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Government Loans

Rules of the Road

Below is a story that I read online this morning that does a great job of telling you what the proposals are for the new “Rules of the Road”  that our nation’s financial system must follow.  Whether you agree or disagree with the changes, it’s good to be informed!


Obama proposes sweeping new ‘rules of the road’ for the nation’s financial system

by Associated Press

Wednesday June 17, 2009, 1:23 PM


President Barack Obama delivers remarks on the new comprehensive regulatory reform plan, Wednesday, June 17, 2009, in the East Room of the White House. (AP Photo/Haraz N. Ghanbari)

President Barack Obama delivers remarks on the new comprehensive regulatory reform plan, Wednesday, June 17, 2009, in the East Room of the White House. (AP Photo/Haraz N. Ghanbari)

President Barack Obama, speaking from the White House, attributed much of the country’s current problem to “a cascade of mistakes and missed opportunities” that occurred over decades.


Updated at 8:47 p.m.


WASHINGTON — President Barack Obama proposed a major overhaul of the U.S. financial system Wednesday, unveiling measures he hopes would restore confidence and prevent a repeat of the worst crisis to hit Wall Street in seven decades.


The Obama plan would give new powers to the Federal Reserve — the U.S. central bank — to oversee the entire financial system and create a new consumer protection agency to guard against the types of abuses that played a big role in the current crisis.


The president said his plan was “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression” of the 1930s. It would also reverse a campaign pressed in the 1980s by President Ronal Reagan to cut back on federal fiscal regulations.


Obama attributed much of the country’s current problem to “a cascade of mistakes and missed opportunities” that happened over several decades, again blaming “a culture of irresponsibility (that) took root from Wall Street to Washington to Main Street.”


The 88-page proposal will spark intense debate in Congress. Opponents are already criticizing it as imposing too many restrictions that will harm the ability of U.S. financial companies to compete in the global economy.


The proposal seeks to revamp a regulatory structure that Obama’s economic team say couldn’t cope with burgeoning new credit products and the increasing complexities of the marketplace.


Under Obama’s plan, the Federal Reserve would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the financial system. But even as it gains new powers, the central bank would cede some banking authority to a new Consumer Financial Protection Agency.


Working alongside the Federal Reserve, but without power to overrule the central bank, would be a new council of regulators that would monitor the overall financial system with an eye to preventing the unexpected collapse of huge institutions as happened last fall with AIG, the insurance company, and the Lehman Brothers brokerage.


Obama wants Congress to make the plan law by the end of the year, an ambitious goal given that he also is pushing lawmakers to overhaul the U.S. health care system by October.


Both measures face a blizzard of opposition from special interest groups, who fear the changes envisioned will cut into profits or impose undue complexities on their industries.


In a Tuesday television interview, Obama said the plan was “a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again.”


Christina Romer, the chairman of the White House Council of Economic Advisers, said Wednesday morning that the administration proposal strikes “the appropriate balance” and was “not bulldozing the whole system.”


The financial sector and lawmakers from both parties agree that significant changes are need in the rules that govern the intricate and interconnected world of banking and investment. They differ on the details.


Rep. John Boehner, the Republican party leader in the House of Representatives, predicted “we’ll have the federal government deciding what interest ought to be charged on credit cards, having the government decide what kind of financial products are available.”


Obama’s proposal would require the Federal Reserve, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury Department approval.


The expanded role of the central bank and the new consumer regulator were likely to be the two main areas of the political fight in Congress. Many bankers oppose a new consumer protection regulator and many lawmakers worry the Federal Reserve could become too powerful.


Obama’s plan does not attempt major consolidation of regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight.


“We don’t want to tilt at windmills,” Obama said on CNBC.


Obama’s decision to create a consumer agency is in response to criticism that mortgage lenders and credit card companies have taken advantage of unsuspecting customers and saddled them with too much debt.


The new regulator would have the power to demand that customers have the option of simple financial products, to impose fines and to allow states to pass laws that are stricter than the federal standards.


Consumer protections are now spread among various state and federal authorities, including the Federal Reserve, the Securities and Exchange Commission, the Federal Trade Commission and a variety of banking regulators.

FHA Change and Fed Intervention

Two big announcements were made this week regarding the “mortgage world,” both of which came as a bit of a surprise.

Another FHA Cash-Out Guideline Change

The first item is the announcement by HUD, via Mortgagee Letter 2009-08 that, effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value.  This comes only about four months after HUD changed the rules for cash-out refinances that were greater than 85% LTV, but less than or equal to 95% LTV, whereas the transactions that fell into this category would require two independent appraisals prior to funding.

If we look back in history, we will see that we are actually now back to the FHA guidelines, for the most part, that existed prior to the subprime mortgage market.  You see, FHA changed their guidelines many years ago to be less restrictive so that they could compete with the subprime market.  Hindsight is 20-20.

What does this mean to you? If you have a cash-out need that has an LTV greater than 85%, you need to get the ball rolling on the refinance now.  FHA is currently the only program allowing more than 85% on this type of transaction and that will end very soon.  Your loan doesn’t have to close by the end of March, your case number just needs to be assigned by then; you need to apply now.

To read the full Mortgagee Letter, click here to open the MS Word Doc.

Federal Reserve to Print Money to Purchase Mortgage Related Securities and Treasuries

Earlier this week, I told several people that I didn’t see any significant rate drops on the horizon because, since last Fall when the Federal Reserve bought hundreds of millions of dollars in mortgage related securities, the government hasn’t done anything to lower rates further, just maintain them.  When I got home last night and saw the news, I found out that I was wrong.

With the adjournment of this week’s FOMC meeting (Federal Open Market Committee), we were greeted with some extremely favorable news regarding the Fed’s investment in Treasury securities and mortgage-related bonds. As expected, there was no change made to key short-term interest rates but the post-meeting statement did mention that economic conditions were worse now than at the time of their last meeting in January. They again mentioned concerns about deflation, meaning inflation is not a threat in their minds.
The big news was the size of the investment that the Fed is going to be making in mortgage-related bonds and securities. In a direct effort to push different interest rates lower, including corporate lending and residential mortgage rates, the central bank will be buying up to $300 billion in longer-term bonds over the next six months. They also said that they plan to purchase $750 billion in mortgage backed securities so free up more capital for mortgage lending. This will likely give the housing and mortgage sectors a much needed boost.

I look forward to seeing what this will do to the rates over the coming weeks and months.  If you would like to talk about your personal situation, please contact me to get started on a free quote!


Roll with the punches. Tomorrow is another day. – the late great Dicky Fox , original sports agent (from the film Jerry Maguire)