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Sweeping financial regulatory changes signed by Obama

Thursday, July 22nd, 2010
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Surrounded by Democratic lawmakers Harry Reid, Nancy Pelosi, Barney Frank, and Chris Dodd – all of whom have served in their current capacities for many years – the president signed into law the bill promising to protect borrowers from unscrupulous Wall Street execs, mortgage brokers, lenders and loan officers. Two-thousand three-hundred pages of financial regulatory reform. Much of this huge bill, supported by the Frenetic Four deals with Wall Street and credit other than mortgage. However there are portions that deal directly with the mortgage industry.

The goal of the bill is to create a sound economic foundation, grow jobs, protect consumers, “rein in Wall Street”, end the ability of corporations being “too big to fail”, and prevent another financial crisis. With the federal government’s history of being prudent and conservative in spending and growing jobs the results should be interesting.

There is a history in that Pelosi, Reid, Frank, and Dodd have been in power for many years and Frank and Dodd in particular have chaired their respective banking and finance committees and Dodd was a “friend of Mozilo”, the deposed chairman of failed Countrywide. Dodd is the number one recipient in Congress of campaign funds from Fannie Mae and Freddie Mac. It is virtually impossible for the author to write this article without mentioning how entwined these people were with the banking industry and regulations prior to the failure.

Reading the language in this massive bill one would almost believe Congress really has a plan which was not created looking in the rearview mirror. In the end many of the proposed regulations are simply more of the same with the same outcome: new government jobs for friends of those in power, very little protection for the little people from the banks and innocent citizens being caught in the crossfire.

Have wrongs been done to innocent people? You bet they have. Did mortgage brokers overstep their bounds and purposely cram borrowers into complicated loans neither understood? There is no doubt they did. Will this 2,300 pages of complicated new regulations protect future generations? Not a chance.

Over the last few months the pendulum of lending has swung back decades. The under-served stand little chance of being approved for a loan today. Banks almost refuse to lend to any but the most stable of borrowers and that does not generally include the under-served. In fact recent regulation changes have done more to put the average or slightly below average home buyer out of the home ownership dream than any regulatory changes in American history. What we’re talking about is turning owners in to tenants.

According to the Federal Housing Finance Agency in a report quoted in the Wall Street Journal on July 10, only 2% of home loans issued in 2010 have been made to people with a credit score of less than 660. In 2007, near the middle of the collapse of the sub-prime mortgage market, 17% of home loans were made to people with less than a 660 credit score.

The bill seeks to limit how financial companies can invest, how fast and big they can grow, how much executives can earn regardless of how much they deserve it, create another bureaucratic office with hundreds of tax funded employees, and in the end will result in only the wealthiest clients having access to much needed financing and the common American citizen being denied access to credit.

Here are the key provisions in the bill dealing with mortgage banking:

Transparency & Accountability for Exotic Instruments: Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated – including loopholes for over-the-counter derivatives, assetbacked securities, hedge funds, mortgage brokers and payday lenders. (It is very odd they mention mortgage brokers because while banks can easily hide their profits mortgage brokers have been required by federal law for many years to expose all of their profits. In fact they were the only ones and still are the only ones who are required to give their yield back to the borrower. Guess they have a bad lobby.)

Transparency & Accountability for Exotic Instruments: Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated – including loopholes for over-the-counter derivatives, assetbacked securities, hedge funds, mortgage brokers and payday lenders. (There they go with those evil mortgage brokers again. Do you know not one mortgage broker, ever, has been able to approve and fund a loan? The final decision has always rested with the banks.)

There are good provisions in the bill but no regulation is ever better than an informed, conservative client base. Until we have informed, conservative clients there will always be a new way for an unscrupulous organization to give the client enough rope to hang theirself. No you won’t have hamburger flippers stating $300,000 income anymore but you also won’t have self-employed wage earners owning a home when they may deserve it more than anyone.

Without color commentary here is the summary of the bill from the Senate Finance Committee – . Your opinions are welcome and there are many blanks left by this short post so feel free to fill them in and educate the readers.

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