December 24, 2015
Wall Street Naughty List
Law360 quoted me in Checks Needed For Naughty List To Improve Wall Street’s Rep. It reads, in part,
Wall Street banks may back a push to create a central registry of employees who misbehave in a bid to improve internal culture at the country’s biggest banks, but worries about the accuracy of any potential list and other due process concerns have given some observers pause.
Federal Reserve Bank of New York President William F. Dudley has been advocating for the creation of such a central registry that can be used by banks when recruiting new talent as a way to make sure that serial rulebreakers are kept out of the biggest banks. And a readout of a meeting on bank culture with Wall Street bigwigs in November appear to show that the banks are getting behind the idea.
While creating such a central registry could go a long way toward preventing bad actors from engaging in future frauds and improving the internal workings of banks, there are risks that people could be wrongly included on the list and shut out from jobs, or that individuals could be made scapegoats for larger, institutional failures at the big banks.
In order to prevent that from happening, any formal registry of wrongdoers set up by the banks must have strict rules for when a person is added and how they can appeal their placement on the list, said Ellen Zimiles, a managing director at Navigant Consulting.
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Still, despite her concerns, Zimiles said that having a registry of bad actors could increase the amount of individual accountability for Wall Street’s misdeeds, something that has been lacking.
But some say it does not go far enough.
The Dodd-Frank Act mandated new compensation rules, and more than five years after the law’s passage, they have still not been completed. Without compensation reforms, including clawbacks for violations, a central registry will not be enough to truly reform Wall Street’s internal culture, said David Reiss, a Brooklyn Law School professor.
“Together, perhaps the registry and clawbacks could have a positive effect on firm behavior if they are implemented thoughtfully and are designed to work together,” he said.
And even with the addition of compensation reforms to the central registry forming a “belt and suspenders” approach to reform bank culture, the fiercest of Wall Street critics say that changes will not come unless bankers are brought before courts for alleged violations and sent to jail if found guilty.
“And, of course, along with the belt and suspenders, there should be prison bars as well,” Bart Naylor of Public Citizen said.
That’s something that critics say was missing after the financial crisis.
The registry, however, could be a start to bringing about much-needed accountability, they said.
December 24, 2015 | Permalink | No Comments
December 23, 2015
Fannie/Freddie 2016 Scorecard
The Federal Housing Finance Agency has posted the 2016 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions. The FHFA assesses the three entities using the following criteria, among others:
- The extent to which each Enterprise conducts initiatives in a safe and sound manner consistent with FHFA’s expectations for all activities;
- The extent to which the outcomes of their activities support a competitive and resilient secondary mortgage market to support homeowners and renters . . . (2)
The FHFA expects Fannie and Freddie to “Maintain, in a Safe and Sound Manner, Credit Availability and Foreclosure Prevention Activities for New and Refinanced Mortgages to Foster Liquid, Efficient, Competitive, and Resilient National Housing Finance Markets.” (3) The specifics are, unfortunately, not too specific when it comes to big picture issues like maintaining credit availability in a safe and sound manner, although the scorecard does discuss particular programs and policies like the Reps and Warranties Framework and the expiration of HAMP and HARP.
The FHFA also expects Fannie and Freddie to “Reduce Taxpayer Risk Through Increasing the Role of Private Capital in the Mortgage Market.” Here, the FHFA has more specifics, as it outlines particular risk transfer objects, such as requiring the Enterprises to transfer “credit risk on at least 90 percent of the unpaid principal balance of newly acquired single-family mortgages in” certain loan categories. (5)
The last goals relate to the building of the Common Securitization Platform and Single Security: Fannie and Freddie are to “Build a New Single-Family Infrastructure for Use by the Enterprises and Adaptable for Use by Other Participants in the Secondary Market in the Future.” (7) The FHFA us moving with all deliberate speed to reshape the secondary mortgage market in the face of indifference or gridlock in Congress.
The FHFA may implement the reform of Fannie and Freddie all by its lonesome. Maybe that’s the best result, given where Congress is these days.
December 23, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- Real Estate Price Indices and Price Dynamics: An Overview from an Investment Perspective, David Geltner, Annual Review of Financial Economics, Vol .7, pp. 615–633, 2015.
- Migration and Housing Price Effects of Place-Based College Scholarships, Timothy J. Bartik & Nathan Sotherland, Upjohn Institute, Working Papers, 15-245, 2015.
- Big Data and Big Cities: The Promises and Limitations of Improved Measures for Urban Life, Edward L. Glaeser, Scott Duke Kominers, Michael Luca & Nikhil Naik, HKS Working Paper No. 075.
- The Supply Side of Household Finance, Gabriele Foà, Leonardo Gambacorta, Luigi Guiso, & Paolo Emilio Mistrulli, BIS Working Paper No. 531.
December 23, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- Congress has finally passed the much awaited Tax extender’s legislation, H.R 2029 The Consolidated Appropriations Act, included is a win for affordable housing advocates – the nine percent minimum Low Income Housing Tax Credit was made permanent.
- The Federal Housing Finance Agency (FHFA) has proposed a Duty to Serve Underserved Markets Rule, required by the Housing and Economic Recovery Act of 2008, which requires Fannie Mae and Freddie Mac (GSEs) to serve three underserved markets: Manufactured Housing, Affordable Housing Preservation and Rural Housing. The GSEs would be required to establish and implement plans to serve each market and would receive duty to serve credits for success. The proposal is open for comment until March 17, 2016.
December 23, 2015 | Permalink | No Comments
December 22, 2015
Troubles with TRID
Law360 quoted me in Rule-Driven Home Sale Slump Could Be Temporary. It reads, in part,
A slump in existing home sales in November can be traced to the implementation of a new Consumer Financial Protection Bureau mortgage closing regime, although experts say that most of the closing delays could ease as the industry and consumers get more comfortable with the new rules.
The National Association of Realtors released a report Tuesday saying that while a continued lack of inventory of existing homes for sale and other factors helped drive down the number of completed home sales in November, the number of signed contracts for home purchases remained relatively constant. With that in mind, the Realtors pointed to the CFPB’s TILA-RESPA Integrated Disclosure rule, which combined two key mortgage disclosure forms and went into effect in October, as the reason for the slowdown.
That slowdown was anticipated because real estate agents and lenders had reported difficulties in complying with the rule, which combined closing forms required by the Truth In Lending Act and the Real Estate Settlement Procedures Act, prior to it coming into effect. However, experts say that the closing delays are likely to decrease as the industry understands the rule better and technology to comply with it improves.
“It’s like a python swallowing a boar … the boar has to work its way through the python,” said David Reiss, a professor at Brooklyn Law School.
The National Association of Realtors reported that existing home sales slumped to 4.76 million nationwide in November from 5.32 million in October, a fall of 10.5 percent. That October figure was also revised down from an initial estimate of 5.36 million.
The November figure was also down from the 4.95 million existing sales figure from the same period last year, and put total existing home sales 3.8 percent behind the total from last year, the National Association of Realtors said.
While the real estate industry group cited the usual factors of tight supply and inflated prices in many regions of the country as a reason for the slowdown in existing home sales, it also cited the TRID rule’s implementation as a reason for the slump.
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Most lenders, real estate agents and other market participants had already begun to factor in the new TRID requirements in the closing process, adding 15 days to the usual 30-day closing process, said Richard J. Andreano, a partner at Ballard Spahr LLP.
“When I saw the November drop, I thought that was a natural consequence of correct planning,” he said.
Despite the slowdown, Yun said in the NAR release that because contracts were signed and the problems came down to issues with closing.
“As long as closing time frames don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier,” he said.
The CFPB, Reiss and Andreano all agreed that at least some of the delays will work out of the system as the industry gets more accustomed to TRID’s changes.
“The ones that have adjusted have done it by adding a lot of staff, either reallocating or hiring and assigning them to the closing process to get it done,” Andreano said.
And the delays that remain may not be a bad thing, Reiss said.
“It really keeps consumers from being surprised at the closing table. This gives a little bit more time to the consumer where they’re not getting waylaid,” he said.
December 22, 2015 | Permalink | No Comments
December 21, 2015
Exotic Mortgage Increase
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DepositAccounts.com quoted me in 10 Things You Might See From Your Bank in 2016. It reads, in part,
It’s that time of year when experts pull out the crystal ball and start talking about “what they see”. Banking pros are no exception. When it comes to 2016, they expect plenty; change is on the horizon. Here’s a look at some of them.
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4. Exotic mortgages increase
David Reiss, a professor at Brooklyn Law School, specializing in real estate believes that banks are going to get more comfortable with originating more exotic mortgages as they have more experience with the mortgage lending rules that were prescribed in Dodd-Frank. These rules, such as the Qualified Mortgage Rule and Ability To Repay Rule, encourages lenders to make “plain vanilla” mortgages. But there are opportunities to expand non-Qualified Mortgages, so “2016 may be the year where it really takes off,” says Reiss. The bottom line? “This means consumers who have been rejected for plain vanilla mortgages, may be able to get a non-traditional mortgage. This is a two-edge[d] sword. Access to credit is great, but consumers will need to ensure that the credit they get is sustainable credit that they can manage year in, year out.”
December 21, 2015 | Permalink | No Comments
