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  • Treasury Secretary Mnuchin Testifies Before Senate Banking Committee, Provides Overview of Policies and Goals

    Federal Issues

    On May 18, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Domestic and International Policy Update” with U.S. Treasury Secretary Steven Mnuchin—his first hearing since being sworn in. Committee Chairman Mike Crapo (R-Idaho) opened the full committee hearing asserting that “[w]e want our nation’s banks to be well-capitalized and well-regulated, without being drowned by unnecessary compliance costs. Undue regulation chills innovation and imposes significant and unnecessary costs and burdens on financial institutions and companies, often disproportionately on smaller ones.” Sen. Crapo further stressed that “[h]ousing finance reform remains the most significant piece of unfinished business following the crisis, and it is important to build bipartisan support for a path forward.” Ranking member Sherrod Brown (D-Ohio) likewise delivered opening remarks. Sen. Brown stated that regulation improvements for banks, shadow banks, and the financial services industry must be “based on facts” and that a better way to improve the economy and create jobs would be through “an effective means like infrastructure investment” rather than the “thoroughly discredited” trickle down approach.

    Mnuchin was the only witness at the May 18 hearing, offering testimony and answering questions concerning, among other things, (i) currency manipulation; (ii) the establishment of a “Monitoring List” of closely watched economies; (iii) comprehensive tax reform (stating that a goal of 3 percent GDP or higher is “achievable if we make historic reforms to both taxes and regulation”); (iv) regulatory reform (noting that the Treasury’s initial report will offer “recommendations to provide relief for community banks and make regulations more efficient and effective and appropriately tailored”); (v) imposing sanctions and efforts to combat terrorist activities and financing; and (vi) housing finance reform (maintaining that Treasury plans to work with Congress to ensure both ample credit for housing and that taxpayers are not put at risk).

    Mnuchin faced questions from several Senators after he testified, including Sens. Jon Tester (D-Mont.), Catherine Cortez Masto (D-Nev.), and Bob Corker (R-Tenn). In response Sen. Tester’s question as to whether Mnuchin could commit that the President’s tax relief plan would not add to the debt, Mnuchin replied that “any plan that we put forward we believe should be paid for with economic growth.” Sen. Cortez Masto asked what the Treasury was doing about the Trump Administration’s lack of focus on policies supporting American consumers and homeowners, questioning, “Why doesn’t President Trump’s Executive Order that rolls back Wall Street reforms mention consumer or investor protection even once? Why doesn’t it direct you to consider the financial needs of borrowers, students, service-members, seniors, homeowners?” Accordingly, Sen. Corker asked whether Mnuchin is "strongly committed to finally dealing with housing finance reform in an appropriate way,” to which Mnuchin replied, “My strong preference is to do it through congressional action.”

    Federal Issues Treasury Department Senate Banking Committee

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  • FHFA Director Testifies Before Senate Banking Committee, Provides Overview of Housing Finance System and Prospects for Reform

    Federal Issues

    On May 11, the Senate Banking Committee held a hearing at which FHFA Director Mel Watt fielded questions from lawmakers about the conservatorships of Fannie Mae and Freddie Mac (the Enterprises) and prospects for housing finance reform. In his opening statement, Committee Chairman Mike Crapo (R-ID) noted that Fannie and Freddie have been in conservatorship for close to nine years, and stated that “a housing finance system dependent on two government sponsored enterprises in perpetual conservatorship is not a sustainable solution.” According to Sen. Crapo, because approximately 70 percent of mortgages are backed by the federal government, “if the housing market experiences a downturn, taxpayers could again be on the hook for billions of dollars.” Ultimately, the Chairman set forth his position that housing finance reform should be considered the “most significant piece of unfinished business following the financial crisis.” 

    Meanwhile, FHFA Director Watt testified that, under his leadership, FHFA has “responsibly balanced” and met its “multiple statutory mandates to manage the Enterprises’ day-to-day operations.” He also identified some of the key changes and reforms that have taken place during the conservatorships, including: (i) requiring the Enterprises to emphasize sound underwriting practices in their purchase guidelines; (ii) reducing the Enterprises’ retained portfolios by over sixty percent since 2009; and (iii) developing effective loss mitigation programs, which include aligning the Enterprises’ loss mitigation standards and developing updated loan modification and streamlined refinance products to follow the Home Affordable Modification Program and the Home Affordable Refinance Program.

    Director Watt also acknowledged that “FHFA knows probably better than anyone that these conservatorships are not sustainable” and urged Congress to act on several issues related to housing finance reform, including:

    • developing a transition process to a new housing finance system to avoid disruption to the housing finance market;
    • determining whether the federal government should provide taxpayer backing for the conservatorship, and if so, in what form;
    • addressing the role the Enterprises might play in the reformed housing finance system and what statutory changes to their organizational structures, purposes, ownership and operations will be needed to ensure that they play their assigned roles effectively; and
    • identifying what regulatory and supervisory structure and authorities will be needed in a reformed system, and who will have responsibility to exercise those authorities.

    Furthermore, Director Watt noted that under the provisions of the Enterprises’ Preferred Stock Purchase Agreements, on January 1, 2018 the $1.2 billion buffer protecting the Enterprises against having to make additional draws of taxpayer support in the event of an operating loss in any quarter would be reduced to zero, at which time “neither Enterprise will have the ability to weather any loss it experiences in any quarter without drawing further on taxpayer support.” Director Watt warned that such a situation could erode investor confidence and “stifle liquidity in ways that could increase the cost of mortgage credit to borrowers.” Accordingly, the Director argued that the Enterprises “need some kind of [capital] buffer to shield against short-term operating losses” that could “result in an additional draw of taxpayer support and reduce the fixed dollar commitment Treasury has made to support the Enterprises.”

    Reaction of Industry Organizations. In a statement issued shortly after the hearing, Camden R. Fine, President and CEO of Independent Community Bankers of America (ICBA), expressed support for Director Watt after his testimony, agreeing about the need for Fannie and Freddie “to retain their earnings and to start rebuilding their capital buffers.” Meanwhile, Competitive Enterprise Institute (CEI) financial policy expert John Berlau was critical of what he called “an unfair, ongoing government policy of confiscating all Fannie/Freddie shareholder profits.” According to Mr. Berlau, the Enterprises’ “perilous financial state is the direct result of the Obama administration’s 2012‘Third Amendment’ policy, which confiscates all of Fannie and Freddie’s profits for the US Treasury.” He argued that curtailing this policy would allow the Enterprises to “retain some earnings and build capital to spare taxpayers another bailout.”

    Federal Issues FHFA Senate Banking Committee Fannie Mae Freddie Mac ICBA Treasury Department

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  • Senate Committee on Banking, Housing and Urban Affairs Hears Testimony About National Flood Insurance Program

    Federal Issues

    On May 4, the Senate Committee on Banking, Housing, and Urban Affairs held the second in a series of hearings entitled “Reauthorization of the National Flood Insurance Program, Part II,” to further debate the reauthorization of the National Flood Insurance Program (NFIP). Committee Chairman Mike Crapo (R-Idaho) opened the full committee hearing asserting that by “[w]orking together, and balancing reforms that protect taxpayers and assist consumers, we can reauthorize the Program on time.” However, Sen. Crapo further stressed the need to answer important questions including “[h]ow to offer consumers more choice by growing the private market and ensuring shared risk by both the government and private sector and how long the Program should be reauthorized,” among others. The May 4 hearing included testimony and recommendations to help modernize and reform the NFIP from the following witnesses:

    • Mr. Steve Ellis, Vice President of Taxpayers for Common Sense (TCS), on behalf of the Smarter Safer coalition (testimony). Ellis stated that TCS supports the flood insurance reforms released by Smarter Safer, which include the following: (i) “[r]isk analysis and mapping must be up to date and must provide property level elevation data”; (ii) “[r]ates must be tied to risk, with support for mitigation and premium support for low-income homeowners”; (iii) “[i]ncreased federal investments and efforts on mitigation both at a property level and community wide, so that we are reducing rates by reducing risk”; and (iv) “[e]nsuring consumer choice and private sector competition to reduce taxpayer exposure.” TCS also argued for a five-year reauthorization schedule as opposed to a longer one that would “delay adjustments and reforms to the program.”
    • Mr. Michael Hecht, President and CEO of Greater New Orleans, Inc., on behalf of the Coalition for Sustainable Flood Insurance (CSFI) (testimony). Hecht stressed that CSFI is focused on “advocating for a stronger policy framework for the National Flood Insurance Program that recognizes the economic, cultural, defense, and other national contributions made by communities exposed to flood risk,” and introduced four primary policy areas that will foster this stronger framework: Mitigation, Mapping, Affordability, and Program Participation.
    • Mr. Larry Larson, Director Emeritus of the Association for State Floodplain Managers (ASFPM) (testimony). Larson testified that ASFPM recommends, among many other things, that Congress: (i) consider a “shorter multi-year reauthorization of 2-3 years so FEMA can more fully develop affordability recommendations”; (ii) “develop a threshold above which the federal government will backstop claims resulting from catastrophic events for the NFIP based on an evaluation of the program’s current financial capacity”; (iii) “forgive the current NFIP debt”; and (iv) “give FEMA the flexibility to offer additional flood insurance policy options and make changes to existing options without the need for extensive rulemaking.”

    As previously covered in InfoBytes, draft bipartisan legislation to reauthorize the NFIP for 10 years was introduced on April 26.   The current version of the NFIP expires at the end of September.

    Federal Issues Flood Insurance National Flood Insurance Program Senate Banking Committee

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  • FHFA Director Appeared Before the Senate Banking Committee on May 11; Discussed Fannie/Freddie, Proposed "Underserved Markets Plans"

    Federal Issues

    On May 11, the Senate Committee on Banking, Housing, and Urban Affairs met in open session at 10:00 a.m. to discuss “The Status of the Housing Finance System After Nine Years of Conservatorship.” Federal Housing Finance Agency (FHFA) Director Mel Watt was the only witness scheduled to testify.

    The hearing comes after Fannie Mae (Fannie) and Freddie Mac (Freddie) published their first quarter financial reports. On May 2, Freddie announced $2.2 billion in net income in the first quarter—all of which Freddie expects to distribute to the Treasury, bringing the total to $108.2 billion in dividends. (See also Q1 2017 Supplement.) Notably, the $2.2 billion figure was down from its fourth quarter net income of $4.8 billion. Similarly, on May 5, Fannie reported net income of $2.8 billion in the first three months of 2017, money that will be sent to Treasury, which brings its total payments to $162.7 billion. The net income was a significant decline from the $5 billion it reported for the fourth quarter of 2016.

    Fannie and Freddie also recently released their respective “Underserved Markets Plans” for public comment. As previously covered by InfoBytes, FHFA published a final rule in the December 18 Federal Register implementing certain Duty to Serve provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, these provisions require Fannie and Freddie to each adopt a formal “Underserved Markets Plan” to improve the availability of mortgage financing for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. The Plans can be accessed through the following links:

    As explained on the FHFA’s DTS Underserved Markets Plan page, the activities and objectives in each of these Plans may be subject to change based on factors including public input, FHFA comments, compliance with the Enterprises' Charter Acts, safety and soundness considerations, and market or economic conditions. To this end, “views of interested stakeholders are sought on whether the proposed Plans would effectively serve the underserved markets if carried out as proposed, or if there are modifications that each Enterprise should consider making to its proposed Plan to better serve these underserved markets.”  The period during which the Enterprises are receiving public input on the proposed Plans will end on July 10. 

    Pursuant to the same new rule, FHFA has also published a Proposed Evaluation Guidance to provide: (i) FHFA's expectations regarding the development of the Underserved Markets Plans, and (ii) the process by which FHFA will evaluate Fannie’s and Freddie’s achievements under their Plans each year.  The deadline for public input on FHFA’s Proposed Evaluation Guidance is June 7.

    Federal Issues FHFA Congress Senate Banking Committee Fannie Mae Freddie Mac Treasury Department

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  • Supporting America’s Innovators Act of 2017 Passes in House Vote

    Federal Issues

    On April 6, a bipartisan bill entitled, Supporting America’s Innovators Act of 2017 (H.R. 1219) was received in the Senate after passing through the House by a 417-3 margin. The securities-related bill – which is now pending before the Senate Committee on Banking, Housing, and Urban Affairs, amends the provisions of the Investment Company Act of 1940 that require venture capital funds with more than 100 investors to register with the SEC. As previously reported in InfoBytes, the bill would serve to raise the cap on the number of investors from 100 to 250, thereby facilitating greater access to venture capital funding for small businesses and startups. In a press release issued by the House Financial Services Committee, the bill’s sponsor, Rep. Patrick McHenry explains that H.R. 1219 is intended to, among other things, “address the challenges facing angel investing so that startups and small businesses can have better access to capital,” by “creating a regulatory framework that encourages innovation and growth, while ensuring that shareholder and investor protections remain strong.”

    Federal Issues House Financial Services Committee Securities Senate Banking Committee

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  • Securities-Related Bills Advanced Through Committees in Both Senate and House

    Securities

    On March 9, the Senate Banking Committee and the House Financial Services Committee introduced and advanced five securities-related bills out of committee.  The bills—listed below—now await scheduling for consideration by each chamber in full.

    • S. 327 / H.R. 910 - Fair Access to Investment Research Act of 2017. This legislation will direct the SEC to provide a safe harbor for certain investment fund research reports.
    • S. 444 / H.R. 1219 - Supporting America’s Innovators Act of 2017. This legislation will amend the Investment Company Act of 1940 by expanding “the limit on the number of individuals who can invest in certain venture capital funds before those funds must register with the SEC as ‘investment companies.’”
    • S. 462 / H.R. 1257 - Securities and Exchange Commission Overpayment Credit Act. This legislation will require the SEC to refund or credit excess payments made to the Commission under a 10-year statute of limitations.
    • S. 484 / H.R. 1366 - U.S. Territories Investor Protection Act of 2017. This legislation will amend the Investment Company Act of 1940 to terminate an exemption for companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States.
    • S. 488 / H.R. 1343 - Encouraging Employee Ownership Act. This legislation will increase the threshold for disclosures required by the SEC relating to compensatory benefit plans.

    H.R. 1312 - The Small Business Capital Formation Enhancement Act. The House Financial Services Committee also approved a sixth bill, which seeks to amend the Small Business Investment Inventive Act of 1980 to require an annual review by the SEC of any findings set forth in the annual government-business forum on capital formation.

    Securities Senate Banking Committee House Financial Services Committee SEC

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  • Senate Confirms Ben Carson for HUD Secretary

    Federal Issues

    On March 2, Dr. Ben S. Carson was sworn in as the 17th Secretary of the U.S. Department of Housing and Urban Development. Vice President Mike Pence administered the oath of office. Earlier in the day, the Senate confirmed the retired neurosurgeon as the new secretary of the HUD Secretary in a 58-41 vote, primarily along party lines. The Senate Banking, Housing, and Urban Affairs Committee unanimously voted to move Carson out of committee on January 24. Dr. Carson’s full biography is available here.

    Federal Issues HUD Senate Banking Committee U.S. Senate

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  • House Financial Services Committee Chairman Called for End of CFPB; Senate Banking Committee Ranking Member Responds

    Federal Issues

    In a February 10 blog post, House Financial Services Committee Chairman Jeb Hensarling called for the abolition of the CFPB, and recommended that the President “immediately fire CFPB Director Richard Cordray.” Specifically, Rep. Hensarling expressed his belief that the CFPB is “arguably the most powerful, least accountable agency in U.S. history,” and his concern that the agency “defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process.” For these reasons, Rep. Hensarling  stated  he believes that “even with good policy, the CFPB would still be unconstitutional.” Ultimately, he argued that the CFPB “must be functionally terminated,” which he said could be achieved by ending the Bureau’s funding through a reconciliation bill.

    The same day, Senate Banking Committee Ranking Member Sherrod Brown issued a statement responding to Rep. Hensarling’s proposal to abolish the Dodd-Frank Act. Senator Brown’s response noted, among other things, that “71 percent of Americans approve of the [CFPB]’s mission,” and that “[t]he Hensarling proposal would transform the Bureau from an effective watchdog into a toy poodle.”

    Federal Issues Consumer Finance CFPB Dodd-Frank House Financial Services Committee Senate Banking Committee

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  • Legislation Introduced in Both Houses Seeking to Curb Authority of the CFPB and Other Financial Regulators

    Federal Issues

    On February 14, Senator Mike Rounds, a member of the Senate Banking Committee, introduced S. 365, which seeks to amend the Consumer Financial Protection Act of 2010 to bar the transfer of funds from the Board of Governors of the Federal Reserve System to the CFPB. The bill also would require the CFPB to turn over all penalties it obtains to the United States Treasury. Sen. Rounds also reintroduced the “Taking Account of Institutions with Low Operation Risk (TAILOR) Act” (S. 366)–a bill intended to ease regulatory burden on local banks and credit unions. Specifically, the TAILOR Act would require financial regulators to take into consideration the risk profile and business models of individual financial institutions and tailor those regulations accordingly. The TAILOR Act also would require regulators–including the OCC, the Fed, the FDIC, the NCUA and the CFPB–to conduct a review of all regulations issued since the 2010 passage of the Dodd-Frank Act and revise any regulations that do not conform to the TAILOR Act’s requirements. In addition, the regulatory agencies would be required to provide an annual report to Congress outlining the steps they have taken to tailor their regulations.

    On February 15, Senator David Perdue (R-Ga.), along with Sens. John Barrasso (R-Wyo.), John Boozman (R-Ark.), Ted Cruz (R-Tex.), Steve Daines (R-Mont.), Mike Enzi (R-Wyo.), Joni Ernst (R-Iowa), John Hoeven (R-N.D.), Johnny Isakson (R-Ga.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Rand Paul (R-Ky.), Marco Rubio (R-Fla.), and Thom Tillis (R-N.C.), have introduced legislation S. 387 to amend the Consumer Financial Protection Act so that the CFPB would be subject to the regular appropriations process.

    Senator Ted Cruz and Representative John Ratcliffe also introduced legislation in their respective chambers that would abolish the CFPB. The pair of bills–S. 370  and H.R. 1031–would “eliminate the Consumer Financial Protection Bureau by repealing title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Consumer Financial Protection Act of 2010.” As explained by Senator Cruz in a joint press release, the proposed legislation would give “Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”

    Federal Issues Consumer Finance CFPB Congress Dodd-Frank Senate Banking Committee

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  • Congress Seeks Answers from Bank CEO and Federal Bank Regulators

    Consumer Finance

    On September 20, the CEO of a major national bank faced questions from the House Financial Services Committee over consumer account practices uncovered during a recent enforcement action by the CFPB. The CEO will return to Capitol Hill on September 29 for additional testimony in front of the Committee. In addition, the Director of the CFPB and the Comptroller of the Currency faced scrutiny from the Senate Committee on Banking, Housing & Urban Affairs on their agencies awareness of, and failure to prohibit, the bank’s alleged actions for more than two years. In prepared testimony, Director Cordray indicated that the civil penalty levied against the bank was the “largest fine by far that the Consumer Bureau has imposed on any financial company to date” calling it a “dramatic amount as compared to the actual financial harm to consumers” but also “justified here by the outrageous and abusive nature of these fraudulent practices on such an enormous scale.” Director Cordray further stated that this enforcement action should help clarify how the CFPB will continue to analyze and enforce the prohibition on “abusive” practices under its mandate.  Meanwhile Comptroller Curry explained how this enforcement action demonstrates the complimentary roles played by the OCC and the CFPB in supervising bank practices.

    CFPB OCC U.S. Senate U.S. House Senate Banking Committee House Financial Services Committee

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