The Feds Reorganizing the Financial System
By: Myles, March 31st, 2008
As reported by Matt Carter of Inman News, the Bush administration on Monday, March 31, 2008 — in reaction to the financial and real estate markets collapse — has put forward a sweeping plan for reorganizing the regulation of the financial system that would include national licensing standards for mortgage brokers and the elimination of federally chartered thrifts.
But not so fast: Many of the major aspects of the plan unveiled by Treasury Secretary Henry Paulson would require congressional approval, and are not likely to be achieved during President Bush’s final year in office, Paulson acknowledged. Here are few of the proposed highlights:
New Mortgage Originator Licensing Requirements:
w One of the blueprint’s short-term recommendations (and one likey to gain quick approval) — national licensing standards for mortgage originators — is similar to proposals put forward by congressional lawmakers and was welcomed by the ABA and other industry groups, including the National Association of Mortgage Brokers.
w HR 3915 would require all mortgage originators to be licensed at either the state or federal level, but does would not create uniform national lending standards advocated by industry groups like the Mortgage Bankers Association.
So what would the new Federal Reserve look like:
w The plan envisions just three federal regulators: (1) the Federal Reserve, which would be granted expanded powers to serve as a market stability regulator; (2) a single “prudential financial regulator” of banks instead of the five agencies in place today; and (3) a “conduct of business regulator” similar to the Securities and Exchange Commission to oversee financial firms.
w The Federal Reserve’s current limited role would be expanded to make the Fed, according to Paulson, the market stability regulator; evaluating capital, liquidity and margin practices across the financial system with the “authority to go wherever in the system it thinks it needs to go for a deeper look to preserve stability.
w The Fed would collect information from commercial banks, investment banks, insurance companies, hedge funds and commodity pool operators, with a focus on whether a firm’s or industry’s practices threaten overall financial stability, rather than the financial health of individual companies.
The elimination of Federal Thrifts: The most controversial aspect of that plan may be a proposal to eliminate the federal thrift charter and close the Office of Thrift Supervision. According to Paulson, Thrifts have lost market share to commercial banks and government-chartered mortgage financers Fannie Mae and Freddie Mac, as well as private-label issuers of mortgage-backed securities, the report said. Commercial banks surpassed thrifts in total dollar volume of residential mortgage assets in 1993, and held more than twice the volume of home loans at the end of 2006 ($2.1 trillion, compared with $870 billion for thrifts).
The new Federal role over State Banking Regulation: The blueprint recommends allowing states to continue enforcing their own separate regulations of mortgage origination practices, while creating a new federal-level commission, the
Mortgage Origination Commission.
w The commission would evaluate, rate, and report on the adequacy of each state’s system for licensing and regulating mortgage originators, and develop uniform standards for state licensing.
w The report recommended that the Federal Reserve continue to write regulations implementing national mortgage lending laws such as the Truth in Lending Act.
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