OTS and OCC Synchronizing

On May 25, 2011, the Office of the Comptroller of the Currency (OCC) issued a proposed rule implementing several provisions of the Dodd-Frank Act (Dodd-Frank), including the transfer of functions from the Office of Thrift Supervision (OTS) and changes to national bank preemption and the OCC's visitorial authority.

Under Dodd-Frank, the OCC is required to assume responsibility for the ongoing examination, supervision, and regulation of Federal savings associations on July 21, 2011.

This Notice of Proposed Rulemaking (NPR) is the first step in the OCC's review of its own regulations and those of the OTS to determine what changes are needed to facilitate a smooth regulatory transition. The NPR was published in the Federal Register on May 26, 2011.

Comments Due: June 27, 2011

REVISIONS

The NPR would:

• Revise OCC rules that are central to internal agency functions and operations immediately upon the transfer of supervisory jurisdiction for Federal savings associations, including rules related to OCC organization, the availability and release of information, and post-employment restrictions for senior examiners.
• Amend the OCC's assessment fee rule to include Federal savings associations. Following a transition period, the proposal provides a single assessment schedule for both national banks and Federal savings associations. Banks and thrifts would be subject to identical assessment methodologies, rates, fees, and payment due dates.

Fee Schedule

As part of the transition of Federal thrift supervision from the OTS to the OCC, the OCC would compute assessment fees under both the OCC and OTS schedules for assessments charged in September 2011 and March 2012, and Federal savings associations will pay the lesser of the two fees.

Beginning with assessments charged in September 2012, the OCC will assess institution fees based on a single fee schedule regardless of charter.

Transfer Date

As part of the integration of the aforementioned OTS functions into the OCC, the OCC also plans to issue an Interim Final Rule with a request for comments, effective on the transfer date, that republishes those OTS regulations the OCC has the authority to promulgate and enforce as of the transfer date, renumbered and issued as new OCC rules, with nomenclature and other technical amendments to reflect OCC supervision of Federal thrifts.

The OCC will consider more comprehensive substantive amendments to these regulations, as appropriate, after the transfer date.

Preemption and Non-Preempted State Laws

Included in the NPR are changes to the OCC's regulations necessary to implement certain revisions to the banking laws that took effect on the enactment of Dodd-Frank.

These changes include implementation of a moratorium on changes in control of credit card banks and trust banks, revisions to Federal branch and agency rules to reflect the permanent increase in deposit insurance coverage, and amendments to OCC rules pertaining to preemption and visitorial powers.

These preemption-related amendments would:

• Eliminate preemption for national bank operating subsidiaries.

• Apply national bank and national bank subsidiary preemption standards, as well as the visitorial powers standards applicable to national banks, to Federal thrifts and their subsidiaries.

• Eliminate any ambiguity concerning the preemption standards in OCC regulations by removing language from OCC rules that provides that state laws that "obstruct, impair or condition" a national bank's powers are preempted.
• Revise the OCC's visitorial powers rule to conform to the holding of the Supreme Court's Cuomo decision, as incorporated by Dodd-Frank, recognizing the ability of state attorneys general to bring enforcement actions in court to enforce non-preempted state laws against national banks.

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Office of the Controller of the Currency (OCC):
Office of Thrift Supervision Integration (OTS)
(Dodd-Frank Act Implementation)
Federal Register - Vol. 76, No. 102
May 26, 2011

CFPB: Announces Forthcoming Rules Transfer

As required by the Consumer Financial Protection Act (Act) of 2010, the Consumer Financial Protection Bureau (CFPB) published a list of the rules and orders that it will enforce.  Section 1063(i) of the Act required publication in the Federal Register. The issuance is dated May 31, 2011.

A final list will be published not later than July 21, 2011, the Designated Transfer Date of the enumerated laws. Any orders for inclusion in the list should be noted by the deadline for comments. After considering any public comments, the CFPB will publish a final list in the Federal Register not later than the Designated Transfer Date.

 Comment Period Deadline: June 30, 2011

TRANSFER OF AUTHORITIES *

* Issuance contains specific citations.

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Under the Act, certain consumer financial protection authorities will transfer from seven (7) transferor agencies to the CFPB, and the CFPB will also assume certain new authorities.

Subject to the limitations and other provisions of the Act, the CFPB will be authorized to enforce, inter alia, rules and orders issued by the transferor agencies under the enumerated consumer laws.

Categorized by their current, respective Agency oversight, the following is the list of enumerated authorities that will be transferred on the Designated Transfer Date.

Board of Governors of the Federal Reserve (FRB)  

1. Equal Credit Opportunity Act (Regulation B)

2. Home Mortgage Disclosure (Regulation C)

3. Electronic Fund Transfers (Regulation E)

4. Registration of Residential Mortgage Loan Originators (Regulation H, Subpart I) (12 CFR 208.101-105 & Appendix A to Subpart I)

5. Consumer Leasing (Regulation M)

6. Privacy of Consumer Financial Information (Regulation P)

7. Fair Credit Reporting (Regulation V), except with respect to §§ 222.1(c) (effective dates), 222.83 (Disposal of consumer information), 222.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 222.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

8. Truth in Lending (Regulation Z)

9. Truth in Savings (Regulation DD)

Federal Deposit Insurance Corporation (FDIC)  

1. Privacy of Consumer Financial Information

2. Fair Credit Reporting, except with respect to §§ 334.83 (Disposal of consumer information), 334.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 334.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

3. Registration of Residential Mortgage Loan Originators (12 CFR 365.101-.105 & Appendix A to Subpart B)

Office of the Comptroller of the Currency (OCC)   

1. Adjustable-Rate Mortgages (but only as applied to non- federally chartered housing creditors under the Alternative Mortgage Transaction Parity Act ("AMTPA"))

2. Registration of Residential Mortgage Loan Originators (12 CFR 34.101-.105 & Appendix A to Subpart F)

3. Privacy of Consumer Financial Information

4. Fair Credit Reporting, except with respect to §§ 41.83 (Disposal of consumer information), 41.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 41.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

Office of Thrift Supervision (OTS)

1. Adjustments to home loans (but only as applied to non-federally chartered housing creditors under AMTPA)

2. Alternative Mortgage Transactions (but only as it relates to AMTPA)

3. Registration of Residential Mortgage Loan Originators (12 CFR 563.101-.105 & Appendix A to Subpart D)

4. Fair Credit Reporting, except with respect to §§ 571.83 (Disposal of consumer information), 571.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 571.91 (Duties of card issuers regarding change of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

5. Privacy of Consumer Financial Information

National Credit Union Administration (NCUA)     

1. Loans to members and lines of credit to members (but only as applied to non-federally chartered housing creditors under AMTPA)

2. Truth in Savings

3. Privacy of Consumer Financial Information

4. Fair Credit Reporting, except with respect to §§ 717.83 (Disposal of consumer information), 717.90 (Duties regarding the detection, prevention, and mitigation of identity theft), 717.91 (Duties of card issuers regarding changes of address), & Appendix J (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

5. Requirements for Insurance, but only with respect to §§ 741.217 (Truth in savings), 741.220 (Privacy of consumer financial information), & 741.223 (Registration of residential mortgage loan originators)

6. Registration of Mortgage Loan Originators

Federal Trade Commission (FTC)      

1. Telemarketing Sales Rule

2. Privacy of Consumer Financial Information

3. Disclosure Requirements for Depository Institutions Lacking Federal Depository Insurance

4. Mortgage Assistance Relief Services

5. Use of Prenotification Negative Option Plans

6. Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations

7. Preservation of Consumers' Claims and Defenses

8. Credit Practices

9. Mail or Telephone Order Merchandise

10. Disclosure Requirements and Prohibitions Concerning Franchising

11. Disclosure Requirements and Prohibitions Concerning Business Opportunities

12. Fair Credit Reporting Act (16 CFR Subchapter F, Parts 603 et seq.), except with respect to Part 681 (Identity Theft Rules), Part 682 (Disposal of Consumer Report Information and Records), & Appendix A to Part 681 (Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation)

13. Procedures for State Application for Exemption from the Provisions of the Fair Debt Collection Practices Act

Department of Housing and Urban Development (HUD)      

1. Hearing Procedures Pursuant to the Administrative Procedure Act

2. Civil Money Penalties: Certain Prohibited Conduct (but only as applied to the Real Estate Settlement Procedures Act of 1974 ("RESPA") and the Interstate Land Sales Full Disclosure Act ("ILSA"))

3. Land Registration

4. Purchasers' Revocation Rights, Sales Practices, and Standards

5. Formal Procedures and Rules of Practice

6. Real Estate Settlement Procedures Act

7. Investigations in Consumer Regulatory Programs (but only as applied to RESPA and ILSA)

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Bureau of Consumer Financial Protection
Identification of Enforceable Rules and Orders, Notice for Public Comment
Federal Register, Vol. 76, No. 104.
May 31, 2011 - Rules and Regulations

FinCEN: Elder Abuse - Red Flags

On February 22, 2011, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to assist the financial industry in reporting instances of financial exploitation of the elderly, a form of elder abuse.

Financial institutions can alert appropriate authorities to suspected elder financial exploitation. We have previously provided notification about the increase in elder abuse in financial transactions. And FinCEN has notified the public about this upward trend, using SARs as an important method to identify this form of financial exploitation.

There are important RED FLAGS relating to financial exploitation of the elderly, and we provide a list below and suggest appropriate action to implement them. 

FinCEN's Advisory states:

• In the instances where elderly individuals experience declining cognitive or physical abilities, they may find themselves more reliant on specific individuals for their physical well-being, financial management, and social interaction.

• Although anyone can be a victim of a financial crime such as identity theft, embezzlement, and fraudulent schemes, certain elderly individuals may be particularly vulnerable.

SUSPICIOUS ACTIVITY

Financial institutions may become aware of persons or entities:

Perpetrating illicit activity against the elderly through monitoring transaction activity that is not consistent with expected behavior of elderly customers.

ILLICIT ACTIVITY

Financial institutions should evaluate indicators of potential financial exploitation in combination with other red flags and expected transaction activity being conducted by or on behalf of the elder. Additional investigation and analysis may be necessary to determine if the activity is suspicious.

RED FLAGS

Erratic or unusual banking transactions, or changes in banking patterns:

• Frequent large withdrawals, including daily maximum currency withdrawals from an ATM;

• Sudden Non-Sufficient Fund activity;

• Uncharacteristic nonpayment for services, which may indicate a loss of funds or access to funds;

• Debit transactions that are inconsistent for the elder;

• Uncharacteristic attempts to wire large sums of money;

• Closing of CDs or accounts without regard to penalties.

Interactions with customers or caregivers:

• A caregiver or other individual shows excessive interest in the elder's finances or assets, does not allow the elder to speak for himself, or is reluctant to leave the elder's side during conversations;

• The elder shows an unusual degree of fear or submissiveness toward a caregiver, or expresses a fear of eviction or nursing home placement if money is not given to a caretaker;

• The financial institution is unable to speak directly with the elder, despite repeated attempts to contact him or her;

• A new caretaker, relative, or friend suddenly begins conducting financial transactions on behalf of the elder without proper documentation;

• The customer moves away from existing relationships and toward new associations with other "friends" or strangers;

• The elderly individual's financial management changes suddenly, such as through a change of power of attorney to a different family member or a new individual;

The elderly customer lacks knowledge about his or her financial status, or shows a sudden reluctance to discuss financial matters.

ACTION

A financial institution's Identity Theft Prevention Program - Red Flags (Program) should be updated immediately to include red flags that may indicate the financial exploitation of elderly customers.

• Although the subject FinCEN issuance does not specifically require revision to the Identity Theft Prevention Program - Red Flags, the 26 Red Flags listed in 12 CFR Part 41, Supplement A to Appendix J are not meant to be comprehensive, and assume all applicable federal laws and regulations.
• The Program's goal is to detect and identify Red Flags, and establish, implement, maintain, and update reasonable policies and procedures to identify, detect, and mitigate identity theft through a financial institution's own efforts and those of its loan originators, affiliates, and third party vendors.
• A component of the Program is to ensure that it is updated, as needed and as appropriate to the specific financial institution, to reflect changes in the law, changes to the risks to customers, and to the safety and soundness of the financial institution from identity theft. 
• Since forms of identity theft can occur in the financial exploitation of the elderly, it is important to update the Program for red flags involving such financial exploitation immediately.

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Advisory to Financial Institutions on Filing Suspicious Activity Reports
Regarding Elder Financial Exploitation
FIN-2011-A003
February 22, 2011

CFPB: Announces Website

On February 3, 2011, the U.S. Department of the Treasury announced the launch of a ‘beta’ Consumer Financial Protection Bureau (CFPB) website, ConsumerFinance.gov, the stated purpose of which is to provide "a critical link to the American public for soliciting ideas on the bureau's creation and priorities and for answering questions on its work." 

WEBSITE STRUCTURE

• Blog
• The Bureau
• Protecting you
• Get help now
• Suggest
• Receive Updates
• Small Financial Services Providers
• Protecting You

Selected Sections

Open for Suggestions

• For use by consumers, businesses, and anyone who is interested in making consumer financial services markets work better for everyone.

• This feature encourages communication directly with the CFPB implementation team through YouTube video questions, but suggestions can also be accepted through e-mail and other forms of online communication.
• Comments from the public will help the CFPB implementation team understand what consumers and financial services providers need and will inform the work of the bureau.

Interactive Display of Elizabeth Warren's Daily Calendar

• One of the items most frequently-requested by the public is Elizabeth Warren's calendar.

• The CFPB implementation team has put her calendar online in an interactive, clickable format.
• Users can explore who Warren is meeting with and hearing from through the online tool, or they can download the iCal feed, subscribe via RSS, or view the calendar as a FOIA-compliant PDF file.

Additional Resources

• Selected financial education materials provided by other government agencies.
• Tool for determining the agency with current authority for overseeing different providers of financial products and services (so that consumers can find help with their financial problems with the responsible agency while the CFPB is getting underway).

SOCIAL MEDIA LINKS 

Individuals can follow CFPB on several social media sites:

Facebook

Twitter

YouTube

Flickr

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Treasury Department Announces Launch of 'Beta' Consumer Financial Protection Bureau Website - Press Release
February 3, 2011

CFPB: Signs Memorandum with CSBS

On January 4, 2011, the Treasury issued a Press Release, entitled:

Federal Consumer Agency to Partner with State Regulators on Supervision of Providers of Consumer Financial Products and Services, Including Mortgage Lenders, Private Student Lenders and Payday Lenders

According to the Press Release, the Consumer Financial Protection Bureau (CFPB) and the Conference of State Bank Supervisors (CSBS) signed a Memorandum of Understanding (MOU) that sets forth an initiative for state regulators and the CFPB to endeavor to "promote consistent examination procedures and effective enforcement of state and federal consumer laws and to minimize regulatory burden and efficiently deploy supervisory resources."

I have covered the CFPB since its inception as a potential agency to its actual creation through the Dodd-Frank Act. If you want to read some background, please feel free to visit our Library and download these articles.

• Part III: Consumer Financial Protection - Bureau and Bureaucracy (10/10)

• The CFPA Controversy: Asking the Tough Questions (10/09)

• The Birth of an Agency (Consumer Financial Protection Agency) (09/09)

Or visit our general Archive for the compliance updates.

The MOU also provides that "state regulators and the CFPB will consult each other regarding the standards, procedures, and practices used by state regulators and the CFPB to conduct compliance examinations of providers of consumer financial products and services," including non depository mortgage lenders, mortgage servicers, private student lenders, and payday lenders.

In the Press Release, Elizabeth Warren, the Special Advisor to the Secretary of the Treasury on the CFPB, stated: "This agreement allows us to bring thousands of financial service providers out of the shadows and to begin the process of ensuring that all lenders comply with the same basic rules."

And Thomas Gronstal, Chairman of the CSBS, stated: "The formalized coordination between the states and the federal government established by the MOU will do much to create a comprehensive and seamless system of financial supervision and is a step toward a more cooperative system of supervision, which will benefit consumers and financial services providers alike."

Essentially, the MOU outlines three areas of cooperation:

1) Promoting consistent examination procedures and enforcement of state and federal consumer laws;

2) Minimizing regulatory burden and efficiently deploying supervisory resources; and,

3) Consulting each other regarding the standards, procedures, and practices used to conduct compliance examinations of providers of consumer financial products and services, including non-depository mortgage lenders, mortgage servicers, private student lenders, and payday lenders.

Best wishes,

Jonathan Foxx

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Memorandum of Understanding: CFPB and CSBS Press Release
January 4, 2011

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

CFPB: First FEDERAL REGISTER Issuance

COMMENTARY: by Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

_________________________________________

A new era in residential mortgage loan originations has now begun with the issuance of the announcement of a designated transfer date for transferring specific enumerated authorities from the purview of other agencies to the Consumer Financial Protection Bureau.

Our firm has issued Mortgage Compliance Updates and Compliance Alerts relating to the mortgage reform act. We have also opened a new section in our Library for the CFPB, and if you want to read the legislation, that too is available in our Library.

And, as many of you know, I have written extensively on the new mortgage reform legislation and will continue to do so.

You might want to read the following articles, all published in the National Mortgage Professional Magazine, the nation's highly respected magazine devoted to mortgage banking:

• The Birth of an Agency: Consumer Financial Protection Agency
  • (September 2009 Edition)

• The CFPA Controversy: Asking the Tough Questions
  • (October 2009 Edition)

• Landmark Financial Legislation: New Rules for Mortgage Originators - Part I: Reformation and Regulations
  • (August 2010 Edition)

• NOTE: Part II - forthcoming this month in the September edition. Part III - forthcoming in the October edition.

On September 17, 2010, President Obama appointed Elizabeth Warren as an Assistant to the President and a Special Adviser to the Treasury Secretary, with responsibility to establish the CFPB.

Elizabeth Warren was not named the first Director (a five year post that requires Senate confirmation). Given her unique abilities, and the support of the President and Treasury Secretary, there is every reason to believe that she will bring insight, energy, and fairness to the position entrusted to her.

Overview

On September 20, 2010, the very first issuance regarding the Bureau of Consumer Finance Protection (CFPB) was published in the Federal Register.

In accordance with the Consumer Financial Protection Act of 2010 (CFP Act), the Secretary of the Treasury, Timothy Geithner, designated July 21, 2011 as the date for the transfer of functions to the CFPB.

On July 21, 2010, the President signed into law the CFP Act (i.e., Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act). Section 1062 of the CFP Act, in relevant part, requires the Secretary to designate a single calendar date for the transfer of functions, under section 1061, to the CFPB.

Therefore, on the ''designated transfer date'' of July 21, 2011, certain authorities will be transferred from other agencies to the CFPB, and the CFPB will be able to exercise certain additional, new authorities under the CFP Act and other laws.
Henceforth, we will be tracking CFPB announcements and issuances as well as any Treasury issuances pertaining to the CFPB.

_________________________________________

If you have any questions about this matter,

please email me.

_________________________________________

Highlights

Orderly and Organized Start-Up

• Congress contemplated that the lead time for the ''orderly implementation'' of the CFPB's functions could range between 6 to 18 months after the date of enactment.

• To fulfill the statutory goal of an ''orderly and organized startup'' of the new agency, the CFPB should be provided a reasonable period of time to develop its operations and organization prior to the transfer of functions and employees from other agencies.

• A transfer date of July 21, 2011, 12 months after the date of enactment, will provide the CFPB an appropriate period of time to hire and assign employees to support its new functions, as well as to plan and make important decisions necessary to build a strong foundation for the new agency.

Functions of the CFPB

• On July 21, 2011, the ''consumer financial protection functions'' currently carried out by the Federal banking agencies, as well as certain authorities currently carried out by the Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC), will be transferred to the CFPB.

• As of July 21, 2011, the CFPB will assume responsibility for consumer compliance supervision of very large depository institutions and their affiliates and promulgating regulations under various Federal consumer financial laws.

• Within 90 days after July 21, 2011, the transfer of certain employees from six of those agencies to the CFPB must also occur.

• Effective July 21, 2011, new authorities of the CFPB under subtitle C of the Act, as well as other consumer protection provisions, will become effective.

Intervening Period

• In the intervening period, the CFPB will lay the groundwork for an efficient transfer and prepare for consumer protection activities after July 21, 2011.

• For instance, prior to July 21, 2011, the CFPB will:

• begin to conduct research relating to consumer financial products and services,
• develop its nationwide consumer complaint response center,
• plan and take steps to implement the risk-based supervision of non-depository covered persons, and
• prepare for the opening of outreach offices.

• Development of the supervision program for certain non-depository covered persons is particularly significant because no Federal agency previously has had the responsibility of supervising these entities, such as payday lenders, mortgage companies, debt collectors, and consumer reporting agencies.

• Prior to July 21, 2011, the CFPB will begin building the supervision program, including hiring and training examination staff and making preparations necessary to begin a risk-based supervision program.

The CFPB will also work during the intervening period to prepare for the new authorities that will transfer or take effect as of July 21, 2011, for instance by planning the orderly integration of bank, thrift, and credit union examiners from five different Federal agencies and preparing for rulemakings required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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CFPB: Designated Transfer Date
Federal Register, Vol. 75, No. 181
September 20, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Housing Finance Conference: A Case of Extremes

by Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

__________________________________________

Yesterday I went to the Conference on the Future of Housing Finance, held in DC, and hosted by the Treasury. Washington, DC this time of year can be brutally hot and humid - and yesterday was no exception - but the air conditioned conference rooms did little to keep me from getting hot around the collar over the temporizing and equivocating that went on. I guess if you're into photo ops, political peacock preening, media hype, and assorted horse and pony show tactics, it could be considered an entertaining way to spend the day.

But all is not lost. There were some interesting and timely suggestions.

Of course, I was glad to meet friends and acquaintances. But this was not a social event; it was a deadly serious attempt at understanding the deficiencies of the housing finance system, with the goal of seeking ways to prevent future crises. Maybe it's somewhat naive, but I actually expected more from the gathering of such a prestigious and experienced group of industry people, some of whom I have worked with over the years and do admire. There were two large group sessions and several break-out sessions. Sometimes, though, too many powerful vested interests can ruin a good thing!

I want to share with you some observations about the conference in general and Fannie and Freddie (GSE) in particular. In my previous Commentary, I listed a set of core questions that should be considered in any discussion these days about the GSEs. I did not leave the Conference with a strong sense that these questions were answered, or, in some instances, even considered. But it is a worthwhile exercise to highlight some of the suggestions made and the positions staked out by certain participants, if for no other reason than it lets us know the potential direction things may go in the future.

Secretary Geithner stated that the Administration is going to advocate for "fundamental change." High on that list, it seems to me, is the fate of Fannie Mae and Freddie Mac (GSE). Geithner said, and I quote, "We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support."

Of course, this begs the question by not affirmatively stating that it is the implicit guaranty of the government's support which is (1) factored into secondary market pricing, (2) a determinant of securitization values, and (3) at the core of housing policy for the 75 years of the GSEs' existence. Geithner did say that "the challenge is to make sure that any government guarantee is priced to cover the risk of losses and structured to minimize taxpayer exposure." But I find this view to be an equivocation, because it does not adequately consider actual market forces. It is also an indication of the difficulties in harmonizing these competing interests.

Michael Heid, co-president of Wells Fargo Home Mortgage, realizes the central role the GSEs play in establishing a market. In his view, "the maximum use of private capital is essential, but we also believe that an explicit government guarantee will be required to ensure that there's reliable flow of mortgage credit." Spoken like a true mortgage banker!

One suggestion - made by Bill Gross, co-founder of Pacific Investment Management Co. (PIMCO), the world's biggest bond fund - was for the government to provide a "new refinancing program" for GSE mortgages. In this view, the refinance becomes a stimulus to the tune of $60 billion and perhaps an increase of 10% in housing prices. An interesting suggestion. Based on my conversations with some pretty savvy conference participants, it's not going to happen. In my view, this is clearly a position that suggests much greater government involvement.

Mark Zandi, the Chief Economist of Moody's, was a panelist. He took an odd middle-of-the-road view between the extremes of privatizing most aspects of housing finance and nationalization. He pointed to government subsidies, such as the mortgage interest tax deduction, and said that the housing market is "over subsidized." So, he wants to reduce or eliminate some subsidies, while also looking to the government to play a "large role." Is it me, or does anybody else find a contradiction here?

Next to me sat an old friend and client, whose firm handles MBS trading in significant volume. He leaned over to me while Zandi was speaking and said, "do they have any clue, when they talk like this, that this extreme thinking of nationalizing versus privatizing is going to be priced into the market?" We met later in a break-out session, and he was still shaking his head.

On the extreme end of privatizing, Alex Pollack, of the American Enterprise Institute, would like government to be removed from support of housing finance, or so it seems, except for specific programs related to affordable banking such as those available through HUD. Compare that to the suggestion of panelist Lewis Rainieri, the pioneer of securitization and mortgage-backed securities, who noted that there are over 2,000,000 units now on the market and the government should consider supporting rent-to-own financing for qualified borrowers.

I guess things might be more clearly focused if the Dodd-Frank Act had properly addressed the fate of Fannie Mae and Freddie Mac in the first place. But it didn't. Maybe their fate was just too politically hot to handle in that legislation. Maybe having reached 2319 pages, the legislators had to stop somewhere. In any event, the task of saving or re-inventing the GSEs is clearly one of the most important domestic issues now.

In a future Commentary, I will provide my view of the grand plan - or Faustian bargain! - that seems to be emerging about the future structure and role of the GSEs and other housing finance issues.

I would welcome your questions and comments.
Please feel free to email me at any time.

_____________________________________

Lenders Compliance Group is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Treasury Announces: Housing Finance Conference

In April 2010, Treasury and HUD issued a set of questions for public comment on the future of the housing finance system, which has received more than 300 responses from a broad cross-section of consumer groups, industry groups, market participants, members of the public, think tanks, and other stakeholders.

These responses are meant to provide input and perspective in the development of a comprehensive reform proposal. Written comments should have been sent to the Treasury for receipt by June 21, 2010 to be assured of consideration.

On August 17, 2010, the Treasury will host a Conference on the Future of Housing Finance in Washington D.C. This event brings together leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders for an open discussion about housing finance reform.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director.

Highlights

Questions

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

3. Should the government approach differ across different segments of the market, and if so, how?

4. How should the current organization of the housing finance system be improved?

5. How should the housing finance system support sound market practices?

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

7. Do housing finance systems in other countries offer insights that can help inform U.S. reform choices?

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Public Input on Reform of the Housing Finance System
Department of the Treasury and Department of Housing and Urban Development
Federal Register, Vol. 75, No. 77, Notices (4/22/10)

Lenders Compliance Group is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.