FDIC: Dismantling Big Banks is Feasible
Banking regulators speaking Oct. 12 at the Institute of International Finance in Washington, D.C., said the federal government has the capability to dismantle any of the largest banks if one were to fail, Bloomberg reported.
Art Murton, director of the Division of Insurance and Research at the Federal Deposit Insurance
Corporation, who is charged with planning the process for taking apart large financial firms, indicated that dismantling a large bank could become necessary and would be feasible in the event of a major financial crisis.
The Dodd-Frank Act gives the FDIC authority to seize and dismantle a financial firm if regulators feel it cannot go through bankruptcy without causing significant harm to the nation’s or the world’s financial systems.
The FDIC has not yet released a plan on how it would accomplish such a liquidation, although it likely would take a single-entry approach to overtake the bank’s holding company, impose losses on shareholders and then allow healthy subsidiaries to stay open. Federal regulators and banks have called for a process that would prevent future bailouts of so-called “too big to fail” entities.
The FDIC discussed its dismantling abilities in order to instill trust in the nation’s banking system and show the world that banks cannot continue to “socialize their losses and walk away when things blow up,” Bloomberg reported.
Dodd-Frank also requires global banks to file plans for how they would undergo bankruptcy without hurting the world’s financial systems. If the FDIC and Federal Reserve find a bank’s plan unsatisfactory, they could force the institution to restructure or sell off pieces of its business.
In fact, both JPMorgan Chase and Goldman Sachs filed a second round of such plans earlier this month after their first ones failed to gain approval.
New Line
In a move some borrowers and originators might consider "too little, too late" both Fannie Mae and Freddie Mac announced today they are expanding the eligibility dates for the Home Affordability Refinance Program (HARP). While tremendously useful to the small amount of borrowers who benefit from the change, it's not quite as magnanimous as it might sound.
Previously, loans had to have beendelivered to the agencies by 5/31/2009 to be eligible for HARP, which led towidespread confusion as lenders and borrowers had difficulty determining actual loan delivery dates without researching agency records. In general, loans closed by April 2009 were delivered to Fannie/Freddie by end of May, so were previously eligible; those closing in May 2009, however, may have missed the initial delivery date requirement.
With the changes announced today, the eligibility date will now be based on the NOTE date, thus opening the window of HARP eligibility to all those borrowers who may have closed their loans before the May 31st cutoff, but whose loans weren't acquired by the GSEs until after the cutoff.
Fannie Mae (per Selling Guide SEL-2013-08) will update their Desktop Underwriter (DU) system on Nov 16 to reflect the new eligibility dates; Freddie Mac will update its Loan Prospector (LP) underwriting system to reflect the changes on Oct 27. Lenders are required to have DU/LP approvals for HARP loans, so may be hesitant to start them until the underwriting guidelines are revised.
Best execution rates in May 2009 rose from 4.69 to 4.88%, versus the current 4.25% rate for ideal borrowers. A borrower with a $200,000 loan could anticipate saving approximately $80/mn, an amount that could increase if rates continue their downward trend of the last month amid reduced expectations of Fed tapering.
The chief advantages of HARP loans include their reduced equity requirements, a feature that enables many equity challenged borrowers to reduce their rates without incurring additional mortgage insurance costs, and, in some cases, relaxed income documentation as well.
Home owners who closed their existing conforming loans in May 2009, and who were previously told they were not HARP eligible may want to contact a lender to discuss their HARP eligibility. Both lenders and borrowers might be excused if they wonder why Fannie and Freddie waited until the HARP program was 3 years old to make this logical change.
"These changes would greatly improve the definition of ‘points and fees’ used to determine whether a loan meets the QM test, and would ensure that those with low and moderate means would continue to be able to obtain their mortgages from their credit union at a reasonable price," Thaler concluded.
Nearly 1.6 million homeowners have received foreclosure prevention counseling from local nonprofits, national intermediaries and state housing finance agencies, according to nonprofit Neighbor Works America. The organization's National Foreclosure Mitigation Counseling program shared updated statistics this week.
“Although the economy is improving, there are still many homeowners who need foreclosure prevention counseling and the NFMC program continues to assist thousands of families,” said NeighborWorks America CEO Eileen Fitzgerald.
“A homeowner who receives help from the NFMC program saves significant money and time and, importantly, often is able to remain in their home. The NFMC program has provided counseling in every state, the District of Columbia and Puerto Rico. We’re proud to spotlight the excellence and perseverance of homeownership counselors in helping people to stay in their homes,” she added.