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For those who don’t truly know what’s going on with financial reform, we offer this simple analogy using beloved movie The Hangover. While the market has been shaking off its post credit boom hangover with a new credit boom (hair of the dog is the best cure, right?), Senator Chris Dodd drafted financial reform legislation to make sure markets don’t forget what caused the hangover. His bill, after being fudged up with hundreds of amendments, passed the Senate today and now it’s onto Obama to become many new laws. Plenty more to come as the unintended consequences of the bill play out in the coming months and years. But for now this is our Hangover tribute to Chris Dodd who, like Alan (played by Zach Galifianakis), is simply trying to bring structure to the chaotic rituals of crazed men.

Below is the ‘One Man Wolf Pack’ speech Alan gives on Caesar’s Palace rooftop before the forgotten period. All you have to do is change “Sin City” to Washington DC, “Doug” to Barney Frank, “you guys” to the rest of the Democrats, “Las Vegas” to America, and “strippers and cocaine” to greedy bankers and fed-up voters. Then darkness falls on Dodd’s day. Cue the cash-soaked angst of Kanye’s Can’t Tell Me Nothing (aka When I Get My Money Right). Media gums flap about toothless reform in mornings to come, yet haggard consumers and lobby-less banks get attacked by the proverbial naked crowbar swinging psychos hidden in the trunks (aka amendments) of this bill. Cheers. Now let the mayhem begin. more…

Half of Nation’s 7800 Credit Unions Reported 2009 Losses
The National Credit Union Administration (NCUA) approved a $1 billion charge to pay for the corporate credit union bailout. This follows last year’s charge of $1.1 billion, $337 million of which went to the corporate bailout and the remainder to replenish reserves for the National Credit Union Share Insurance Fund. These monies must be accrued by credit unions for the second quarter, and paid by August 30th. Unfortunately the corporate assessment is expected to push over a thousand credit unions into the red for the second quarter, over five hundred into the red for the year, and 60 credit unions into undercapitalized territory. According to NCUA almost half of the nation’s 7,800 credit unions reported losses for fiscal 2009.

Fed Analysis of How Banks Pay Employees
If you’d like to see cutting edge news on compensation in large banks, you’re in luck. The Federal Reserve completed its first round of in-depth analysis of bank compensation practices, especially at large, complex banking organizations. Apparently many large banks have already put these changes in place, especially to ensure that incentive compensation plans do not encourage excessive risk-taking. The next step, of course, is for our government to study compensation in specific business lines and financial firms – like mortgage companies. I can hardly wait. more…

Often I start the commentary off saying something witty, but I couldn’t think of anything clever so I thought I’d suggest you take a look at this video about seat belts (also embedded below). It is making the rounds, and with good reason.

Why Rates Won’t Rise On March 31
The Federal Reserve has a little more than ten business days to complete their well-publicized purchase of agency mortgage-backed securities (MBS). Last week it bought $10 billion, breaking their 3-week streak of $11 billion. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are/were eligible assets for the program. Everyone knows that the end of the program is imminent. more…

On the possibility of Fannie and Freddie going away, one clever rep wrote to me and asked, “Do we really need FNMA, FHA, and FHLMC when it is all government run anyway? They could start a new entity named “Federally Regulated Committee to Normalize Mortgage Securities”, or “FRCNMS” – pronounced “FRICKEN MESS”.

IRS Definition of Points On A Mortgage
You know it’s a slow news day when I start dredging up IRS forms, and put a great joke at the end. But in this case, these might be worth a gander, as they are the instructions for reporting points paid to the IRS, and the definition of points paid on a mortgage. more…

Replace Fannie/Freddie?
In the current environment, the government giveth, and the government taketh away. Barney Frank once again made headlines last week with the statement that the House Financial Services Committee will recommend doing away with Fannie Mae and Freddie Mac and “rebuilding the U.S. housing-finance system from scratch”. “A whole new system of housing finance,” although most analysts feel that there will be continued government involvement. Given that they set the standards for the mortgage industry, own or guarantee half of the $11 trillion in outstanding home mortgages, and attract huge amounts of capital, it is hard to imagine replacing them with several private investors whose cost of capital would be much higher. No one expects much to happen for a very long time on this issue.

Treasury Auction Preview
Last week the stock markets took a tumble – does that mean that we’ll see a bounce back this week? Perhaps, but the continued nervousness about our economy and our banking system that caused stocks to sell off caused bonds to rally and rates to drop. And mortgage traders saw origination pick up a little, as folks locked when rates were dropping. Some believe that rates may stabilize this week, perhaps creep a little higher, with yet another Treasury auction to deal with. ($44 billion in 2-yr tomorrow, $42 billion 5-yr Wednesday, and $32 billion in 7-yr. Thursday.) more…

Below are key excerpts from the full transcript of Obama’s 12/12/09 response to the House reform bill. Also today, Obama hosted executives of the biggest financial firms at the White House and said big banks owed an “extraordinary commitment” to help rebuild a sustaining recovery after the government assistance they got. He also said that he’ll fight big bank lobbying against financial reforms: “If they are willing to fight common sense consumer protections, that’s a fight I’m willing to have.”

EXCERPTS FROM OBAMA’S COMMENTS ON HOUSE REFORM BILL
…The difficult steps we’ve taken since January have helped to break our fall, and begin to get us back on our feet. Our economy is growing again. The flood of job loss we saw at the beginning of this year slowed to a relative trickle last month. These are good signs for the future, but little comfort to all of our neighbors who remain out of a job. And my solemn commitment is to work every day, in every way I can, to push this recovery forward and build a new foundation for our lasting growth and prosperity. more…

Thought the healthcare debate was big in 2009? It looks like 2010′s financial regulatory reform debate could be bigger. The House today passed a bill (vote: 223-to-202) authored largely by House Financial Services Committee Chairman Barney Frank that will now be debated and reconciled with a Senate bill over the coming months with an eye toward overhauling banking and consumer protection rules by mid-2010.

The House bill proposes the Consumer Financial Protection Agency which would watch over financial firm practices with respect to home, credit card and car loans. The bill also has radical changes for the Fed: not so controversially, the bill moves power over consumer protection laws from the Fed to the newly created CFPA. Very controversially, it allows Congress to audit the Fed’s monetary policies. more…

There are lots of trailer trash jokes out there, and more at the bottom of this post (You know you’re trailer trash when “You have your local taxidermist on speed dial”, “You think ‘The Nutcracker’ is something you do off the high dive”, and “Your grandmother has ‘ammo’ on her Christmas list”, for example). Manufactured housing has always been one of those fringe areas of lending, and now even more so. US Bank Home Mortgage announced that, given their goal to “originate and service quality loans that surpass the overall Industry performance…USBHM will discontinue Manufactured Housing as an eligible property for all of our Government Programs.” This includes, obviously, fixed rate, ARM, temporary buy down, and VA products. In addition to that, USBHM will discontinue offering cash out refinance options on conventional manufactured housing.

Georgia, like many other states, has its fair share of manufactured housing. According to the Atlanta Journal-Constitution, “Federal and state regulators have put as many as one-third of Georgia’s 300 banks under intensified monitoring and recovery plans, mostly strict enforcement orders a step or two short of seizure, according to banking experts. A majority of these 90 to 100 banks, these experts say, are operating under “cease and desist” orders that require them to complete tough turnaround plans within strict deadlines.” Georgia already leads the nation in total bank failures, having had 21 in the last year. The story states that most of the enforcement actions are not publicly disclosed, so a firm number of affected banks can’t be determined: the state regulators don’t disclose their cease-and-desist orders whereas Federal regulators, who do disclose their actions. more…

Smith climbs to the top of Mt. Sinai to get close enough to talk to God. Looking up, he asks the Lord, “God, what does a million years mean to you?”
The Lord replies, “A minute.” Smith asks, “And what does a million dollars mean to you?” The Lord replies, “A penny.” Smith asks, “Can I have a penny?” The Lord replies, “In a minute.”

Housing & Economic Recovery Act—Impact on Lending Industry
What does HERA mean to you? (And no, the answer is not “Zeus’s wife and sister.”) HERA, the Housing and Economic Recovery Act, amends the Truth in Lending Act (TIL), implemented through Regulation Z and has a number of provisions including the Mortgage Disclosure Improvement Act. This directly impacts the Truth in Lending Act requirements surrounding early and final disclosures to home buyers and addresses the timing of when fees can be charged. Early disclosures must still be provided no later than three days after receipt of a written application. Under the new rule, which many investors have already implemented, early disclosures must also be provided at least seven business days before closing/signing, i.e., the new seven business day rule that requires that closing docs may be signed only after a seven business day wait period from when the initial disclosures were mailed. more…

There is $350b left in of the original $700 billion Troubled Asset Relief Program funds that were approved by Congress and the White House in October. At that time, funds were to be used to buy troubled assets from banks—illiquid mortgage securities mostly—to get banks to regain their appetite for lending again. Right after TARP funds were approved Treasury Secretary Henry Paulson said that it was best to inject the money directly into the banks. He took a lot of heat for this heat-of-the-moment change of plans even though the plan always had the provision for Treasury to act as triage specialist in the midst of the worst phase of the crisis last Fall.

Paulson also encouraged banks many times to redeploy capital in a manner that benefits businesses and consumers. But this was never mandated and TARP-funded banks instead bought each other and/or held onto the money (click the TARP tag below for full coverage). Now it seems the remaining $350 billion of TARP funds will come with tougher conditions for banks. more…