Financial Crisis News Center

Guidance Issued on Classifying High LTV Refinancing Loans

This story appeared in Bank Digest.

The FDIC has issued new guidance on the classification of refinanced mortgages with a high loan-to-value ratio. According to the agency, a high LTV ratio is not, alone, a reason to adversely classify such a loan. Retail loan classifications should be based on the borrower's payment performance, not on the value of the collateral, as that value can rise and fall with changes in market conditions. The guidance applies to residential refinance loans that lower the mortgage interest rate to a market rate and that follow sound underwriting guidelines other than having a high LTV ratio.

FTC Describes Efforts to Protect Consumers from Unfair Mortgage Lending Practices

This story appeared in Bank Digest.

At the public briefing of the United States Commission on Civil Rights, the Federal Trade Commission described its efforts to protect consumers from unfair, deceptive, and discriminatory practices in the mortgage lending market. It stated that, since the late 1990s the FTC has focused on the most egregious illegal lending practices of nonbank lenders, particularly in the subprime market, bringing 26 law enforcement actions that resulted in almost $345 million being returned to consumers. The agency also has brought dozens of cases alleging discriminatory lending practices, including the unfair pricing of mortgage loans to minority borrowers.

http://ftc.gov/os/2009/03/P094805civilrights.pdf

Senate Bill Would Strengthen Securities and Financial Fraud Enforcement

A bill to improve enforcement of securities fraud and financial institution fraud involving asset-backed securities and fraud related to federal assistance and relief programs was introduced by Senator Patrick Leahy, chair of the Judiciary Committee. Fraud contributed to an unprecedented collapse in the mortgage-backed securities market, he noted, and as Congress passes legislation to make sure this kind of collapse cannot happen again, a component of reform must be the reinvigoration of federal anti-fraud measures.

Frank Says Systemic Risk Regulator Biggest Near-Term Priority

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The biggest near-term priority facing the House Financial Services Committee is the creation of a systemic risk regulator, Chairman Barney Frank, D-Mass., said at a February 3 briefing outlining the committee’s upcoming agenda.

Fed Securities Purchase Program to Begin Soon

The Fed expects that its program to purchase mortgage-backed securities guaranteed by the government-sponsored housing enterprises will begin operations in early January 2009. Under the program, the Fed will support the housing and mortgage lending markets by purchasing 15-year, 20-year and 30-year fixed rate MBSs backed by Fannie Mae, Freddie Mac and Ginnie Mae. Securities of other maturities also may be included.

http://www.federalreserve.gov/newsevents/press/monetary/20081230b.htm

Revival of Mortgage Securitization Depends on Greater Transparency

By James Hamilton, J.D., LL.M., Senior Writer Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter; Co-author, Sarbanes-Oxley Manual: A Handbook for the Act and SEC Rules, Dec. 16, 2008.

A recovery in the market for mortgage-backed securities will require greater transparency and less complexity, as well as comprehensive and standardized loan-level data that will allow more independent credit analysis, in the view of Federal Reserve Board Governor Randall Kroszner. In remarks at a Fed seminar on the mortgage markets, he sketched a scenario under which investors may gradually regain confidence in mortgage securitization.

Congress Passes Housing and Economic Recovery Act

The Housing and Economic Recovery Act of 2008, Public Law 110-289 enhances the safety and soundness of Fannie Mae, Freddie Mac and the Federal Home Loan Bank System; imposes licensing and registration requirements on mortgage loan originators; and reduces the number of mortgage foreclosures. The Act also creates a new, independent regulator for the government sponsored housing enterprises (GSEs), called the Federal Housing Finance Agency (FHFA). This agency has the authority to establish capital standards for the GSEs and also to establish prudential management standards addressing internal controls, audits and risk management. The FHFA can restrict asset growth and capital distributions by undercapitalized institutions and, if necessary, can place an insolvent institution into receivership. 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ289.110.pdf