Archive for March, 2011
The Federal Reserve Bank of New York, which oversees some of the largest U.S. financial firms, has reorganized its bank supervision group to strengthen its oversight capabilities.
The division has been renamed the Financial Institution Supervision Group, in a nod to the Fed’s expanded authority under the Dodd-Frank Act, according to the New York Fed’s website. The Dodd-Frank Act, signed into law by President Barack Obama in July, gave the Fed authority for overseeing non-bank financial firms deemed “too big to fail” because their collapse might pose a risk to the financial system.
“Some of this is about changing a mindset internally, as well as reflecting externally that we have a broader mandate now under Dodd-Frank,” Sarah Dahlgren, who became head of the group on Jan. 1, told Bloomberg News on March 18 when asked about the changes. “We’re going to have to increase resources.”
Analysts at Moody's Investors Service said Monday regulators may exempt Fannie Mae and Freddie Mac from upcoming mortgage risk retention rules – at least temporarily.
The Dodd-Frank Act directed federal regulators to determine the standards for a qualified residential mortgage. Securitizers must retain 5% of the credit risk on loans written outside these standards, which may include a possible 20% down payment.
Securitizers are allowed to pass the risk-retention requirement to originators, and Moody's expects the GSEs to do so if they aren't exempt.
Speaking before the Senate Banking Committee last week, Treasury Secretary Timothy Geithner and Department of Housing and Urban Development Secretary Shaun Donovan said the GSEs would not be exempt from the qualified residential mortgage rules. However, other regulators maintain the GSEs would be exempt as long as they are in conservatorship.
Moody's analysts said many market participants had hoped for the exemption given the fragile state of the housing industry, but another possibility would be a QRM definition fitting closely to the current GSE underwriting standards.
Consumer advocacy and trade groups, including the National Association of Realtors wrote a letter to the regulators in March, expressing concern over the high down payments, noting that "hundreds of thousands" of creditworthy borrowers would be shut out of the market.
"While we support a reasonable and affordable cash investment requirement, that requirement can be coupled with other underwriting features to ensure loan sustainability without unnecessarily narrowing access to credit," according to the letter.
Federal regulators are scheduled to propose new QRM rules April 8, according to Dodd-Frank, and Moody's expects that by the second quarter of 2012, securitizers of new transactions must begin holding the risk. Loans outside of these standards will become scarce, analysts said, and those that are offered outside of QRM rules will come with high mortgage rates.
Analysts did admit it was difficult to pin down how scarce these loans would become, but given the growth of GSE market share coming out of the crisis (click on chart below to expand) rules written with noticeably stricter requirements will not be good for a market still trying to recover.
"Owing to an increase in mortgage rates and a decrease in mortgage availability, anything more than a minor portion of GSE loans being subject to risk retention will be negative for the fragile U.S. housing market and, in turn, holders of mortgage credit," Moody's said.
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Is President Obama up for a Senate confirmation fight over Elizabeth Warren? Maybe not right now. But that’s just the sort of rhetorical rumble Barney Frank would like to see.
The former Democratic chairman of the House Financial Services Committee, who co-authored the Dodd-Frank financial regulation bill, tells MSNBC’s “Morning Joe” that Warren might survive a confirmation battle.
