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With Bank Failures Mounting, Some Complain of Harsh Exams

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New York Times

Financial regulators have taken a public thrashing for going easy on banks before the financial crisis hit, allowing institutions big and small to dole out dubious loans. Now, according to some community bankers, regulators have abandoned their light touch for a heavy hand at a time when the industry is struggling to recover.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have dispatched on-site examiners to scour banks for minuscule problems, bankers said in Congressional testimony on Tuesday. While regulators say they are trying to prevent further bank failures, bankers complain that the examinations amount to nitpicking.

“We have found the field examiners less willing to disclose conclusions and very guarded in acknowledging progress in those areas where we may have been performing well,” Chuck Copeland, the chief executive of First National Bank of Griffin, Ga., said at a House Financial Services subcommittee hearing in Newnan, Ga.

Since the crisis hit, Georgia has had 67 institutions fail, more than any other state. Community banks, those with $10 billion or less in assets, make up the bulk of those now-shuttered institutions.

For all the talk of Bank of America’s beleaguered stock price and Goldman Sachs’s disappointing earnings, small banks are faring far worse than their large Wall Street counterparts. More than 380 banks have failed since early 2008; 326 of which were community banks, according to the F.D.I.C.

“The F.D.I.C. is keenly aware of the significant hardship of bank failures on communities in Georgia and across the country,” Bret D. Edwards, the head of the agency’s division that oversees bank failures, said in prepared testimony before the financial services committee.

But some bankers say their regulators are making matters worse by misunderstanding the cause of the industry’s woes. Mounting losses at small banks are not owed to reckless risk-taking, community bankers say, but the unforeseen collapse of the commercial real estate market in the Southeast.

“Did we have a role setting ourselves up to become victims? No doubt,” said Mr. Copeland of First National Bank of Griffin, a nationally registered bank that is overseen by the Office of the Comptroller of the Currency. “But did we recklessly pursue growth and earnings at all cost with no regard to the other elements of our mission? Never.”

That message is lost on regulators, he said. “We understand that it is not a personal affront; it is simply this environment of second-guessing and weariness in which we are all operating.”

In testimony before the subcommittee, regulators said they were taking steps to address the perception that their examiners are overly strict.

“The Federal Reserve takes seriously its responsibility to address these concerns,” Kevin M. Bertsch, an associate director of the Fed told the subcommittee. The Fed, he said, has created training programs for its examiners and conducts occasional reviews of their examinations.

For its part, the F.D.I.C. said it was reaching out to bankers for guidance on the examination process. In 2009, the agency created the Advisory Committee on Community Banking, made up of small bankers from across the country, according to Mr. Edwards of the F.D.I.C.

“The F.D.I.C. takes great care to ensure national consistency in our examinations,” Mr. Edwards said.

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August 17, 2011 at 2:16 pm

Posted in Regulations

On mortgage rates, Obama wants proposal for how government can keep big role

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Washington Post

President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter.

The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government’s role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions.

A decision to preserve a major government role would mark a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled.

In a statement, the White House said it is premature to say that senior officials have agreed on any of the three main options outlined earlier this year in an administration white paper on reforming the housing finance system.

“It is simply false that there has been a decision to move forward with any particular option,” said Matt Vogel, a White House spokesman. “All three options remain under active consideration and we are deepening our analysis around how each would potentially be implemented.  No recommendation has been made to the president by his economic advisers.”

The proposal is likely to draw criticism from many Republicans, who blame the financial crisis on policies they say overly encouraged the housing market. And many economists, including some who have worked in the White House under Obama, consider the federal role harmful to the free market.

But if this approach became law, it probably would keep in place the kind of popular home loans that have been around for decades — 30-year fixed-rate mortgages with relatively low interest rates.

Officials have not determined whether to advance a final proposal before the 2012 presidential election. Officials from the White House, the Treasury Department and the Department of Housing and Urban Development are working out the details.

The government could maintain a substantial role in various ways. These include restructuring Fannie and Freddie as public utilities overseen by a government regulator. The government would no longer guarantee their financial health, as in the past, but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.

Or the two companies could be shut down and replaced with several successors that, likewise, would have their mortgage-backed securities guaranteed by the government in exchange for a fee. A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates.

For years, Fannie and Freddie — shareholder-owned companies chartered by Congress to support the housing market — owned or insured trillions of dollars in home loans. When the housing market crashed, the government seized the firms, and it has spent more than $150 billion propping them up.

Since then, Fannie and Freddie have played a key role in ensuring the availability of mortgages amid the market upheaval. But the Obama administration has said it wants to scale back the federal role.

In weighing whether to preserve Fannie and Freddie, administration officials have several concerns, said people familiar with the discussions. They spoke on the condition of anonymity because the talks are still preliminary.

The firms spent decades developing a market in which investors worldwide can buy and sell securities backed by U.S. home loans, and administration officials don’t want to jeopardize it.

In addition, officials don’t want to punish the thousands of Fannie and Freddie employees who have specialized knowledge about the mortgage market and had nothing to do with the poor business decisions top executives made in the run-up to the financial crisis.

But some critics warn that nearly any government role could leave taxpayers on the hook.

“The long-term consequence is that the taxpayers ultimately have to bail out the government’s losses,” said Peter Wallison, a fellow at the American Enterprise Institute. He added, “There is only one legitimate role for government in guaranteeing mortgages: That is mortgages for low-income people, to enable them to buy homes.”

Under the approach Obama endorsed, the government would seek to limit the exposure of taxpayers. Fannie, Freddie or other successor firms would charge a fee to mortgage lenders and banks and use the money to create an insurance pool to cover losses on mortgage securities caused by defaults on the underlying loans. The government would be the last line of defense in case of another housing market meltdown, using taxpayer money to cover losses only if the insurance pool ran dry.

Some special advantages awarded to Fannie and Freddie would be eliminated, according to people familiar with the matter. For example, the two companies were allowed for decades to do business while holding a fraction of the reserves — essentially, rainy-day money — that banks and other financial firms were required to hold. This advantage allowed Fannie and Freddie to grow very large. The companies, or the firms that replace them, would have to start holding much more in reserve.

The administration’s strategy also would require Fannie and Freddie, if they remain in some form, to shed many of the mortgages they own. Their loan portfolios, which have ballooned recently, would shrink greatly over coming years and perhaps be eliminated. Private firms would have to fill the void.

“We remain committed to winding down Fannie and Freddie, though such significant measures would need to be done gradually and with care,” said Vogel, the White House spokesman. “We believe that it is essential to bring private capital back to the center of a reformed housing system.”

Although banks would be able to make any home loans they wanted, only those that met federal standards would be eligible to be included in securities assembled by Fannie, Freddie or successor companies. And only those securities would have a government guarantee.

Any effort to remake the nation’s housing finance system would be phased in over five to 10 years.

Since early in his tenure, Obama has promised to offer a proposal to overhaul the nation’s housing finance system.

In February, the administration released a long-awaited white paper discussing an overhaul of the housing finance system. The paper called for the end of Fannie and Freddie but did not say what should replace them.

Three options were presented. The first two called for greatly reducing the federal role in the mortgage market, perhaps eliminating it. A third option called for largely maintaining the government’s footprint but introducing several changes to reduce the chances that another taxpayer bailout would be needed. 

(All of the options preserved the Federal Housing Administration, a government agency that helps low- and middle-income and minority home buyers.)

The administration’s decision in February to release a series of options — and not make a formal recommendation — reflected a political calculation and a disagreement among Obama’s advisers.

Two top Obama advisers, HUD Secretary Shaun Donovan and Treasury Secretary Timothy F. Geithner, think the government should maintain an outsize role in the housing market, administration officials said.

Donovan thinks federal support for housing fulfills a public service, while Geithner has been focused on the need for the government to have a way to keep the mortgage market operating during a financial crisis.

Other advisers, however, opposed a continued government role over the long run. Austan Goolsbee, who this month left his job as chairman of Obama’s Council of Economic Advisers, argued that the federal role in housing distorts the free market. By subsidizing mortgage investments, he argued, the government drives capital away from other types of investments — for example, those in companies developing environmentally friendly technology. He also warned that the government is putting enormous sums of taxpayer money on the line while conveying little actual benefit to home buyers.

In a meeting with the president, Goolsbee said that the government had finally brought Fannie and Freddie’s excesses to heel by taking over the companies and that it would be a mistake to let them loose in the market again, said a person familiar with the meeting. Goolsbee likened the companies to a villain held in a special prison who shouldn’t be freed just because he promises to help the poor, the source recounted.

Lawrence H. Summers, who was director of the National Economic Council until early this year, argued that, over the long term, it didn’t make sense to have a government-backed agency providing guarantees to the mortgage market but that Fannie and Freddie still play a crucial role.

“My position was that we needed to maximize activity in the short run to support the housing market,” Summers said in an interview. “Discussions of scaling down Fannie and Freddie were vastly premature under the circumstances of a collapsing housing market.”

After a decade or so, he added, the government role might be phased out. He cautioned that models similar to Fannie and Freddie “were problematic because they were likely to lead to the same type of abuses” that Fannie and Freddie engendered.

Gene Sperling, who became director of the National Economic Council this year, shepherded the release of the white paper. He agreed that a continued government guarantee made sense.

In the end, Obama signaled agreement. The White House, however, says the president has not made a final decision.

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Written by appraisalmanagementnews

August 17, 2011 at 2:05 pm

Bill would waive retirement penalties to buy REOs

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Housingwire.com

A bill introduced in the U.S. House of Representatives would waive early distribution penalties on certain qualified retirement plans if the funds are used to buy a house that has been in foreclosure for a year or more.

Bill Posey (R-Fla.) introduced H.R. 1526 — the Housing Recovery Act of 2011. It has been referred to the Committee on Ways and Means.

"It’s not an end-all fix," Press Secretary George Cecala said. "It’s just another idea to help the housing market."

The idea is to add stability to neighborhoods by promoting purchases by owner-occupants or those seeking a second home rather than investors who immediately "flip" the home. Under the bill, the purchaser must agree to hold the property for at least two years to be exempt from early retirement plan distribution penalties.

The bill is expected to apply to distributions from Roth IRAs, 401(k) plans and company pension plans. It would require the person to use the retirement distribution within 120 days of receipt by buying a home that "has been in foreclosure for a year or more."

Cecala said Posey, a Realtor, anticipates that the one-year period would begin at the point that the foreclosed property is listed for sale, but said the congressman is open to amending the bill to be more specific about when the clock would start ticking.

Several states have extremely drawn-out foreclosure processes. Foreclosures in judicial state average about 13 months from start to finish. But once foreclosures are repossessed by the lender and enter what is known as real estate-owned status, or REO, it is not uncommon for them to be snapped up once listed for sale.

In Posey’s home state, his district covers Florida’s "Space Coast" not far from Orlando area. He is owner and founder of Posey Realtors & Co. in Rockledge, near Cape Canaveral.

Florida accounted for nearly 9% of U.S. foreclosure activity during the first quarter, documenting 58,322 properties with a foreclosure filing, second behind California, which accounted for nearly 25% of foreclosure activity, according to RealtyTrac.

Florida foreclosure activity decreased 47% from the previous quarter and was down 62% from the first quarter of 2010 — although the state still posted the nation’s eighth highest foreclosure rate with one in every 152 housing units with a foreclosure filing during the first quarter.

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April 20, 2011 at 2:55 pm

Posted in Regulations

Broker Fee Rules Take Effect

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The New York Times

THERE have been changes in federal rules covering how mortgage brokers are paid, and while legal challenges to them persist, the question now is how the new system will work in practice.

Regulators and consumer advocates say borrowers are bound to benefit. Broker trade groups say their industry will shrivel and consumer costs will go up.

Mortgage brokers are middlemen who work with multiple lenders to arrange home loans for customers. They say they add value by helping borrowers find the best deal; their detractors say they add costs that have been hidden in complex fees.

The business has contracted significantly in the last five years. In 2005, during the real estate boom, brokers accounted for 31 percent of mortgages originated, according to Inside Mortgage Finance, a trade publication. Last year it was just 11 percent, and the market was only half as big.

Brokers used to be compensated by a mix of borrower-paid origination fees and lender-paid fees. The most controversial was a “yield spread premium,” paid by lenders when a broker placed a borrower in a loan that charged higher interest than other loans. The justification was that higher rates allowed lower upfront closing costs. The criticism was that the premiums were an incentive to push expensive loans and that the system contributed to a flood of risky loans and thus to the financial crisis.

In response, the Federal Reserve put out rules that prohibit loan originators from being paid by both the borrower and lender on the same deal, and also barring commissions based on anything other than loan size. The rules were set to take effect April 1; two trade groups sued, delaying enactment a few days before a federal appeals court allowed it. Both the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals say they will keep pressing their lawsuits.

On the front line, the problem is that there has been “no clear guidance” on exactly how to arrange commission structures for employees who originate loans, said Melissa Cohn, the president of the Manhattan Mortgage Company, a loan brokerage firm.

“To be honest with you,” she said, “in some cases it’s going to create higher-priced mortgages.” Although the spirit of the law is to protect borrowers, she added, “the reality of it is it’s just going to cause more confusion.”

Mike Anderson, the director of the National Association of Mortgage Brokers, speaking just two days after the rules went into effect, said: “It’s already happening. Rates have already gone up; fees have gone up.” Mr. Anderson, who is also a broker in New Orleans, cited situations in which brokers could no longer cut fees to make deals go through, and others in which banks were raising charges. “The rules basically pick the winners and losers,” he said, with the winners being the big banks. “The losers are the small businesses.”

The Facebook page of the National Association of Independent Housing Professionals is full of complaints from what appear to be mortgage brokers saying the rules will hurt their business, and recounting how unnamed lenders have raised prices.

Despite industry opposition, the change is a victory for borrowers, according to representatives of the Center for Responsible Lending, an advocacy group long critical of the yield-spread premium system. Borrowers “should be getting more honest services from the originator they’re working with,” said Kathleen E. Keest, a senior policy counsel, “because that originator is no longer going to have a conflict of interest if they put a borrower in a loan with a higher interest rate or riskier terms.”

“If people were saying that the way things worked, worked well,” she added, “that’s one thing, but it’s very clear the way things worked before didn’t work for anybody. The notion we need to have the same rules is denying what happened. It’s denying that the way the market was working was disastrous for everybody.”

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Written by appraisalmanagementnews

April 19, 2011 at 5:08 pm

Posted in Regulations

Four States Consider Legislation Barring Distressed Sales as Comparables

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The Appraisal Institute

Four states – Illinois, Maryland, Missouri and Nevada – are considering legislation that would prohibit or restrict the use of “distressed sales,” such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.

Homebuilders and real estate sales agents are concerned that the prevalence of distressed sales, and their subsequent use as comparables, is resulting in the appraised value of residential properties not matching the contract sales price, or in the case of new construction, the cost to build.

The Missouri legislation, known as House Bill 292, would prohibit appraisers from using a property that has been sold at a foreclosure sale as a comparable. Similar to the Missouri proposal, the Illinois legislation would prohibit appraisers for the next five years from using as a comparable sale “a residential property that was sold at a judicial sale at any time within 12 months.”

The Nevada legislation would prohibit the use of foreclosures and short sales. The prohibitions contained in the Maryland legislation are somewhat broader and include any property that was sold under “duress or unusual circumstances, such as a foreclosure or short sale.”

There is, however, conflicting language in the Maryland legislation that appears to allow for the use of distressed properties as comparables if the appraiser takes into account factors such as the motivation of the seller, the condition of the property and the property’s history or disposition before the sale. Appraisers in Maryland will oppose this legislation during a hearing March 29.

If these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers “must analyze such comparables sales as are available.” Further, the standard cannot be voided by a state or local government.

Not following USPAP could subject the appraiser to having action taken against their license. Therefore, appraisers would have to make the decision to commit a USPAP violation – which in the case of federally related transactions would be a violation of state law – or to violate the law prohibiting the consideration of distressed sales as comparables.

To read the Illinois legislation, go to http://www.ilga.gov/legislation/97/HB/09700HB0092.htm . To view the Missouri proposal, go to http://www.house.mo.gov/billtracking/bills111/biltxt/intro/HB0292I.htm . To see the Maryland legislation, go to http://mlis.state.md.us/2011rs/bills/hb/hb1309f.pdf . And to see the Nevada proposal, go to http://www.leg.state.nv.us/Session/76th2011/BDR/BDR76_54-0532.pdf .

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March 30, 2011 at 4:04 pm

Republicans Dive Head First into GSE Reform with Eight New Bills

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BY JANN SWANSON –Mortgage News Daily

The House Republicans who will ultimately have the most influence on the decision have come out with a plan for reforming the two government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Scott Garrett (R-NJ) Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises released what was actually a summary of eight bills, each covering a different aspect of reform and each introduced by a different member of the parent Financial Services Committee.  They cover a broad range of issues involved in bringing the government’s conservatorship of the GSEs to an end and establishing a philosophy as well as a new system of financing the housing industry.

Garret said that this is the first in what will be multiple rounds of "very specific, very targeted bills to end the bailouts, protect the taxpayers and get private capital off the sidelines."  The end result, he said, will formally wind down the GSEs and return the housing finance system to the private marketplace.
"With the American taxpayers on the hook for $150 billion and counting, the bailout of Fannie and Freddie is already the most expensive component of the federal government’s intervention into the financial system.  Americans are tired of the ongoing bailout of the failed government-backed mortgage giants, and they are tired of Democrats’ refusals to address the driving force behind the financial collapse.  While Democrats chose to ignore the problem last Congress, House Republicans stand ready to end the bailout and protect American taxpayers from further losses."

Here is a summary of the bills:

The Equity in Government Compensation Act, sponsored by Spencer Bachus (R-AL), Chairman of the House Financial Services Committee.

The bill suspends the current compensation packages for all GSE employees and replaces them with a system consistent with the Executive Schedule and Senior Executive Service of the Federal Government.  The bill also expresses the sense of the Congress that the 2010 pay packages for senior executives were excessive and the money should be returned to taxpayers.

The GSE Mission Improvement Act, sponsored by Ed Royce (R-CA)

This legislation would permanently abolish the affordable housing goals of Freddie Mac and Fannie Mae.  According to Royce’s comments accompanying the bill, these goals were a central cause behind the collapse of the GSEs and the ongoing goal of the GSEs should be to reduce risk to taxpayers rather than expose them to further losses.  "To meet these goals, the GSEs purchased more than $1 trillion in ‘junk loans.’  These loans accounted for a large portion of the mortgage giants’ losses – losses that were later loaded onto the backs of American taxpayers."

The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act (H.R. 31), sponsored by Judy Biggert (R-IL) Chairman of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity.
This bill would establish an Inspector General (IG) within the Federal Housing Finance Agency (FHFA,) the conservator of the GSEs, provide him/her with additional law enforcement and personnel hiring authority, and require him/her to submit regular reports to Congress on taxpayer liabilities, investment decisions, and management details.  These reports would be made publically available.
The GSE Subsidy Elimination Act, sponsored by Randy Neugebauer (R-TX) Chairman of the House Financial Services Subcommittee on Oversight.

The proposed legislation would direct FHFA to phase in an increase in the fees it charges for its guarantee as though they were held to the same capital standards as private financial institutions.  The phase-in would be conducted over two years and would, the summary says, level the playing field so that private capital can re-emerge, decreasing the government’s exposure to housing market risks.

GSE Portfolio Reduction Act, sponsored by Jeb Hensarling (R-TX), Vice Chairman of the House Financial Services Committee.

This bill would accelerate and formalize the previously established rate of reducing the portfolios of the two GSEs by setting annual limits on the maximum size of each portfolio rather than using the percentage decrease currently in place.  The bill would cap the portfolios at $700 beginning in year one and bring them down to $250 billion by the end of year five.

GSE Risk and Activities Limitation Act, sponsored by David Schweikert (R-AZ), Vice Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises.
This bill would prohibit the GSEs from engaging in any new activities or businesses.  The bill’s sponsor acknowledges that FHFA already has such a prohibition in place; the bill merely codifies that prohibition.
The GSE Debt Issuance Approval Act, Sponsored by Steve Pearce (R-NM).
Under the requirements of this legislation, the Department of the Treasury would have to formally approve any new debt issued by the GSEs.  Pearce comments that, "This will help protect taxpayers by requiring the formal legal authority of U.S. debt issuance to approve the issuing of agency debt which is roughly the same as U.S. debt."

GSE Credit Risk Equitable Treatment Act, sponsored by Scott Garrett.   
This proposed legislation would apply any of the standards applied to private secondary mortgage market participants to the GSEs. It would, according to Garrett, ensure that the GSEs are not exempt from new risk-retention rules mandated by Dodd-Frank and that they face the same retention standards as private market participants.  Garrett said this bill will make clear that Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants.  Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the Qualified Residential Mortgage (QRM) definition and issue asset-backed securities backed by non-QRM assets.  Garrett’s bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets.  If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.

The Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises will hold a legislative hearing on the eight bills Thursday, March 31st and then a markup on Tuesday, April 5th. 

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Written by appraisalmanagementnews

March 30, 2011 at 3:18 pm

Republicans introduce eight bills to wind down Fannie and Freddie

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by CHRISTINE RICCIARDI –Housingwire.com

Republicans on the House Financial Services Committee unveiled their plans to reform the government-sponsored enterprises Fannie Mae and Freddie Mac Tuesday with eight bills aimed at ending taxpayer bailouts, adding transparency and reducing costs.

"Today marks the start of a process — a process to begin winding down Fannie Mae and Freddie Mac," said Rep. Scott Garrett (R-N.J.), who serves as chairman of a House Financial Services subcommittee.

"Beginning today, and over the course of the next few months, my colleagues and I on the Financial Services Committee will introduce multiple rounds of very specific, very targeted bills to end the bailouts, protect the taxpayers and get private capital off the sidelines."

Tuesday’s proposed legislation is as follows:

The Equity in Government Compensation Act suspends the current compensation packages for all employees at Fannie Mae and Freddie Mac, and establishes a compensation system that is consistent with other senior executives in the federal government.

"The failures of Fannie Mae and Freddie Mac helped precipitate the deepest economic decline since World War II," the bill reads. It then lists all the financial bailouts the GSEs received from the government.

"The director shall suspend the compensation packages approved for 2011 for the executive officers of an enterprise," it continues.

Rep. Spencer Bachus (R-Ala.), chairman of the House Financial Services Committee, sponsored the bill.

The GSE Mission Improvement Act, introduced by Rep. Ed Royce (R-Cali.), aims to end all affordable housing goals set by Fannie Mae and Freddie Mac.

"The passage of legislation in the early ’90s required the government-sponsored enterprises to devote a significant portion of their business to specific affordable housing goals," Royce said. "To meet these goals, the GSEs purchased more than $1 trillion in junk loans. These loans accounted for a large portion of the mortgage giants’ losses – losses that were later loaded onto the backs of American taxpayers."

This bill would essentially repeal The Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act, formally known H.R. 31, further regulates Fannie and Freddie by requiring the GSE Inspector General to report to Congress on a regular basis.

Reports will include the dollar amount of current liabilities with a detailed breakdown of potential risk level, a compensation breakdown for GSE executives including bonuses, details on GSE foreclosure mitigation efforts, mortgage fraud prevention activities, a description of investments and holdings and an analysis of capital levels and portfolio size of each agency, among other things.

The first reporting period would cover from the time Fannie Mae and Freddie Mac went into conservatorship until the bill is implemented. After that, reports would be done on a quarterly basis.

Rep. Judy Biggert (R-Ill.) introduced the act. She is chairman of a House Financial Services subcommittee.

Under the GSE Subsidy Elimination Act, the guarantee fee or g-fee would steadily increase over the course of two years in order to "to eliminate (Fannie and Freddie’s) embedded subsidies" and "finally bring pricing parity between the private market and the GSEs," said Rep. Randy Neugebauer (R-Texas). He is the lead sponsor of this bill.

Rep. Jeb Hensarling (R-Texas), vice chairman of the House Financial Services Committee, is sponsoring a bill called the GSE Portfolio Risk Reduction Act, to cap the current portfolios of Fannie Mae and Freddie Mac and increase their annual attrition rate.

Hensarling’s bill accelerates and formalizes the reductions in the size of the GSEs’ portfolios by setting annual limits on the maximum size of each GSE’s retained portfolio. In the first year, the GSEs would have their portfolios capped at no more than $700 billion, declining to $600 billion for year two, $475 billion for year three, $350 billion for year four, and finally $250 billion in year five.

Rep. David Schweikert (R-Ariz.), vice chairman of a House Financial Servicess subcommittee, is sponsoring the GSE Risk and Activities Limitation Act to prohibit Fannie Mae and Freddie Mac from engaging in any new activities or businesses.

“This bill will put restrictions on where GSEs can invest their money and thus protect American taxpayers from future failed bailouts, unsuccessful government programs, and wasteful spending," he said.

The GSE Debt Issuance Approval Act sponsored by Rep. Steve Pearce (R-N.M.) requires formal approval by the Treasury for any new debt issuance by the GSEs.

Rep. Scott Garrett (R-NJ), chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, is sponsoring the GSE Credit Risk Equitable Treatment Act of 2011 to prohibit the exemption of GSE securities from the risk-retention requirements of Dodd-Frank.

Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants. Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the qualified residential mortgage  definition and issue asset-backed securities backed by non-QRM assets.

Garrett’s bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets. If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.

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Written by appraisalmanagementnews

March 30, 2011 at 1:15 pm