Commercial banks will have to do more than just look at the credit rating on a security before deciding it qualifies as a potential investment under a proposed rule issued by the Office of the Comptroller of the Currency this week. The Federal Deposit Insurance Corp. is scheduled to consider a similar proposal next week. Under marching orders from the Dodd-Frank Act, bank regulators have been removing references to external credit ratings from a variety of regulations – even though banks themselves don’t agree with the change. Most commenters on earlier proposals from...

Rep. Barney Frank, co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act, will not run for office when his term expires in 2012. The Massachusetts Democrat also served as the ranking minority member on the House Financial Services Committee. Frank said during a press conference this week that his decision not to run again “was precipitated, but not caused by, redistricting.” A member of Congress since 1980, the 71-year-old lawmaker pledged to remain an advocate for the two causes he views as most important: the protection of financial reform and the...

The mortgage banking industry has been lobbying the Consumer Financial Protection Bureau and Congressional staff recently, expressing its concerns in particular with the ability-to-repay/qualified mortgage proposed rule. Lenders of all sizes expressed their concerns about automated underwriting systems, widely accepted standards, implementation concerns, points and fees restrictions and the need for a legal safe harbor. But the legal safe harbor remains the most important of these issues to most lenders. “The QM ability-to-pay rule has enormous liability associated with it,” an industry lobbyist confided. “The issue there is, if we don’t have a really solid definition as to what a qualified mortgage is, and we don’t have a safe harbor and the guidelines are firm – the industry’s got enormous potential liability and is likely to be sued all the time.”

The regulatory burden of the Dodd-Frank Act creates pressure on community banks to hire additional compliance staff instead of customer-facing staff, reducing resources that could be directly applied to serving a bank’s customers, resulting in fewer mortgages getting made, slower job growth and a weaker economy, according to Steve Wilson, the American Bankers Association’s immediate past chairman. The Dodd-Frank provisions he cited as particularly troubling for community banks include risk retention, higher capital requirements, narrower qualifications for capital, and doubling the size of the deposit insurance fund – taking as much as $50 billion out of the earnings and capital of the industry in the process. “The Dodd-Frank Act also requires 20 new Home Mortgage Disclosure Act reporting obligations,” Wilson said in a speech last week. “These and other reporting requirements will add considerable compliance costs to every bank’s bottom line.”

Federal Housing Finance Agency.Office of the Comptroller of the Currency. Single Uniform Audit Program discussed. Representatives of mortgage servicing and foreclosure law firms met with officials from the Federal Housing Finance Agency and the Office of the Comptroller of the Currency recently to discuss development of a Single Uniform Audit Program to replace the individual servicer reviews of foreclosure law firms as required by the bank regulators’ consent orders and regulatory directives. Industry reps are said to be developing a straw-man proposal.

The Government Accountability Office recently confirmed the view widely held in the mortgage finance industry that federal regulators are not doing enough to analyze the cost and other effects of implementing the Dodd-Frank Act. “Little is known about the actual impact of the final Dodd-Frank Act rules, given the short amount of time the rules have been in effect,” the GAO said. The government watchdog noted that federal financial regulators are required to perform a variety of analyses, but the requirements vary and none of the regulators are...

Most of the major players in mortgage securitization support some of the new disclosures floated by the Securities and Exchange Commission in its revised shelf eligibility proposed rule – with a number of key changes and clarifications. Reflecting the investor’s perspective, the Asset Management Group of the Securities Industry and Financial Markets Association again “enthusiastically supported” the SEC’s proposal to mandate standardized disclosure at the asset level, believing that all of the asset-level data fields should be mandatory. “Well functioning markets require the disclosure of as much relevant asset-level data as...

Mortgage servicing shops should soon expect extra-special scrutiny from the Consumer Financial Protection Bureau and perhaps even a visit by bureau examiners as part of a servicer supervision strategy announced late last week. “Mortgage servicing has a huge impact on consumers and is a priority for the CFPB,” said Raj Date, special advisor to the Secretary of the Treasury for the CFPB. “The mortgage servicing market has been bogged down by widespread reports of pervasive and profound consumer protection problems. We are going to take a close and measured look at whether servicers are following the law.” The CFPB has indicated that...

The Securities and Exchange Commission has made a good bit of progress in updating its proposal for shelf eligibility conditions for ABS in light of industry comments and the passage of the Dodd-Frank Act. However, there are still numerous areas that concern major players in the mortgage finance industry. A number of commenters took issue with the SEC’s proposal to impose an additional executive officer certification requirement. The agency originally proposed requiring the issuer to file an exhibit to the registration statement consisting of a certification of the chief executive officer of the depositor that, to his or her knowledge, “the securitized assets backing the issue have...

Securitization market participants continue to face significant uncertainty from regulatory forces on both sides of the Atlantic that is dampening securitization activity, raising costs and probably leaving some deals undone. Much of the problem stems from capital requirements and the use of credit ratings, which have fallen into disrepute among many lawmakers and regulators in the wake of the collapse of the subprime mortgage market and the resulting credit market freeze in 2008. After last year’s enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve, the Federal Deposit Insurance Corp., the...