mortgagebankers.org.

Obama Administration Releases New Data on Making Home Affordable Program
On November 10, the Obama Administration released (http://www.makinghomeaffordable.gov/pr11102009.html) the October data report for the Making Home Affordable loan modification program. The report includes for the first time state-specific trial modification numbers. With more than 650,000 modifications under way across the country, the program is on track to meet its goals over the next several years.

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

Banking Agencies Issue Final Rule for Mortgage Loans Modified Under HAMP
On November 12, the federal bank and thrift regulatory agencies (Comptroller of the Currency, Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and Office of Thrift Supervision) issued (http://www.federalreserve.gov/newsevents/press/bcreg/20091113a.htm) a final rule providing that mortgage loans modified under the Home Affordable Mortgage Program will generally retain the risk weight appropriate to the mortgage loan prior to modification.

The agencies adopted as final their interim final rule issued on June 30 with one modification. The final rule clarifies that mortgage loans whose HAMP modifications are in the trial period, and not yet permanent, qualify for the risk-based capital treatment contained in the rule. The final rule will take effect 30 days after publication in the Federal Register, which is expected shortly.

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