New rules aim to shield consumers, mortgage lenders
WASHINGTON Federal regulators for the first time are laying out rules designed to ensure that mortgage borrowers can afford to repay the loans they take out.
The rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky "interest-only" and "no documentation" loans that helped inflate the housing bubble.
Lenders will be required to verify and inspect borrowers' financial records. They generally will be prohibited from saddling borrowers with loan payments totaling 43 percent of the person's annual income.
CFPB Director Richard Cordray, in remarks prepared for an event Thursday, called the rules "the true essence of 'responsible lending."'
The rules, which take effect next year, aim to "make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit," he said.
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Cordray noted that, in years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years, banks tightened lending so much that few could qualify for a home loan.
The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said.
The mortgage-lending overhaul is a priority for the agency, which was created under the 2010 financial law known as the Dodd-Frank Act. The agency is charged with reducing the risk of a credit bubble by helping to ensure that borrowers are better informed and loans are more likely to be repaid.
The agency is charged with writing and enforcing rules that flesh out the law passed by Congress. Some provisions are required under the law, but the agency had broad discretion in designing many of the new requirements.
The rules limit features like teaser rates that adjust upwards and large "balloon payments" that must be made at the end of the loan period.
They include several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years.
Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities, because other loans may not be available in those areas.
The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.
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Thanks for share this.
http://www.reversemortgagelendersdirect.com/reverse-mortgage-information/
http://www.factcheck.org/elections-2008/who_caused_the_economic_crisis.html
Under the Clinton administration, Gorelick served as General Counsel of the Department of Defense from 1993 to 1994, when she was appointed Deputy Attorney General of the United States, the No. 2 position in the Department of Justice. Gorelick served as Vice Chairman of the Federal National Mortgage Association (Fannie Mae) from 1997 to 2003.
Even though she had no previous training nor experience in finance, Gorelick was appointed Vice Chairman of Federal National Mortgage Association (Fannie Mae) from 1997 to 2003. She served alongside former Clinton Administration official Franklin Raines. During that period, Fannie Mae developed a $10 billion accounting scandal.
On March 25, 2002, Business Week interviewed Gorelick about the health of Fannie Mae. Gorelick is quoted as saying, "We believe we are managed safely. We are very pleased that Moody's gave us an A-minus in the area of bank financial strength - without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions." One year later, Government Regulators "accused Fannie Mae of improper accounting to the tune of $9 billion in unrecorded losses".
In an additional scandal concerning falsified financial transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives, Gorelick received $779,625.
Investigation by the OFHEO detailed in their official report on the accounting scandal in 2006 on page 66 that from 1998 to 2002 Gorelick received a total of $26,466,834.00 in income.
Also, Rahm Emanuel, After serving as an advisor to Bill Clinton, in 1998 Emanuel resigned from his position in the Clinton administration and joined the investment banking firm Wasserstein Perella, where he worked until 2002. Although he did not have an MBA degree or prior banking experience, he became a managing director at the firm's Chicago office in 1999, and according to Congressional disclosures, made $16.2 million in his two-and-a-half-years as a banker. At Wasserstein Perella, he worked on eight deals, including the acquisition by Commonwealth Edison of Peco Energy and the purchase by GTCR Golder Rauner of the SecurityLink home security unit from SBC Communications.
Emanuel was named to the Board of Directors of the Federal Home Loan Mortgage Corporation (Freddie Mac) by President Clinton in 2000. He earned at least $320,000 during his time there, including later stock sales.
During Emmanuel's time on the board, Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities. The Obama Administration rejected a request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director. The Office of Federal Housing Enterprise Oversight later accused the board of having "failed in its duty to follow up on matters brought to its attention." Emanuel resigned from the board in 2001 when he ran for Congress and later become President Obama's Chief of Staff.
Here's a quick look into the two former Fannie Mae executives who brought down Wall Street.
James A. Johnson political history within the Democrat Party and his ties to the Clinton Administration, former campaign manager for Walter Mondale and chaired the vice presidential selection committee for the presidential campaign of John Kerry. He briefly led the vice-presidential selection process for the 2008 Democratic presidential nominee, Senator Barack Obama. Also worked for Presidential campaigns of Eugene McCarthy and George McGovern. From 1977 to 1981 he was executive assistant to Vice President Walter Mondale during the entire Carter Administration. From 1985 to 1990, he was amanaging director with Lehman Brothers.
In 1990, Johnson became vice chairman of Fannie Mae, or the Federal National Mortgage Association, a quasi-public organization that guarantees mortgages for millions of American homeowners. In 1991, he was appointed chairman and chief executive officer of Fannie Mae, a position he held until 1998.
An Office of Federal Housing Enterprise Oversight (OFHEO) report from September 2004 found that, during Johnson's tenure as CEO, Fannie Mae had improperly deferred $200 million in expenses. This enabled top executives, including Johnson and his successor, Franklin Raines, to receive substantial bonuses in 1998. A 2006 OFHEO report found that Fannie Mae had substantially under-reported Johnson's compensation. Originally reported as $6-7 million, Johnson actually received approximately $21 million.
In the 2011 book Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon, authors Gretchen Morgenson and Joshua Rosner wrote that Johnson was one of the key figures responsible for the late-2000s financial crisis. Morgenson described him in an NPR interview as "corporate America's founding father of regulation manipulation". Also according to Morgenson, he changed Fannie's executive compensation plan to be based on volume not quality and earned over $200 Million dollars while working at Fannie Mae.
Franklin Raines served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979. In 1991 he became Fannie's Mae's Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998. In 1999, he returned to Fannie Mae as CEO.
On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.
In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on the overstated earnings, initially estimated to be $9 billion but have been announced as $6.3 billion.
Update: Fannie Mae and Freddie Mac Invest in Lawmakers
By Lindsay Renick Mayer on September 11, 2008 11:26 AM
When the federal government announced two months ago that it would prop up mortgage buyers Fannie Mae and Freddie Mac, CRP looked at how much money members of Congress had collected since 1989 from the companies.
All Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008
Name Office State Party Grand Total Total from PACs Total from
Individuals
#1 Dodd, Christopher J S CT D $165,400 $48,500 $116,900
#2 Obama, Barack S IL D $126,349 $6,000 $120,349
#3 Kerry, John S MA D $111,000 $2,000 $109,000
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
Published: September 11, 2003
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac which together have issued more than $1.5 trillion in outstanding debt is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html?pagewanted=all&src=pm
Now go educate yourself on who and what political affiliations of James A. Johnson, Franklin D. Raines, Jamie Gorelick and Rahm Emanuel have in common?
Bill Clinton Blames Democrats for Housing Mess
When asked a poignant question about Democrat claims that the sub-primes crisis was the fault of Republicans, Bill Clinton blames the bulk of the mess on Democrats in Congress blocking Republican as well as his reforms to Fannie and Freddie.
http://www.liveleak.com/view?i=757_1230443690
Actually video from the congressional hearings from CSPAN
Democrats in their own words Covering up Fannie Mae, Freddie Mac scandal
http://www.youtube.com/watch?v=IyqYY72PeRM
Ron Paul exposes Fannie Mae & Freddie Mac in 2003
http://www.youtube.com/watch?v=CJoKwB-JHn8
Tightening the rules is great.. they should never have been loosened under CRA and Anti redlining lawsuits brought by Obama and others.
The huge problem...discrimination really is the multitude of loans that were given under the "loose rules" and the borrowers have made the payments (often with great struggle) and those loans are not renewed and foreclosed because they do not meet the new criteria. And because of these new rules they cannot get financing else where.
It is fine and sorely need to tighten the rules but allowance has to be made to the people who have home and small business commercial loans for a small building to run their business out of.
The Banks have descriminated against thousands of buyers that they once qualified and now will not renew and or work with the borrower who no longer qualifies because the bank change their criteria. Thisis wrong, discriminatory, and criminal.