HFSC Holds Markup on Derivatives and Housing Legislation
At a House Financial Services Committee Markup on March 27, members considered amendments to four bills, including legislation to bolster the financial stability of the FHA and limit the extraterritorial reach of Dodd-Frank’s derivatives provisions by exempting swaps between U.S. persons and non-U.S. persons from margin requirements.
The FHA Emergency Fiscal Solvency Act of 2012 (Approved by Voice Vote)
Introduced by Rep. Judy Biggert (R-Ill.), the original version of the FHA Emergency Fiscal Solvency Act of 2012 was passed out of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity by voice vote earlier this year. The new version of the FHA Emergency Fiscal Solvency Act of 2012, H.R. 4264, contains several technical changes to the original bill, but still aims to bolster Federal Housing Administration’s (FHA) insurance reserves by establishing minimum annual mortgage insurance premiums, improving FHA internal controls and disclosures, banning lenders from participating in the FHA lending program and requiring that lenders who commit fraud reimburse the FHA for losses.
Biggert said H.R. 4264 is needed because the FHA has an “abysmal” fiscal track record, which is putting taxpayers at “significant risk.” She said her bill will provide the administration “with the tools its needs” to support the struggling capital reserve fund and help return the FHA to more solid fiscal footing.
Ranking Member Barney Frank (D-Mass.) and Rep. Luis Gutierrez (D-Ill.) both expressed their approval of Biggert’s changes to the bill, but said the legislation still has some issues, including onerous reporting requirements on early period delinquencies and the status of the Mutual Mortgage Insurance Fund. However, Frank expressed confidence that Biggert and committee Chairman Spencer Bachus (R-Ala.) would work with him to make “refinements” before the bill receives a floor vote.
Amendments
Westmoreland Amendment (037) (Defeated by Recorded Vote 36-18)
Rep. Lynn Westmoreland (R-Ga.) offered an amendment that reduces the FHA mortgage insurance guarantee from 100 percent to 80 percent. Westmoreland said the FHA is “insolvent,” pointing out that the capital reserve ratio was expected to be restored to its statutorily required two percent this year, but instead, the ratio is 0.24 percent. In closing, he said the FHA requires a “permanent fix, not a band-aid” now that it is exposing taxpayers to “$1 trillion in liabilities.”
Vice Chairman Jeb Hensarling (R-Texas) agreed with Westmoreland’s characterization of the FHA, adding that it is the “next, great taxpayer bailout.” Additionally, he highlighted a recent study that said the FHA is leveraged at a ratio of “300-1” and said recent testimony concerning the solvency of the FHA indicates that it will need a “$50-$100 billion capital infusion” before the end of the year.
Reps. Gary Miller (R-Calif.) and Bill Posey (R-Fla.) said they both appreciated the intent of the amendment, but said it is being introduced at the “wrong time.” Both noted stakeholder objections, including the potential negative effects the bill would have on the housing market’s weak recovery. Miller said “there is no question we [Congress] need to manage the FHA better,” but this is not the right time.
Westmoreland Amendment (046) (Defeated by Recorded Vote 30-18)
Westmoreland offered a second degree amendment that would strip the FHA of the flexibility to increase premiums gradually, requiring the FHA to raise upfront premiums to a level that will restore the two percent capital reserve ratio “as soon as possible.” Hensarling and Rep. Blaine Luetkemeyer (R-Mo.) expressed their support for the “modest” amendment, highlighting the insolvency of the agency and stating that by making FHA loans more expensive, private capital will be able to come back into the market.
Frank and Rep. Maxine Waters (D-Calif.) questioned the timing of the bill and noted how difficult it already is to secure an FHA loan after recent premium increases. They also expressed concern that an amendment like this could damage the housing market’s recovery.
Fitzpatrick Amendment (Withdrawn)
Rep. Michael Fitzpatrick (R-Pa.) offered an amendment removing the statutory cap on FHA’s Home Equity Conversion Mortgage (HECM) program.
The RESPA Home Warranty Clarification Act of 2011 (Approved by Voice Vote)
Introduced by Rep. Lacy Clay (D-Mo.) and Biggert, H.R. 2446, the RESPA Home Warranty Clarification Act of 2011, clarifies the scope of the Real Estate Settlement Procedures Act of 1974 (RESPA) by exempting home warranty companies as settlement service providers and would require that consumers are given clear notice that their real estate agent could receive a referral fee for selling them a home warranty.
The legislation seeks to overturn the Department of Housing and Urban Development’s (HUD) June 25, 2010 Interpretive Rule which stated that a homeowner’s warranty is covered as a “settlement service” under HUD’s RESPA regulations.
Amendments
Hinojosa Amendment (Approved by Voice Vote)
Rep. Rubén Hinojosa (D-Texas) offered an amendment that requires real-estate agents to disclose if they are being paid a commission by home warranty firms.
The Swap Data Repository and Clearinghouse Indemnification Correction Act of 2012 (Approved by Voice Vote)
Introduced by Reps. Robert Dold (R-Ill.) and Gwen Moore (D-Wis.), H.R. 4235, the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2012, repeals the indemnification requirements under the Dodd-Frank Act requiring U.S. or foreign regulators seeking access to swap data from an swap data repository to provide assurances that the regulator abide by certain confidentially requirements.
The Swap Jurisdiction Certainty Act (Approved by Recorded Vote 41-18)
Introduced by Reps. Jim Himes (D-Conn.) and Scott Garrett (R-N.J.), H.R. 3283, the Swap Jurisdiction Certainty Act, clarifies Dodd-Frank Act provisions to ensure the equal treatment of U.S. firms conducting transactions outside of the U.S. and foreign firms conducting similar activities. The bill also clarifies that non-U.S. firms that are registered swap dealers would be subject to the capital rules of their home country as long as that country is a Basel signatory and prevents the possible requirement that registered swap dealers must post separate margins for each government under which they are regulated.
Waters and Frank expressed concern that the bill will not accomplish what it intends to and could conflict with other swaps bills being considered on the floor. They also argued that removing regulations on “dangerous” foreign swaps would be an “error.”
Amendments
Himes Amendment (Passed by Voice Vote)
Himes offered a technical amendment that clarifies the language in H.R. 3283 and specifies that exemptions to Title VII in the underlying legislation are only meant for extraterritorial concerns.
Garrett Amendment (Passed by Voice Vote)
Frank and Garrett offered an amendment clarifying that the powers of the banking regulators to maintain the safety and soundness of the institutions it regulates is preserved.
Frank Amendment (Defeated by Recorded Vote 32-26)
Frank offered an amendment that grants the Commodity Futures Trading Commission and the Securities and Exchange Commission the authority to subject a swap transaction, exempted by the underlying legislation, to regulatory oversight if both agencies agree that the transaction could pose a systemic risk to U.S. markets. He called his amendment an “anti-evasion” amendment, meant to give derivatives regulators the ability to neutralize risk to the U.S. economy.
Garrett said he opposed Frank’s amendment because the underlying legislation already includes anti-evasion provisions.
For testimony and a webcast of the hearing, please click here.
At a House Financial Services Committee Markup on March 27, members considered amendments to four bills, including legislation to bolster the financial stability of the FHA and limit the extraterritorial reach of Dodd-Frank’s derivatives provisions by exempting swaps between U.S. persons and non-U.S. persons from margin requirements.
The FHA Emergency Fiscal Solvency Act of 2012 (Approved by Voice Vote)
Introduced by Rep. Judy Biggert (R-Ill.), the original version of the FHA Emergency Fiscal Solvency Act of 2012 was passed out of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity by voice vote earlier this year. The new version of the FHA Emergency Fiscal Solvency Act of 2012, H.R. 4264, contains several technical changes to the original bill, but still aims to bolster Federal Housing Administration’s (FHA) insurance reserves by establishing minimum annual mortgage insurance premiums, improving FHA internal controls and disclosures, banning lenders from participating in the FHA lending program and requiring that lenders who commit fraud reimburse the FHA for losses.
Biggert said H.R. 4264 is needed because the FHA has an “abysmal” fiscal track record, which is putting taxpayers at “significant risk.” She said her bill will provide the administration “with the tools its needs” to support the struggling capital reserve fund and help return the FHA to more solid fiscal footing.
Ranking Member Barney Frank (D-Mass.) and Rep. Luis Gutierrez (D-Ill.) both expressed their approval of Biggert’s changes to the bill, but said the legislation still has some issues, including onerous reporting requirements on early period delinquencies and the status of the Mutual Mortgage Insurance Fund. However, Frank expressed confidence that Biggert and committee Chairman Spencer Bachus (R-Ala.) would work with him to make “refinements” before the bill receives a floor vote.
Amendments
Westmoreland Amendment (037) (Defeated by Recorded Vote 36-18)
Rep. Lynn Westmoreland (R-Ga.) offered an amendment that reduces the FHA mortgage insurance guarantee from 100 percent to 80 percent. Westmoreland said the FHA is “insolvent,” pointing out that the capital reserve ratio was expected to be restored to its statutorily required two percent this year, but instead, the ratio is 0.24 percent. In closing, he said the FHA requires a “permanent fix, not a band-aid” now that it is exposing taxpayers to “$1 trillion in liabilities.”
Vice Chairman Jeb Hensarling (R-Texas) agreed with Westmoreland’s characterization of the FHA, adding that it is the “next, great taxpayer bailout.” Additionally, he highlighted a recent study that said the FHA is leveraged at a ratio of “300-1” and said recent testimony concerning the solvency of the FHA indicates that it will need a “$50-$100 billion capital infusion” before the end of the year.
Reps. Gary Miller (R-Calif.) and Bill Posey (R-Fla.) said they both appreciated the intent of the amendment, but said it is being introduced at the “wrong time.” Both noted stakeholder objections, including the potential negative effects the bill would have on the housing market’s weak recovery. Miller said “there is no question we [Congress] need to manage the FHA better,” but this is not the right time.
Westmoreland Amendment (046) (Defeated by Recorded Vote 30-18)
Westmoreland offered a second degree amendment that would strip the FHA of the flexibility to increase premiums gradually, requiring the FHA to raise upfront premiums to a level that will restore the two percent capital reserve ratio “as soon as possible.” Hensarling and Rep. Blaine Luetkemeyer (R-Mo.) expressed their support for the “modest” amendment, highlighting the insolvency of the agency and stating that by making FHA loans more expensive, private capital will be able to come back into the market.
Frank and Rep. Maxine Waters (D-Calif.) questioned the timing of the bill and noted how difficult it already is to secure an FHA loan after recent premium increases. They also expressed concern that an amendment like this could damage the housing market’s recovery.
Fitzpatrick Amendment (Withdrawn)
Rep. Michael Fitzpatrick (R-Pa.) offered an amendment removing the statutory cap on FHA’s Home Equity Conversion Mortgage (HECM) program.
The RESPA Home Warranty Clarification Act of 2011 (Approved by Voice Vote)
Introduced by Rep. Lacy Clay (D-Mo.) and Biggert, H.R. 2446, the RESPA Home Warranty Clarification Act of 2011, clarifies the scope of the Real Estate Settlement Procedures Act of 1974 (RESPA) by exempting home warranty companies as settlement service providers and would require that consumers are given clear notice that their real estate agent could receive a referral fee for selling them a home warranty.
The legislation seeks to overturn the Department of Housing and Urban Development’s (HUD) June 25, 2010 Interpretive Rule which stated that a homeowner’s warranty is covered as a “settlement service” under HUD’s RESPA regulations.
Amendments
Hinojosa Amendment (Approved by Voice Vote)
Rep. Rubén Hinojosa (D-Texas) offered an amendment that requires real-estate agents to disclose if they are being paid a commission by home warranty firms.
The Swap Data Repository and Clearinghouse Indemnification Correction Act of 2012 (Approved by Voice Vote)
Introduced by Reps. Robert Dold (R-Ill.) and Gwen Moore (D-Wis.), H.R. 4235, the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2012, repeals the indemnification requirements under the Dodd-Frank Act requiring U.S. or foreign regulators seeking access to swap data from an swap data repository to provide assurances that the regulator abide by certain confidentially requirements.
The Swap Jurisdiction Certainty Act (Approved by Recorded Vote 41-18)
Introduced by Reps. Jim Himes (D-Conn.) and Scott Garrett (R-N.J.), H.R. 3283, the Swap Jurisdiction Certainty Act, clarifies Dodd-Frank Act provisions to ensure the equal treatment of U.S. firms conducting transactions outside of the U.S. and foreign firms conducting similar activities. The bill also clarifies that non-U.S. firms that are registered swap dealers would be subject to the capital rules of their home country as long as that country is a Basel signatory and prevents the possible requirement that registered swap dealers must post separate margins for each government under which they are regulated.
Waters and Frank expressed concern that the bill will not accomplish what it intends to and could conflict with other swaps bills being considered on the floor. They also argued that removing regulations on “dangerous” foreign swaps would be an “error.”
Amendments
Himes Amendment (Passed by Voice Vote)
Himes offered a technical amendment that clarifies the language in H.R. 3283 and specifies that exemptions to Title VII in the underlying legislation are only meant for extraterritorial concerns.
Garrett Amendment (Passed by Voice Vote)
Frank and Garrett offered an amendment clarifying that the powers of the banking regulators to maintain the safety and soundness of the institutions it regulates is preserved.
Frank Amendment (Defeated by Recorded Vote 32-26)
Frank offered an amendment that grants the Commodity Futures Trading Commission and the Securities and Exchange Commission the authority to subject a swap transaction, exempted by the underlying legislation, to regulatory oversight if both agencies agree that the transaction could pose a systemic risk to U.S. markets. He called his amendment an “anti-evasion” amendment, meant to give derivatives regulators the ability to neutralize risk to the U.S. economy.
Garrett said he opposed Frank’s amendment because the underlying legislation already includes anti-evasion provisions.
For testimony and a webcast of the hearing, please click here.