The U.S. financial reform debate has been blazing through a number of amendments on the Senate floor, one of which may represent a major necessary compromise that could clear a bipartisan passage of the eventual legislation.
Sen. Chris Dodd, chief author of the bill and chairman of the Banking, Housing and Urban Development Committee, said he settled disputes over language with his committee's ranking Republican, Seb. Richard Shelby, R-Ala. The two were working on the too-big-to-fail concept and agreed on changes that they think eliminate the idea from future governmental dealings with Wall Street. The ensuing amendment -- which tosses out the controversial industry-paid resolution fund -- passed 93-5. "Because whether they pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objection to dropping that provision," Dodd said. Bottom line: The bill "will continue to eliminate the ability of the Federal Reserve to prop up failed institutions like AIG," according to Dodd.
Insurers, however, had already been exempted from that $50 billion fund idea. They were more interested in what amounted to a backstop of that fund in which financial firms would be charged fees to pay for company failures that deplete the entire fund. That will still be the case, with major financial companies assessed fees to cover the winding down of failed businesses, though the amendment clarifies the failed companies' creditors and investors would be hit first.
Blain Rethmeier, spokesman for the American Insurance Association, said the post-event resolution assessment mechanism "is the same, except property/casualty insurers will now have a buffer made up of companies that directly benefitted."
The Dodd/Shelby amendment would limit regulators' ability to aid failing companies but would lend federal agencies greater authority to dismember the businesses. Also, regulators can "ban culpable management and directors of failed firms from working in the financial sector," Dodd said.
Another amendment, filed by Sen. Patrick Leahy, chairman of the Judiciary Committee, resurrects a portion of the health reform debate: the removal of health insurers' antitrust exemption. The Vermont senator couched the amendment in terms that tried to relate it to the financial crisis: "The recent economic crisis showed all of us that corporations do not act responsibly without adequate oversight," he said in a statement. "We can surely agree that health insurers should not be allowed to collude to fix prices and allocate markets."
Though this idea had initially been a component of health reform legislation in the House, it didn't make it into the final reforms now being implemented. Health insurers have opposed removal of this decades-old exemption, but America's Health Insurance Plans has said it's not a major issue. And in another amendment, pushed by Sen. Jeff Merkley, D-Ore., the proposed federal insurance office's authority to represent the U.S. insurance market in international negotiations would be weakened. The amendment would make it more difficult for the office to pre-empt state laws that get in the way of potential international deals. Most of the insurance industry has supported this international role for the potential new office.
The National Conference of Insurance Legislators sent a letter to Dodd and Shelby in opposition of a possible amendment that would allow federal veto power over health insurer rate increases. "State insurance regulators, attorneys general, legislators, and governors work together in the states to ensure that health insurance rates are appropriate and that inappropriate rate increases are short-lived," NCOIL President Robert Damron wrote in the letter. This potential amendment "would upset this balance of responsibility and accountability by allowing unelected bureaucrats to unilaterally determine the future of rate oversight," he argued.
Senate Majority Leader Harry Reid has said he intends for the vote on financial reforms to happen by May 14. If it passes the Senate, a final version would still have to be worked out in a compromise with the House, which passed its financial reform bill late last year.
Frozen Jumbo Loan Market Beginning to Thaw
Spring is in the air – for the jumbo mortgage market. With last week’s announcement of the first securities sale backed by jumbo loans in two years, there are encouraging signs that high-value loans are becoming easier to obtain.
High-end buyers and homeowners looking to refinance were largely shut out of last year’s low-rate bonanza, when rates on conforming loans fell to all-time lows. But with interest rates still at very attractive levels, it looks like they may yet have a chance to climb on board.
Jumbo mortgage loans, of course, are those that are exceed the limits set for conforming loans, which Fannie Mae or Freddie Mac will support. Those limits range from a general limit of $417,000, up to as much as $729,750 in high-cost areas. Since they’re not backed by Fannie Mae or Freddie Mac, they’re considered riskier than conventional loans.
Jumbo rates under 6 percent
The average interest rate on a 30-year fixed-rate jumbo loan is presently just under 6 percent according to Informa Research Services. That’s down from about eight percent within the past year, assuming you could even qualify for the loan. Some lenders are even lower – Wells Fargo is presently listing a 30-year fixed rate as low as 5.5 percent for current customers, and CitiMortgage, the home lending arm of Citigroup, recently cut its rate to as low as 5.6 percent.
Citigroup has been a major figure in the move toward making jumbo loans more available. It was behind the recent mortgage securities sale, handled by Redwood Securities, which reportedly involved $222 million in securities backed by jumbo mortgages at an average value of $933,000.
Securities sale a turning point
As the first sale of jumbo mortgage securities in two years, the move is significant, because lenders typically rely on selling the mortgages they make to free up additional capital, rather than keeping the loans on their own books.
Citigroup is making the move at a time when it sees renewed opportunities in the jumbo mortgage market, according to CitiMortgage CEO Sanjiv Das.
"We are beginning to see a lot of interest in the jumbo market," Das told Reuters "We want to demonstrate that Citi is a leader in jumbo mortgages and we believe that end of the market has been underserved."
Qualifying may still be a challenge
Still, obtaining a jumbo loan may still be a challenge even for seemingly well-qualified borrowers. The Wall Street Journal reports that lenders are demanding credit scores of 740 and above, with minimum down payments of 20 percent or more. Some lenders reportedly require down payments of as much as 30 percent to 45 percent for loans in excess of $1 million.
That’s not likely to change until more action is seen in the market for jumbo mortgage securities, which will provide lenders with more capital to make loans, as well as taking some of the risk off their hands. And for that to happen, the investors who buy mortgage securities will have to become more confident that jumbo mortgages are a reliable investment.
Presently, most lenders who issue jumbo mortgages are still keeping them on their own books. This means that, generally speaking, only the biggest lenders who can afford to do so, such as Citi, Wells Fargo and Bank of America, are doing so. However, there are signs that some smaller lenders, including credit unions, are beginning to move back into the mortgage as well.
High-end buyers and homeowners looking to refinance were largely shut out of last year’s low-rate bonanza, when rates on conforming loans fell to all-time lows. But with interest rates still at very attractive levels, it looks like they may yet have a chance to climb on board.
Jumbo mortgage loans, of course, are those that are exceed the limits set for conforming loans, which Fannie Mae or Freddie Mac will support. Those limits range from a general limit of $417,000, up to as much as $729,750 in high-cost areas. Since they’re not backed by Fannie Mae or Freddie Mac, they’re considered riskier than conventional loans.
Jumbo rates under 6 percent
The average interest rate on a 30-year fixed-rate jumbo loan is presently just under 6 percent according to Informa Research Services. That’s down from about eight percent within the past year, assuming you could even qualify for the loan. Some lenders are even lower – Wells Fargo is presently listing a 30-year fixed rate as low as 5.5 percent for current customers, and CitiMortgage, the home lending arm of Citigroup, recently cut its rate to as low as 5.6 percent.
Citigroup has been a major figure in the move toward making jumbo loans more available. It was behind the recent mortgage securities sale, handled by Redwood Securities, which reportedly involved $222 million in securities backed by jumbo mortgages at an average value of $933,000.
Securities sale a turning point
As the first sale of jumbo mortgage securities in two years, the move is significant, because lenders typically rely on selling the mortgages they make to free up additional capital, rather than keeping the loans on their own books.
Citigroup is making the move at a time when it sees renewed opportunities in the jumbo mortgage market, according to CitiMortgage CEO Sanjiv Das.
"We are beginning to see a lot of interest in the jumbo market," Das told Reuters "We want to demonstrate that Citi is a leader in jumbo mortgages and we believe that end of the market has been underserved."
Qualifying may still be a challenge
Still, obtaining a jumbo loan may still be a challenge even for seemingly well-qualified borrowers. The Wall Street Journal reports that lenders are demanding credit scores of 740 and above, with minimum down payments of 20 percent or more. Some lenders reportedly require down payments of as much as 30 percent to 45 percent for loans in excess of $1 million.
That’s not likely to change until more action is seen in the market for jumbo mortgage securities, which will provide lenders with more capital to make loans, as well as taking some of the risk off their hands. And for that to happen, the investors who buy mortgage securities will have to become more confident that jumbo mortgages are a reliable investment.
Presently, most lenders who issue jumbo mortgages are still keeping them on their own books. This means that, generally speaking, only the biggest lenders who can afford to do so, such as Citi, Wells Fargo and Bank of America, are doing so. However, there are signs that some smaller lenders, including credit unions, are beginning to move back into the mortgage as well.
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