Reverse Mortgage Legislation Update – January 21, 2010

Senator Chris Dodd (D-CT) and President Obama met face-to-face on Tuesday. Reports suggest that Dodd may drop the proposed Consumer Financial Protection Agency from the emerging Senate Financial Services Bill, in order to gain the support of some Republicans and centrist Democrats. One administration official said the President’s position in favor of the inclusion of the Consumer Financial Protection Agency in the bill is, “nonnegotiable.”

President Obama proposed a new tax on the nation’s biggest banks to pay for the financial bailout. Several leading reverse mortgage lenders, such as Bank of America, MetLife, and Wells Fargo, are included in this category.

The Federal Housing Authority (FHA) announced a series of sweeping changes on Wednesday to help the agency restore its financial reserves and reduce its risk.


HUD announced this week that it is expanding a temporary policy to help borrowers access FHA mortgage insurance and allow for the quick resale of foreclosed homes. HECMs are specifically exempted.

With the victory of Scott Brown (R-MA) in the special election to fill the late Senator Ted Kennedy’s seat, the Democrats have lost their 2/3 majority in the Senate, enough to overcome any vetoes.

Brown’s victory also concerns Democrats who are worried that their party will suffer heavy losses in the midterm elections this fall.

President Obama’s State of the Union address is planned for January 27, 2010.

Write to Reva Minkoff

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    • Stocks are down becasue of the 40,000 new people that filed unemployment claims last week, China is cutting back on bank lending and they have been way over bought because of artificially low interest rates that have only one way to go.

      The big banks owe us. We lent them billions for risk free purchases of failed banks, they are the first sector to regain health becasue of that, they have had no new regulations imposed, will continue to take on undue risk, and are too big to fail.

    • Stock market is up about 25% over the last year. I'm not sure that's any more of a reflection of the market's view of Obama than a 200 point drop in one day is.

      The market was most likely responding to the jobs numbers, as was previously mentioned.

  • Reva,

    Not since the heydays of President Lyndon Baines Johnson has any political party had a 2/3rds majority in the U.S. Senate. Until Senator-elect Scott Brown (R-MA) is seated, the Democrats still have a 60% control in the Senate. 60% is not enough to override a Presidential veto but it is sufficient to stop a filibuster in the Senate.

  • Kevin:

    Huh, I didn't see any of those reasons stated on CNN, CNBC, MSNBC, or Fox Business News.

    Seems like everyone is saying the same thing as CNBC, “Financials Lead Selloff as Obama Rattles Street”.

    • I am not promoting this concept but the rational is that the banks caused the financial crisis and TARP is its direct result. If some cannot pay the TARP monies back (especially money that went to Detroit), then those who caused the problem will pay for them.

  • How Obama has rocked the streets today is in announcing proposed restrictions on bank operations. He is proposing no more bank involvement in hedge funds and other financial vehicles. Many are questioning if this move is not a few years premature. Obama gave full credit to economist Paul Volcker for the proposal.

  • Shannon..repaying the Tarp funds is payment for our helping the banks survive. The FED has been buying Treasuries and Mortgage Backed bonds to keep rates artificially low and stabilize the bad assets the banks still own enabling the banks to artificially increase risk free earnings. They are not making money from traditional banking activities, like lending. Why should you and I enable the banks to do all that without getting paid? In 15 or 20 years who do you think will be footing the bill for saving them again? In terms of them passing additional levies on to us, recent and future regulatory changes will have lessened their ability to do so.

    • Kevin,

      There is no question that regulation can stop direct methods of passing levies, fees, and taxes to consumers, but with a little effort, there are many indirect ways to do it.

      In Jurassic Park, the phrase, “life will find a way,” was used. If the banks survive the current wave of negativity, they will find a way to pass it along whether now or under a more friendly administration. They can afford to wait it out.

  • I'm not a big fan of the banks for the Fed for that matter.

    And I do think they should repay their TARP funds quickly. That being said we have always seen taxes land in the laps of the consumer. Additional regulations will make banks take a less obvious route to pass on the cost of the new tax, but nonetheless the consumer will pay the bill.

    Remember Congresses helpful bill for credit card reform? The industry responded by jacking up rates across the country before the bill went into effect. I feel the tax on banks is an attempt to score points with the public for going after the boogey man, but it's real effect may do more harm than good.

  • There is a moral hazard inherent in allowing banks to invest in certain risky lines of business, since at least some of their liabilities are insured by the FDIC. Because of that they should not be allowed to operate in certain financial areas in my opinion, and I welcome rolling back some of those changes that were made in the Gramm-Leach-Blily Act of 1999. Raising taxes on those “greedy bankers” may put a smile on the faces of some, but it will only increase costs to consumers. It does make sense to risk-weight FDIC insurance premiums.

  • Well said Lance. Banks managing Hedge Funds and such are ultimately playing with taxpayer dollars. Our system of fractional banking and bailouts by the FDIC only seem to encourage risky business practices to chase after big returns.

  • To a reasonable extent of their fair market equity, banks should be allowed to invest assets in any legal manner they see fit. Why not? I agree with Lance, however, that FDIC insurance premiums should be risk based.

    What I deplore are speculative deriviatives. If something needed regulation and trimming back it is this worst of legally existing instruments. AIG is effectively gone because of them and it is with AIG that a portion of TARP is still at risk.

    Last year we heard how speculative derivatives would be regulated and brought into control. Where are those laws and regulations? This is the hard work and everyone has seemed to put it to the back burner and turned off the heat.

  • Derivatives came about because banks needed to protect earnings streams from the stuff banks are chartered to do. The problem is after traders felt they were invincible becasue of all the hedging derivatives allowed them to put in place that they decidied that derivative trading would be a great new earnings stream. That's when the FED said derivatives needed to be regulated. When they began to be used for speculation and they turned out to be right. It all started after Glass Steagle was repealed under the Clinton administration. Commercial banks were allowed to do what Investment Banks were doing and vice versa. Obama is basically saying we need a new Glass Steagle and he's right. Strap yourselves in, banks stocks and stocks in general are going down.. harder than people expect.

  • Kevin,

    Wikipedia got it right when they speak of futures contracts as the simplest form of drivatives. One of their original uses was to reduce risk in the farming transaction and that use goes back many, many decades if not centuries ago.

    As you point out, it was the actions of the Clinton Administration that allowed the financial markets to create and trade speculative and risky derivatives that were little more than gambling on the outcome of future events. It is said that one investment house declared their disappointment that more product was not being created. One is said to have proclaimed that if a cow could have written one, they stood able and willing to sell it.

    Eventually the situation became so bad and they were so speculative and poorly written that only the authors of the instrument were believed able to determine their market value. It is hard to believe that a society with so many financial safeguards allowed itself to become victim to these instruments to the extent we did.

  • Stock market is up about 25% over the last year. I’m not sure that’s any more of a reflection of the market’s view of Obama than a 200 point drop in one day is. rnrnThe market was most likely responding to the jobs numbers, as was previously mentioned.

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