House Passes Omnibus Bill To Help Prevent Foreclosures

The House passed an omnibus housing relief bill that would modernize the Federal Housing Administration, give it more authority to insure refinanced homes facing foreclosure, provide a safe harbor for loan servicers, and strengthen the regulation of the government sponsored enterprises.

The Senate Banking Committee may move as quickly as next week to fashion a bill to include FHA housing relief and GSE legislation to create a new regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

In the House, there were three votes on amendments that make up H.R. 3221. The vote on the omnibus bill introduced by House Financial Services Committee Chairman Barney Frank (D-Mass.) was 266 to 154, with 39 Republicans joining all Democrats voting in favor, giving the measure a comfortable, but not a veto-proof margin.

The House also voted 322 to 94 to attach housing-related tax relief, with 95 Republicans voting with Democrats despite Bush administration opposition to several provisions.

A third vote was on an amendment by Reps. Brad Miller (D-N.C.) and Steven LaTourette (R-Ohio) that would prohibit federal preemption of state foreclosure laws. The vote was 256 to 160, with 31 Republicans voting in favor.

President Bush said publicly that he will veto H.R. 3221, the omnibus housing bill, and H.R. 5818, the bill to provide cities and states with $15 billion to buy and rehabilitate foreclosed homes. He urged Congress to enact legislation modernizing the Federal Housing Administration to allow its FHASecure program to help more distressed homeowners, and to enact government sponsored enterprises reform legislation. The administration is also a supporter of the HOPE Now program.

The administration said the Frank bill broadening eligibility for FHA-insured refinancings was "overly burdensome and prescriptive" and "constitutes a taxpayer bailout."

Omnibus Bill. The FHA housing relief portion of the bill would allow the FHA to guarantee up to $300 billion in refinanced fixed-rate loans for borrowers with subprime adjustable rate mortgages who are unable to make monthly payments and may not otherwise qualify for FHA insurance.

The program would be voluntary for lenders; if they participate, the loans must be written down to 85 percent of their current appraised value and the lenders would be paid with the proceeds of the new loan. The Congressional Budget Office estimated that the program would serve 500,000 homeowners at a subsidy cost of $1.7 billion over five years. Other parts of the program would cost an additional $1 billion.

Provisions of the FHA modernization and GSE provisions of the bill were previously passed by the House and are generally acceptable by the administration, although there is opposition to making permanent the FHA and GSE loan limits for high-cost areas, currently up to $729,750. The administration also objects to legal protection for servicers in modifying loans.

Staff Contact--Joe Pigg (202) 663-5480.

Tax Provisions. The taxation portion of the bill would:

·         Make municipal bonds guaranteed by the Federal Home Loan Banks tax exempt regardless of whether the bonds are used to finance housing programs. The treatment would be available for original issues through Dec. 31, 2010. The administration opposed the expansion, citing the "potential liabilities of the FHLBanks venturing fair afield of their current mission."

·         Give first-time homebuyers a refundable tax credit of up to $7,500, to be repaid over 15 years in equal installments. The administration said the majority of the tax credit would subsidize taxpayers who would have purchased homes anyway.

·         Provide homeowners who claim the standard deduction with an additional standard deduction for state and local property taxes of $350 ($700 for joint filers).

·         Temporarily increase the low-income housing tax credit and simplify the credit. Also, simplify the rules on tax-exempt housing bonds.

·         Temporarily allow the states to issue an additional $10 billion in tax-exempt housing bonds to provide loans to first-time homebuyers, to finance the construction of low-income rental housing and to refinance certain subprime loans.

·         Protect returning service members against foreclosure for one year, up from the current 90 days.

The $11 billion in revenue needed to offset the cost would come by imposing mandatory cost-basis reporting by brokers on transactions of publicly traded securities, and delaying the phase-in until 2009 of the liberalized rule for allocating expense between U.S. sources and foreign sources for determining a taxpayer's foreign tax credit limitation.

Staff Contact--Larry Seyfried (202) 663-5322.

Preemption. The Miller/LaTourette amendment would prohibit the Office of the Comptroller of the Currency and Office of Thrift Supervision from preempting any state law regulating the foreclosure of homes or the treatment of foreclosed property.

ABA mounted a grassroots campaign of bankers and state association executives, and worked with a coalition of seven other trade groups, to reach compromise language with Miller and LaTourette.

A revision drafted by LaTourette improved the underlying amendment and was regarded as a significant move by banking regulators. But an objection by one House member prevented the revision from replacing the original language. ABA opposes the original language but is confident that the revised language will be included in House negotiations with the Senate on a conference report. Chairman Frank pledged to insist on the clarifying language; otherwise the provision will not be included.

Staff Contact--Floyd Stoner (202) 663-5339.

House Passes Bill To Help States, Cities Buy Foreclosed Homes

The House voted 239 to 188 to adopt a bill to authorize $15 billion in loans and grants to help states and cities purchase foreclosed houses for resale or rent. Half of the funds would be for loans, the other half for grants.

The funds would be allocated to the states and the nation's largest 100 cities, largest 50 counties and cities over 50,000 with especially high foreclosure rates. H.R. 5818 was introduced by Rep. Maxine Waters (D-Calif.), chairman of the House Housing Subcommittee. H.R. 5818 was introduced by Rep. Maxine Waters (D-Calif.), chairman of the House Housing Subcommittee.

The administration, in threatening a veto, said the program would be a "costly bailout for lenders and speculators and would delay the economic recovery it purports to advance."

Staff Contact--Vincent Barnes (202) 663-5230.

Farm Bill Cleared for House, Senate Votes Next Week

Congressional negotiators reached final agreement on a five-year, $300 billion farm bill that does not include an expansion of the Farm Credit System's lending authority or tax provisions that would have been detrimental to banks.

Grassroots efforts by ABA and its state bankers associations over a two-year period included numerous meetings and phone calls with lawmakers, five fly-ins and more than 60,000 letters.

The House and Senate are scheduled to take up the conference report to H.R. 2419 next week. However, Agriculture Secretary Ed Schafer said President Bush told him he will veto the bill, which the administration believes costs too much and doesn't reform the subsidy program. It is unclear whether Congress can override a veto.

Sen. Saxby Chambliss (R-Ga.) said he told the White house that if there is a veto, he will work to override it. Chambliss is the ranking Republican on the Senate Agriculture Committee.

Among provisions of the bill, nonfarm persons with adjusted gross income or more than $500,000 and farmers with an AGI of more than $750,000 would not be eligible for subsidy payments. Currently, there is no limit on farm income and a $2.5 million limit on nonfarm income. The administration had wanted a flat $200,000 limit, but later moved up to a $500,000 limit.

Staff Contact--John Blanchfield (202) 663-5100.

Fed, FTC Jointly Propose FACT Act Rule on Risk-Based Pricing

The Federal Reserve Board and the Federal Trade Commission jointly proposed a rule implementing a provision of the Fair and Accurate Credit Transaction Act on risk-based pricing of credit. The agencies will accept comments for 90 days after the proposal is published in the Federal Register.

Under the proposal, a lender would be required to provide a risk-based pricing notice when it uses a customer's credit report to base a decision to offer loan terms that are less favorable than offered to other customers.

The proposal contains several exemptions, the most significant of which would permit lenders, in lieu of providing a risk-based pricing notice, to give all customers their credit scores and explanatory information.

An exemption for loans secured by one to four-family residential loans would require a lender to provide a notice containing a credit score disclosure and explanation of how the score was used to set the terms of credit and how the customer can obtain a free consumer report. Model Disclosure statements are provided in the proposal.

The proposal provides several different approaches that lenders may use in determining whether they are required to provide risk-based pricing notices.

Staff Contact--Mark Tenhundfeld (202) 663-5042.

Cox Strongly Urges More Supervision of Investment Banks

Securities and Exchange Commission Chairman Christopher Cox is calling for quick action by Congress to increase the supervision of investment banks in the wake of the Bear Stearns bailout.

In a speech, Cox said it is no longer enough for the SEC and other regulators to be limited to protecting customer funds and securities in the regulated broker-dealer subsidiaries of firms of the largest investment firms.

"Very soon the SEC -- or if not the SEC then another regulator -- should be given the express authority and a regime appropriately tailored to securities firms to supervise the nation's investment banks on a consolidated basis," Cox said.

"There is simply no provision in the law that requires investment bank holding companies to compute capital measures or to maintain liquidity on a consolidated basis," he said.

Cox's views were echoed by Erik Sirri, the SEC's director of trading and markets, at a hearing of the Senate Securities Subcommittee.

Staff Contact--Sally Miller (202) 663-5325.

ABA Urges NCUA To Reconsider Credit Union Charter Choice Rulemaking

ABA urged the National Credit Union Administration to reconsider its rulemaking on the mergers and conversions of credit unions.

"The NCUA is once again attempting to use the administrative rulemaking process to block NCUA-insured institutions, in some instances, from shedding their credit union charter," ABA said in a comment letter on the agency's advance notice of proposed rulemaking. The ANPR seeks views on the conversion of credit unions to mutual savings bank charters, among others.

"For certain transactions, the ANPR would render the credit union charter a veritable regulatory prison by erecting a formidable array of arbitrary barriers intended to prevent the free exit of an institution from the credit union charter," ABA said.

"No banking regulator, at either the federal or state level, exhibits the NCUA's level of regulatory obstructionism on the issue of charter choice or even merger choice."

ABA said the understated theme of the ANPR is that five of the six charter actions at issue involve movement away from the National Credit Union Share Insurance Fund.

ABA suggested that the NCUA "take a narrower approach to its rulemaking and respect the express limitations of the laws it is charged with administering."

·         Antitrust. House Judiciary Committee Chairman John Conyers (D-Mich.) says two credit union bills pending in the House Financial Services Committee have provisions that would completely exempt credit union mergers from pre-merger antitrust review. He asked House Speaker Nancy Pelosi (D-Calif.) for a referral to his committee of H.R. 5519, the Credit Union Regulatory Relief Act, or H.R. 1537, the Credit Union Regulatory Improvements Act.

Staff Contacts---Dawn Causey (202) 663-5434, Keith Leggett (202) 663-5506.

Fed Proposal Covers Additional Credit Card, Overdraft Disclosures

Most of the attention in the proposed regulations on unfair and deceptive acts or practices announced by the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration was focused on new requirements for credit cards and overdrafts. The deadline for comments will be 75 days after the proposal is published in the Federal Register.

Also of importance were several Fed proposals relating to disclosure and timeliness issues, which will have a 60-day comment deadline. These include:

·         Disclosing on periodic statements the aggregate dollar amounts charged for overdraft fees and for returned item fees (currently only institutions that promote or advertise the payment of overdrafts must disclose aggregate amounts).

·         Requiring banks that provide account balance information through an automated system to disclose the amount of funds available for withdrawal, not including funds the institution may provide to cover overdrafts.

·         Requiring mailed credit card payments received by 5 p.m. on the due date to be considered timely.

Staff Contact--Nessa Feddis (202) 663-5433.

ABA Offers Solutions To Garnishment Problem for Banks

ABA proposed solutions in connection with the garnishment of federal benefits payments that would look to Congress and the paying agencies for ways to keep banks from being caught in the middle.

"Banks would welcome clear rules that avoid hardships for benefits recipients while protecting the banks from liability to creditors," said ABA in a letter to the Social Security Administration. If state obligations are not preempted by federal law, the problems will remain, ABA added.

In one suggested solution, ABA recommended minimizing the length of time for banks to make funds unavailable. The accountholder would have a short period -- perhaps five days -- to claim an exemption and the creditor would have a short period -- again, five days -- to challenge the exemption. If a challenge is made, the dispute between creditor and accountholder would be resolved in court, with the bank maintaining the hold. If the creditor had not responded to the bank, the funds would be unfrozen 10 days after the bank received the garnishment order.

In a second suggestion, federal benefits payments would be identified with a clear set of automated clearing house codes and descriptors. Paying agencies, such as the Treasury Department and the Social Security Administration, should enforce the congressional directive that all benefits payments would be made electronically, ABA said. In addition, the paying agencies should change their rules to provide a safe harbor for depository institutions that expressly preempts state laws, ABA added.

Staff Contact--Mark Tenhundfeld (202) 663-5042.

Selected Short Subjects

·         Farm Credit. The Farm Credit Administration proposed stretching the notion of what is a permissible investment for Farm Credit System institutions by allowing them to extend credit where they do not have the authority to make a loan. The FCA proposal would authorize FCS system banks, associations and service corporations to purchase and hold debt and equity investments in community facilities, transportation infrastructure, disaster recovery activities and business investment companies. The proposal would make permanent a pilot program that allowed the investments on a case-by-case basis two years ago. ABA continues to object to the program because it would allow FCS institutions to extend credit where they do not have authority to make a loan.

·         Student Loans. President Bush signed into law H.R. 5715, which would free up credit for student loans. The bill would allow the Education Department to buy outstanding federally guaranteed loans from lenders until mid-2009. The bill would increase the loan limit for undergraduate students by $2,000, relax underwriting of federal PLUS loans to encourage parents to take out the loans for their children's education, and allow parents to delay repayment until after graduation.

·         Flood Insurance. The Senate rejected an amendment that would have added wind coverage to a flood insurance bill. The vote was 19 to 73. The amendment was opposed by the leadership of the Senate Banking Committee as exposing the National Flood Insurance Program to too much risk. Advisers to President Bush recommended a veto if the provision contained the amendment. The underlying bill, S. 2284, would forgive more than $17 billion that the Federal Emergency Management Agency borrowed from the Treasury Department following the 2005 Gulf coast hurricanes. The bill would impose larger deductibles, require more at-risk homeowners to buy insurance, end subsidies for some vacation homes and businesses, and allow 15 percent increases in annual premiums, up from 10 percent. The House passed its flood insurance bill last September.

·         RESPA. The Department of Housing and Urban Development extended the comment period for 30 days -- to June 12 -- on its proposed amendments to the Real Estate Settlement Procedures Act. ABA and six other trade groups had requested an extension in March. Some 149 House members, led by Reps. Ruben Hinojosa (D-Texas) and Judy Biggert (R-Ill.), asked for an extension this week.

·         Tax Extenders. ABA joined with a coalition of 114 labor, business and nonprofit organizations in urging the leadership of the House and Senate and the tax-writing committees to pass legislation to extend the tax provisions that expired at the end of 2007 and those that will expire at the end of this year. The House Ways and Means Committee announced that it will mark up a one-year extension of expiring tax provisions next week.

·         Fed Interest. According to a published report, the Federal Reserve Board will ask Congress for authority to begin paying interest on bank sterile reserves at the Federal Reserve Banks beginning in 2009 rather than 2011 under the existing statute.