Financial Reform Watch

In Pursuit of Financial Stability

There was plenty of activity in Washington this week but none of it enough to settle the roiling stock market, which keeps sinking like a rock. Is there too much activity or not enough of the right kind of activity?

From the White House and the Treasury—The Obama Administration released the details of its “Making Home Affordable” program, which was introduced in February. With incentives for mortgage holders and servicers, audit and documentation requirements, and qualification limits, major industry players such as the Mortgage Bankers Association and the American Bankers Association reacted positively to the new details.

From the Treasury—Secretary Tim Geithner was on Capitol Hill most of the week defending and explaining the president’s budget proposal, especially the $250 billion “contingent reserve” amount in the Treasury budget to support up to $750 billion worth of asset purchases. Geithner assured the Senate Finance Committee that the $750 billion is not an estimate of future rescue efforts, but rather “just a recognition of reality that it’s possible we’re going to need to do this with more resources.” The Secretary promised to provide more details in the coming weeks on future bailout efforts, including plans for the remaining $300 billion of TARP funds, and the eagerly anticipated public private partnership to take on troubled assets.

From Congress—The House passed the mortgage cramdown bill last night (234-191), which would allow bankruptcy judges to restructure mortgage rates and principal amounts. In order to garner enough support from moderate Democrats, the measure is limited to existing mortgages, requires homeowners to give their lenders at least 30 days notice before filing for Chapter 13 bankruptcy, and instructs judges to determine whether homeowners had taken advantage of loan workout options. The Senate may take up the bill as early as next week, but it is expected to hit some speed-bumps. The influential moderate Republican Sen. Arlen Specter (R-PA) thinks the bill as it stands will discourage mortgage lending and wants to limit bankruptcy judges to modifying only rates not principal amounts. Some Democrats have also raised red flags over the possible negative consequences of the current bill, including Senators Claire McCaskill (D-MO) and Tom Carper (D-DE. Our bet is the Senate will either weaken the bill substantially or kill it.

From the House—Financial Services Chairman Barney Frank announced his committee’s upcoming schedule. They plan to hold hearings throughout March on financial regulatory restructuring, including proposals for a “strongly empowered systemic risk regulator;” prudential supervision standards; increased consumer and investor protections; and improved enforcement. Frank anticipates the full House will vote this month on bills aimed at curtailing abusive lending practices and reforming credit card and overdraft practices viewed as harmful to consumers.

From the Senate—Senators Chuck Schumer (D-NY) and Dick Durbin (D-IL) are introducing legislation to create a “Financial Product Safety Commission” to consolidate consumer protection regulations under one super regulator. Senators Byron Dorgan (D-ND) and John McCain (D-AZ) introduced a bill to create a new, bipartisan select Senate committee on what led to the financial crisis. The Senate Banking and Finance Committees have held numerous hearings on the subject, and this new committee would temporarily “relieve” them of that burden. However, from what we are hearing, the chairmen and ranking members of those standing committees are not keen on handing off that responsibility.

Treasury: Making Home Affordable - Summary of Guidelines (PDF)

Treasury: Making Home Affordable - Updated Detailed Program Description (PDF)

Treasury: Making Home Affordable - Modification Guidelines (PDF)


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