Posts filed under ‘Political’
Last week I highlighted financial issues in the Republican platform and with the Democrats set to kick off their reality TV show called the National Convention, today here are some of the intriguing tidbits in their platform.
If you just arrived from another planet, you would think that post offices, not credit unions or community banks, are the key counterweight to a banking industry run amok. The financial service offerings of post offices were mentioned in two separate parts of the party’s platform. In one section the Democrats want to help save the Post Office by, among other things, allowing them to offer basic financial services such as check cashing.
In another section dedicated to reigning in Wall Street and fixing our financial system, the platform explains that “Democrats believe that we need to give Americans affordable banking options, including by empowering the United States Postal Service to facilitate the delivery of basic banking services.”
Now, there are some who believe that expanding the authority of Post Offices is a win-win for the American taxpayer. They argue that since all communities have a post office, by allowing the service to provide banking services, perhaps including small dollar alternatives to pay-day loans, all Americans would be assured access. They also argue that the Postal Service has to be preserved even as it is made increasingly anachronistic by technology. Either way, it looks as if credit unions will be competing for political oxygen not only against banks, but the mailman.
Other highlights of the Democratic platform include: calling for an updated version of Glass-Steagall and “breaking up” too big to fail financial institutions that pose a systemic risk to our economy. Democrats implicitly called for the preservation of an active public role in housing. For instance, they support preservation of the 30 year fixed mortgage, “modernizing credit scoring, expanding access to housing counseling, defending and strengthening the Fair Housing Act and ensuring that regulators have a clear direction” and authority to enforce rules effectively.
Finally, while Republicans support major reform of the CFPB, Democrats view defending its current structure as an important means of defending the housing rights of Americans in general and minority communities in particular.
High Priced Mortgage Loan Appraisal Exemption Clarified
Pursuant to the Dodd-Frank Act, special appraisal requirements are mandated for higher-priced mortgage loans. Starting in January of 2014, the banking agencies, including the NCUA, exempted mortgage loans of $25,000 or less from these requirements. Regulations have been introduced to clarify the method by which this threshold is adjusted for inflation.
Party platforms are little more than vehicles to pander to a party’s most ardent supporters and provide little guidance as to what a presidential candidates would do if elected. This is particularly true in a year in which the Republican party has been Trumped. Nevertheless, they provide good guideposts of where our politics is headed. Here is a look at the Republican’s 2016 platform. I’ll do the same for the Democrats next week. A quick note to the Republicans: You have a lot of credit union supporters. Joint references to community banks AND credit unions would be nice to see.
The proposal that has gotten the most attention in the financial press this morning is the Republican call, apparently at Trump’s urging, to reinstate the Glass-Steagall Act of 1933 which put up a firewall between investment and consumer banking until it was repealed in 1999 at the urging of the Clinton administration. It means that both the Trump Wing of the Republican Party-whatever that is-and the Sandernista’s on the Left of the Democrats both firmly believe that not enough has been done to reign in banking excesses in the aftermath of the Great Recession. They are correct.
This is shrewd politics and good policy. Its good politics because it gives Trump a wedge issue with which to further alienate Sanders supporters from Hilary Clinton. As Trump’s campaign manager explained in a press conference yesterday “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all of the Wall Street money going to her.”
Good Policy? One of the biggest reactions I get from this blog is when I point out that any true free market conservative should be in favor of breaking up the big banks. If a bank is too big to fail than it is too big. The guarantee of a government bailout is an indirect subsidy to the largest banks that isn’t extended to community banks or credit unions.
Among the other highlights:
–It calls for scaling back the federal role in the housing market coupled with “clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices.” Interestingly, it doesn’t call for the elimination of Fannie and Freddie but says that the “utility” of both should be “reconsidered” as part of housing reform.
–The platform complains that over the last century too much power has been handed to bureaucrats. It calls on Congress “to begin reclaiming its constitutional powers from the bureaucratic state by requiring that major new federal regulations be approved by Congress before they can take effect.”
–Not surprisingly, it colorfully describes the Dodd-Frank Act as the “ the Democrats’ legislative Godzilla,” that “ is crushing small and community banks and other lenders.”
I haven’t had many positive things to say about federal legislation over the last five years so I’m sure the sponsors of the “Senior Safe Act of 2016” will be overjoyed and relieved to that I actually think their proposal is a good one.
The legislation is a federal attempt to address elder financial abuse. Most states have already mandated reporting requirements in this area. New York’s DFS has issued a guidance on the issue. NY law protects any person who reports suspected financial abuse to the Department of the Aging, a local Social services department or a law enforcement agency based on a good faith belief that “appropriate action” will be taken. N.Y. Soc. Serv. Law § 473-b (McKinney). This protection isn’t quite as expansive as what would be protected under the House bill.
I’ve always been uneasy about legislation in this area because poorly drafted legislation could make credit unions liable for not recognizing financial abuse; SAR’s can already be used to report suspected criminal activity involving financial exploitation; and the issues raised are best handled by family and friends. But if there is going to be legislation in this area than the House bill provides a good framework.
The bill, which passed with overwhelming support on Tuesday, would authorize supervisors, compliance and BSA officers to report possible financial exploitation of a person 65 years of age or older to law enforcement and government agencies. The institutions and individuals making these reports would get legal immunity for doing so if they train employees on identifying and reporting elder financial abuse and they take “reasonable care” to avoid unnecessary disclosures.
There are three things I really like about this bill: First, it just authorizes a supervisor, a compliance officer and BSA officers to report suspected elder abuse but enables any employee to spot it. One of my concerns has always been that elder abuse is difficult to define and even though frontline employees are best positioned to spot elder abuse the ultimate call on reporting should be made by senior personnel.
Second it places no affirmative obligation on financial institutions to report suspected abuse. it simply protects them if they choose to do so provided they have appropriate training.
Finally, it provides a baseline of immunity for institutions that report suspected abuse.
A Most interesting Jobs Report
Any minute now we should be getting the jobs report for June. It’s more important than usual because May’s jobs report witnessed paltry growth of 38,000 jobs. In addition with fallout from the Brexit vote continuing, the report will either further the narrative of an economy slowing down or be used as proof that growth is still alive and well.
There is a lot of Red-Meat election year nonsense in The Financial CHOICE Act unveiled by Representative Hensarling on Tuesday; This is, after all, an election year, and the proposal has as much to do with laying out a contrasting vision of financial regulation than it does about getting anything done before this Congressional session is over.
That being said, one of the proposals that intrigues me the most is to “Repeal the so-called Chevron deference doctrine.” This may sound esoteric compared to proposals to neuter the CFPB director, extend the exam cycle and allow banks to opt out of Basel III capital requirements, but it could put the brakes on a regulatory process that many of us believe has gone haywire. Here’s why.
An agency’s power to regulate comes from a legislative Act. For example, the Durbin Amendment was a law from Congress directing the Federal Reserve to cap debit card interchange fees. And Congress empowered the CFPB to regulate consumer protection laws in the Dodd frank Act. That’s why a regulated entity like a credit union can sue to block a promulgated regulation which goes beyond a regulator’s authority and why the NCUA got an opinion letter on its ability to impose risk based capital requirements on Well Capitalized credit unions.
Now this may come as a shock but much legislation is vaguely written. So what is a court to do when it is faced with a challenge to a regulation implementing a statute that is capable of more than one interpretation? This is what the Supreme Court told the Courts to do: “ First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute. Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43, (1984).
Critics of this framework argue that it has evolved into a rule of law that gives regulators too much flexibility to make de facto laws called regulations. Many statutes are capable of being interpreted in more than one way and, when they are, the Courts must generally defer to an agency’s interpretation. Combine this power with the wide-ranging power of regulators to issue Guidance interpreting their regulations and you end up with a system In which the Executive Branch can impose mandates without getting laws passed and in which the Director of the CFPB has more power than any elected official besides the President.
To all of you out there who think I am shilling for The Man I will tell you what I told A WSJ reporter the other day: How much executive power do supporters of government by regulation want to hand to a President Trump?
Doing away with Chevron deference would return the power to interpret statues to the place where it ultimately belongs under the constitution: The courts. It would also encourage better drafting by Congress. Parts of Dodd Frank read like a regulatory to-do list. Perhaps if Congress knew that their work was going to be reviewed by judges without deference to the views of a regulator with whom they have dealt with for years legislation would actually read like legislation.
One more thing. As a judicially created doctrine the Supreme Court could eliminate Chevron in a future case. Before the Death of Justice Scalia I would have said it was headed in that direction. For those who want the Court to reexamine the framework it uses to evaluate regulations this makes the views of the next justice all the more important.
There are two reasons governments nationalize corporations: (1) The company is losing money and it is considered too important to fail; or (2) it is making lots of money and the government wants to get its hands on it. Fannie and Freddie have had such a roller coaster ride since 2008 that they have been victimized by both impulses. Since credit unions have a vital stake in the future of the secondary market, they shouldn’t shy away from voicing their opinion.
Yesterday, Freddie Mac announced a $200 million loss for the first quarter. It attributed the loss to those blasted GAAP accounting rules. (If only companies could come up with their own financial statements without accountants getting in the way, the economy would be so much stronger.) Specifically they explained that interest rate volatility, combined with the way they book their derivatives, made things look worse than they actually are. Yada, yada, yada. http://www.freddiemac.com/investors/er/pdf/2016er-1q16_release.pdf
Freddie’s announcement raises questions about the continued wisdom of an aspect of US housing policy, which has thus far received too little attention. In September, 2008 the Government handed the GSEs a lifeline and $187 million was drawn from the treasury. Congress also empowered the FHFA to act as conservator or receiver of Fannie and Freddie, and to take over the rights of any stockholder, officer, or director. The Government originally took preferred stock; but, starting in 2012, the Government started sweeping all GSE profits exceeding capital buffers. Considering that the GSEs have made lots of money in recent years, this was a good deal for the Government. In fact, it was such a good deal that the Treasury is being sued by private stockholders claiming that the Government is taking money that belongs to them. Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 217-18 (D.D.C. 2014).
But, does this policy make sense if the GSEs are losing money? “This development reinforces my concern over current federal policy regarding the GSEs, who have more than fully repaid the funds they borrowed during the 2008 financial crisis,” said Rep. Michael Capuano, D-Mass. He is a member of the House Financial Services Committee, who has emerged as a level headed voice of reason on housing policy and was quoted in this morning’s American banker as saying. “Despite this, they must continue sweeping all their profits to the Treasury Department. The policy needlessly prevents them from building a capital reserve, which leaves taxpayers vulnerable in the event of a future crisis.” http://www.americanbanker.com/news/law-regulation/freddies-quarterly-loss-renews-cries-to-end-profit-sweep-1080807-1.html
A lot happened yesterday in NYS politics. Long-serving Southern Tier State Senator Thomas W. Libous, whose career terminated following a federal perjury conviction, passed away after battling prostate cancer.
Hugh Farley has announced he is leaving the State Senate after 40 years. For decades, Farley was one of the most influential banking policy makers as Chairman of the Senate Banks Committee.
And, of course, Sheldon Silver was sentenced to 12 years in jail, in addition to a hefty fine, and ordered to pay restitution of over $5 million.
Ridesharing a Top Legislative Priority
When the Legislature returns from its late April slumber, the regulation of the emerging ride sharing industry will be a top priority according to Assembly Democrat John McDonald. In an interview published yesterday, the Cohoes Legislator argued that expanded ride sharing options and the traditional taxi medallion industry can co-exist.
“I don’t look at ridesharing as the threat to the (taxi) industry that most people think it is. Most of the taxi business here is medical transport. That’s what they do, 80 percent of it,” McDonald said. “We’re working on a parallel path with the taxi industry to Uber-ize them as well, bring them into the 21st century. It’s the technology.”
The Assemblyman’s comments are worth noting for a few reasons. First, with the biggest issues taken care of (paid family leave and the minimum wage) in the budget, ride sharing has certainly moved up the Legislative to-do list. Furthermore, the fact that an upstate Assemblyman is highlighting the issue demonstrates why it is so complex. Whereas, down-staters are understandably concerned about the regulation of New York’s existing medallion system, up-staters view ride sharing as a means of expanding transportation options. Your blogger will attest that the taxi service in the Albany area is nothing short of atrocious.
Remember that for credit unions the two big issues are proper insurance to protect the value of their auto loans and the value of medallion loans.
CFPB to Make Further Changes to TRID
In a letter to industry stakeholders yesterday, the Bureau said that it would be incorporating much of its informal guidance into proposed amendments to the TRID regulations by late July.
The Bureau has been doing a fair amount of letter writing lately. It recently responded to a letter from Tennessee Republican Senator Bob Corker, who asked the Bureau four questions:
- What is the CFPB doing to address the borrower confusion due to the discrepancies between federal and state law regarding the disclosure of title insurance premiums?
- What steps is the CFPB taking to prevent lenders from shifting liability to settlement agents?
- Will the CFPB consider forming an internal task force to identify and address issues arising from the implementation of the TRID rule? And
- Will the CFPB release technical guidance regarding what constitutes a technical error and potential remediation method?
Here is the Bureau’s response.
By the way, while lenders remain ultimately responsible for ensuring proper disclosures, there is nothing to prevent them from spreading the cost of liability to third parties, nor should there be.
Justice Department Oks KeyCorp Merger
KeyCorp and First Niagara Financial Group Inc. have agreed to sell 18 of First Niagara’s branches in and around Buffalo, New York, with approximately $1.7 billion in deposits, to resolve antitrust concerns that arose from KeyCorp’s planned acquisition of First Niagara,the Justice Department announced yesterday. Here is a list of the branch locations to be divested. https://www.justice.gov/opa/file/846646/download The Department said that with these branch sales it will no longer oppose the merger. Both Senator Schumer and Governor Cuomo have urged the federal government to block the merger which has to ultimately be approved by the Federal Reserve. They argue that it will result in a loss of jobs and financial services in the impacted regions.
I’m not running for the Republican Party’s Presidential nomination (but, unlike House Speaker Paul Ryan I am open to being drafted at the convention) . So I can say that when it comes to housing policy Ted Cruz has a point about New York values being bad for the country. We need fewer procedural hoops and more commonsense.
A report released yesterday by NYS Comptroller Thomas P. DiNapoli provides the best evidence yet of how the state’s kneejerk reaction to the 2008 Mortgage Meltdown actually did more harm than good. As legislators debate what to do about NY’s Zombie property they should also consider making adjustments to a foreclosure process run amuck to the benefit of no one but the delinquent homeowner who often has no realistic means of paying off the mortgage. With much of the CFPB’s mortgage mitigation procedures modeled after states like California and New York there are lessons in this blog for you even if you don’t live in the Empire State.
It is remarkable just how backlogged NY’s foreclosure pipeline still is. According to the Comptroller New York state has the second highest home foreclosure rate in the nation, with 1 in 21 home mortgages in foreclosure; I t also has the fourth-slowest foreclosure process in the nation, averaging over 2.5 years per property. As the report tartly notes “ It is not surprising” that New York has a disproportionately high share of mortgages in foreclosure, relative to the rest of the country” New York has the second-highest home foreclosure inventory in the nation with 4.77 percent of mortgages in foreclosure. New Jersey led the nation at 6.47 percent.
What a coincidence that the states with two of the most convoluted foreclosure processes have the biggest backlogs.
But what is wrong with regulatory and statutory safeguards intended to crack down on banker abuses such as the dreaded Robo-Signing epidemic? Funny you should ask. According to the Comptroller the requirement mandating that lenders and attorneys personally vouch for having reviewed pertinent foreclosure records has created a “shadow docket” of cases in which foreclosures had been initiated but were essentially frozen as lawyers and lenders turned gun-shy about making personal assertions, especially about vacant property. This exacerbated the rise of vacant property that have local governments so frustrated.
New York’s judicially supervised settlement conferences provide another great example of unintended consequences. Multiple meeting replete with rescheduled conferences are the norm According to the report, these conferences don’t settle many foreclosures they simply delay them. On average they take 110 days to complete downstate and eighty upstate
In reacting to the mortgage meltdown with a phalanx of legal protections New York missed the mark. The problem was never the foreclosure process itself but the fact that too many people were given houses they couldn’t afford.
Believe it or not a more efficient foreclosure system really is in everybody’s best interest. Localities will have to deal with fewer Zombies if lenders know they can quickly access property and get it back on the market and delinquent homeowners will have more of an incentive to negotiate reasonable settlements if they know they can’t drag out the foreclosure process for years.
Here is one more quote from the report worth pondering:
“ New York’s lengthy foreclosure process offers some benefits to borrowers or other people who occupy homes while the loans are delinquent. Borrowers have a right to occupy their properties until the foreclosure process is complete. Doing so enables them to avoid the costs of mortgage, tax and home insurance payments.”
Here it is: