Posts Tagged ‘Representative Randy Neugebauer’

House Republicans Want to Water Down Dodd-Frank Financial Reforms

Monday, March 7th, 2011

Republican congressmen searching for sizeable spending cuts are targeting Wall Street’s regulators over a plan to slash millions from the budgets of several vital agencies. They are setting their sights on the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).  The workload of both agencies is expected to increase significantly as the Dodd-Frank financial reform law is implemented. House Republicans want to slash the CFTC’s funding by $56.8 million – nearly 33 percent of the agency’s entire budget — over the next seven months.  The SEC’s funding would be cut by $25 million over the same time.

CFTC Chairman Gary Gensler said he would have no option but to reduce his staff from 680 to fewer than 440 if the cuts are approved.  “We’d have to have significant curtailment of our staff and resources,” Gensler said.  “We would not be able to police…or ensure transparent markets in futures or swaps.”  Under Dodd-Frank, the CFTC regulates the multi-trillion dollar derivatives market that includes over-the-counter products called credit default swaps.  The story is similar at the SEC, which is working to augment its enforcement of Dodd-Frank.  “It (budget cuts) will have a very real effect on the SEC’s ability, not just with respect to Dodd-Frank implementation, but also with respect to our core mission,” SEC Chairman Mary Schapiro said in testimony before Congress.

Leading the charge in Congress is Representative Randy Neugebauer, chairman of the House Financial Services Subcommittee on Oversight and Investigations. One of Neugebauer’s top priorities is assuring that regulators are not “overreaching” and moving too quickly with their new authorities under Dodd-Frank.  Neugebauer expressed concern about whether regulators are adequately performing cost-benefit analyses on every rule in Dodd-Frank, a process required under federal rule-making procedures.  He expects to call SEC Chairman Schapiro and CFTC Chairman Gensler back to testify about the issue, especially since he believes that Gensler gave him “vague” responses about cost-benefit analyses on derivatives rules.  Neugebauer said another of his major priorities will be to rein in the powers of the Consumer Financial Protection Bureau, an entity created under Dodd-Frank.  The Texas congressman wants to move the bureau to the Treasury Department and out of the Federal Reserve’s control.

Another congressional Republican makes this point.  “When the House and Senate passed the Dodd-Frank Act, supporters continually purported that small financial institutions, like many I represent, were exempt,” Representative Shelley Moore Capito, (R-WV) said.  “As the provisions of Dodd-Frank are going through the rule making process, I am starting to hear concerns from small institutions about the unintended consequences that could adversely affect them.”

One point of contention with the Republicans is the orderly liquidation provision that authorizes regulators to seize large financial institutions that are about to fail and dismantle them in a way that is less disruptive than either taxpayer bailouts or bankruptcy.

“People are saying we won’t have the guts” to invoke orderly liquidation, acknowledged Democratic Representative Barney Frank, (D-MA), who co-sponsored the legislation with now-retired Senator Christopher Dodd (D-CT).  “Well, we had the guts with regard to the TARP to get the money back.  We got it back,” he said, referencing the $700-billion Troubled Asset Relief Program (TARP) that bailed out Wall Street firms and which has been largely repaid.  “I don’t have any question that we’re going to go through with it,” Frank said.

Goodbye to Fannie and Freddie

Wednesday, February 23rd, 2011

The Obama administration and the Treasury Department have decided that Fannie Mae and Freddie Mac — the public-private housing finance model in place for the past four decades – will come to an end, although they pledged to continue backing the agencies’ existing obligations. “The GSE (government-sponsored enterprise) model is dead,” an Obama administration official said.  The Treasury Department is currently working on three broad options for overhauling the mortgage lending system, but will let Congress make the final decision.  The government bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion.

Obama administration officials have emphasized areas of agreement with Republicans, stressing that they favor a system that is less dependent on government support.  Approximately 90 percent of new mortgages are currently backed by Fannie, Freddie or other federal agencies.  The move pleased Republicans, who have long criticized the mortgage companies. “I’m encouraged to see the administration included a number of reform ideas that track closely with my own,” Representative Scott Garrett (R — NJ) said.  Garrett heads the House Financial Services subcommittee, which oversees Fannie and Freddie.  Representative Randy Neugebauer (R – TX), said he was pleasantly surprised by the focus on restoring the mortgage-backed securities market issued without the government’s guarantee.  Debate over the future of the mortgage giants is often contentious on Capitol Hill.  Republicans consistently criticized last year’s Dodd-Frank financial-overhaul bill for not addressing the fate of Fannie and Freddie.  Treasury Secretary Timothy Geithner said that winding down Fannie and Freddie and creating an alternative won’t happen overnight.  “Realistically, this is going to take five to seven years,” he said.  “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”

The Treasury Department report suggests that Fannie and Freddie purchase loans with smaller outstanding balances, reducing their risk.  The report also recommends phasing in a requirement that Fannie and Freddie borrowers make larger downpayments — at least 10 percent.  Lastly, the government wants Fannie and Freddie to wind down their own mortgage investment portfolios.  In their heyday, Fannie and Freddie were public companies that encouraged home ownership thanks to a Congressional mandate.  The companies buy home loans from lenders, which use the money to offer new loans to consumers.

The bad news is that mortgage costs could increase a bit once Fannie and Freddie are phased out. “Over the long run, the cost of a mortgage will rise modestly for the average American homeowner,” Geithner said.  “We think it’s very important for the government to continue to play a role, a targeted role” to make certain that “Americans who need help to find a home, to rent a home, or own a home get that help.”

Nor will the process of replacing Fannie and Freddie be easy.  Writing in the Wall Street Journal, David Reilly points out that “A return of private capital requires the revival of securitization markets for mortgages not backed by the government since bank balance sheets aren’t big enough to fill the gap”.  But 30-year loans in their current form aren’t attractive to investors without a government guarantee. The Treasury implicitly acknowledges the conflict, noting that the less government backing there is for housing finance, the less feasible the 30-year mortgage becomes.  It also admits the reward for losing that benefit, and largely removing government from mortgage markets, would be a reduced incentive to invest in housing so that ‘more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets.’  That should be the clear goal of any housing-finance revamp.”