Rate Update and Dodd’s Financial Reform Bill

Mortgage rates continued to hold steady as there were no major surprises in the monthly inflation reports or with the Fed announcement. As expected, Federal reserve officials repeated their pledge to keep the fed funds rate near zero for an “extended period” and confirmed that the $1.25 trillion mortgage-backed security purchase program will conclude at the end of the month. Thomas Hoenig, president of the Kansas City Fed, dissented for the second straight meeting. The inflation data showed that inflation is not a concern right now. February’s core Consumer Price Index increased at a reasonable 1.3% annual rate, and year-over-year Producer Prices were also satisfactory. The only surprise occurred on Thursday when India’s central bank unexpectedly raised rates for the first time since July 2008 after inflation accelerated to a 16-month high, ending an eight-day winning streak for US stocks. Currently, the 30-Year Fixed sits at 4.750% (4.929% APR) and the 15-Year Fixed is at 4.125% (4.432% APR). This week, we will see the monthly housing reports including New and Existing Home Sales.

On Monday, exactly two years after the collapse of Bear Stearns, Senate Banking Committee Chairman Christopher Dodd unveiled a 1,336-page financial reform bill that would drastically reduce the oversight role of the Federal Reserve Bank, give government unprecedented powers to split up firms that threaten the economy, and create an independent consumer watchdog. The bill proposes that the Fed would oversee banks and important financial firms with assets greater than $50 billion, reducing the Fed’s supervision of over 5000 banks throughout the nation to only 35. Dodd’s bill also aims to end “too big to fail” bailouts funded by the American taxpayers by creating a a safe way to liquidate failed financial firms, imposing tough new capital and leverage requirements that make it undesirable to get too big, and establishing rigorous standards and supervisions to financial companies that pose a risk to financial stability. Companies that sell products like mortgage-backed securities will be required to retain at least 5% of the credit risk, unless the underlying loans meet standards that reduce riskiness. The new independent Consumer Financial Protection Bureau will have the sole job of protecting American consumers from unfair, deceptive and abusive financial products and practices and will ensure people get the clear information they need on loans and other financial products.

Dodd’s bill, titled Restoring American Financial Stability, was immediately met with strong opposition from financial institutions including the Mortgage Bankers Association (MBA), American Bankers Association (ABA), Federal Reserve Chairman Ben Bernanke and former Fed Chairman Paul Volcker. Initial opinions and backlash were widely varied and seemed to depend on each organization’s perspective and interests. Bernanke cited the Fed’s role of supervising smaller banks provides the Fed with an important window into financial conditions throughout the nation’s economy and is vital to monetary policy. The ABA opposed the approach to consumer protection and noted the bill’s failure to address accounting issues in any fashion. The MBA was concerned the bill did not provide uniform national regulation of all mortgage banking firms.

Dodd hopes to get the bill through his committee next week, preparing it for action on the Senate floor sometime after Congress’s two-week Easter process. Americans have faced the worst financial crisis since the Great Depression, and are demanding responsibility and accountability in our financial system. Obviously there is a long way to go for complete financial reform, and Christopher Dodd’s new bill has successfully started the conversation.

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