American Banker

Frank: Zero Odds of Single Regulator | American Banker

Erin Drankoski — Mon, 26 Oct 2009 15:11:00 -0400

New America's event is discussed in American Banker: "There is no remote chance of it happening," Frank told reporters after remarks at a conference on underbanked consumers held in the Capitol. ... Original Article

Ellen Seidman in American Banker | 'Why $700B Now Seems Like a Down Payment'

Cecille Isidro — Tue, 28 Oct 2008 09:42:00 -0400

"We've been jumping from program to program, and if there is an infinite number of things we can do with money, there is a need for an infinite amount of money," said Ellen Seidman, director of the New America Foundation's Financial Services and Education Project and a former director of the Office of Thrift Supervision. "If you keep expanding the scope of what it is you are going to do with the money, you keep expanding your need for money." LINK (subscription required)

Ellen Seidman in American Banker | 'Wamu Vanishes, So May OTS and the Thrift Charter'

Communications — Mon, 29 Sep 2008 09:17:00 -0400

The failure of the largest thrift in the nation has sealed the fate of the Office of Thrift Supervision, observers said Friday.

Washington Mutual Inc. accounted for about 20% of the assets overseen by the agency and 12% of its budget. Its collapse and subsequent sale to JPMorgan Chase & Co., which said it would not keep Wamu's thrift charter, heightens concerns about the OTS' viability and spurred staunch defenders to rethink its future.

"I don't know how anyone can't be questioning the viability of the OTS," said Lawrence Kaplan, a lawyer at Paul, Hastings, Janofsky & Walker LLP and a former OTS official.

Even Ellen Seidman, a former OTS director and longtime advocate of the agency's independence, said Wamu's collapse changes things.

"You can't just say the status quo is acceptable," she said, though she stopped short of supporting a regulatory merger. "Whereas my previous position on the subject was, you are not going to gain a whole lot by getting rid of one agency ... , I think there are more things to thin k about. The future of the OTS is firmly on the table now." . . . Full Story (subcription only)… more

Ellen Seidman in American Banker | 'Paulson Plan: Taking Steps Toward Clarity'

Communications — Fri, 26 Sep 2008 09:23:00 -0400

Despite a live presidential explanation Wednesday night, two days of testimony by top government officials, and an endless series of lawmaker press conferences, many questions about the proposed bailout plan persist. Below, we offer answers to some frequently asked questions:

Who is the bailout supposed to help? . . .

Why doesn't the government just buy vacant real estate? Wouldn't that be easier? . . .

Observers also make this point: The problem is confidence on Wall Street, and buying vacant properties would not address that.

"It 's not clear that the foreclosed real estate or even the mortgages still held on the banks' books will have the effect" of stabilizing the markets, said Ellen Seidman, a former director of the Office of Thrift Supervision. "Of course, it's not clear that buying up MBS will, either." . . . Full story (subcription only)

Ellen Seidman in American Banker | 'Preferred Exposure Fallout'

Communications — Tue, 09 Sep 2008 13:15:00 -0400

Ellen Seidman, a former OTS director who is now the director of the New America Foundation's Financial Services and Education Project, said the agencies' options for helping banks whose capital levels are imperiled include requiring the suspension of dividend payments, working to restructure banks' balance sheets, and, "in extreme scenarios, engineering a merger." She stressed, though, that current law gives banks and thrifts significant time "to raise capital or do whatever is necessary to get themselves back into position." One challenge in determining the rescue's impact on preferred shareholders' capital is that many of the shareholders are privately held banks and thrifts that do not disclose their holdings. LINK (subscription required)

Ellen Seidman in U.S. Banker | Is the OTS Obsolete?

Communications — Sat, 01 Mar 2008 14:55:00 -0500

Is the OTS Obsolete? (U.S. Banker, subscription only)

. . . "The system has worked well enough," says Ellen Seidman, who ran the Office of Thrift Supervision under President Clinton and now directs the New America Foundation's Financial Services and Education Project in Washington, D.C. "It's a case of 'If it isn't broke, don't fix it.' Though it's entirely reasonable that people are raising these questions now, it's not great for morale." Abolishing the OTS would only raise a number of other problems, including whether the two main regulatory duties--overseeing thrifts and overseeing holding-banking companies--would be given, respectively, to the Office of the Comptroller of the Currency and the Federal Reserve, says Seidman. The OTS's input has been particularly necessary in ongoing discussions about interest-rate risk in 15- and 30-year mortgages, she says. . .

Ellen Seidman in American Banker | Obama's Bank-Issue 'Blank Slate'

Communications — Wed, 09 Jan 2008 17:20:00 -0500

Assessing Obama's Bank-Issue 'Blank Slate' (American Banker) "When you start campaigning in places like Florida and California, where these issues are front and center, you will hear more about it," said Ellen Seidman, who ran the Office of Thrift Supervision under President Clinton and now directs the New America Foundation's Financial Services and Education Project. ...

Viewpoint: Fed's Mortgage Move is a Good Start

Ron Tang — Fri, 21 Dec 2007 00:00:00 -0500

With foreclosures reaching record levels and predictions for further trouble ahead, the Federal Reserve Board on Tuesday unanimously approved potentially sweeping changes to how mortgages are marketed, made, and serviced, especially in the nonprime market. Will the Fed be able to meet its goal of a "comprehensive set of protections to consumers" when the comments come flying?

The proposed revisions to regulations under the Truth in Lending Act are designed to realign relationships in the mortgage business, so borrower and lender are once again interested in the same result: a good mortgage.

The rules, unlike guidelines bank regulators issued over the last 18 months, would apply to all mortgage lenders and other participants in the process (such as brokers, independent mortgage bankers, and appraisers), not just banks, thrifts, and credit unions. That the Fed has proposed them at all is both an indication of how bad the situation has become and a testament to new leadership at the central bank.

The proposed regulations would, for a new class of "higher-priced mortgage loans" (meant to cover not only subprime but also the some part of the alt-A market), require lenders to lend based on the borrower's ability to pay at a fully indexed, fully amortizing rate, verified by independent third-party documentation. Escrows for taxes and insurance would be required (for at least the first 12 months the loan is outstanding), and prepayment penalties would have to expire at least 60 days before the first payment change.

The proposed regulations also respond, for all loans secured by a primary residence, to abuses in brokerage, appraisals, and servicing. Advertising abuses, such as calling a loan fixed when it's not, would be prohibited. Lenders would be required to provide borrowers with information about payments, finance charges, and interest rate early in the shopping process, and before charging any application fee.

There is plenty of room -- all of which will undoubtedly be taken in the 90-day comment period -- to argue with specifics in the proposal. Is the definition of "higher-priced loan" sufficiently broad, or too broad? Is 60 days enough time to refinance after a prepayment penalty ends, before a rate reset takes place? Do the proposal's safe harbors strike the right balance between providing creditors with a degree of certainty and not undermining the good intentions of the rule?

Randall Kroszner, the Fed governor most responsible for the proposal, said the Fed's goal "to protect borrowers from practices that are unfair or deceptive, but to do so without unintentionally causing responsible lending to shrink or unduly limiting consumer choice" was "challenging to perfectly achieve."

Issuing the final rule after receiving comments will be even harder. Now that the Fed has stepped up with a series of proposals that would affect all lenders, it's time for the good lenders to stop shielding the bad, and recognize that we need some new rules, badly.

As for Congress, if the Fed moves quickly it will beat the timetable for regulatory improvement that's in either the House-passed Mortgage Reform and Anti-Predatory Lending Act (which requires final regulations to be issued 12 months after enactment) or the bill Sen. Chris Dodd introduced Dec. 12 (six months). But the Fed has not eliminated the need for legislation.

There are areas the regulations have not touched, mostly because they are beyond the central bank's authority. These include nationwide licensing, testing and registration of mortgage brokers; liability -- beyond the initial creditor -- for violations of standards; requirements for pre-foreclosure counseling and modification attempts; and bankruptcy law changes to permit judges to modify home mortgage loans that are "underwater."

And the Fed can't provide the money needed for substantial increases in housing counseling, assistance to communities in trouble because of the foreclosure crisis, or even the enforcement of its own proposal by states and the Federal Trade Commission -- all essential if we're to minimize the damage the mortgage crisis still has in store for us. That's the job of Congress and state legislatures.

What the Fed did on Tuesday is a major move in the right direction. But there's still so much more to do.

Technology is Helping Firms Reach Unbanked

Cecille Isidro — Fri, 16 Nov 2007 11:24:00 -0500

Over a dozen financial institutions have applied to be the issuer of the Treasury Department's Direct Express electronic bank accounts for depositing Social Security and other federal benefits.

The Treasury touts the product as a safer, easier, and more convenient way to receive and access monthly benefits. In part, this is a strategy by the federal government to lower expenses for taxpayers by saving on the issuance of benefit checks. Compared with the 89 cents for sending a check each month, electronic deposits cost a mere 9 cents a transaction — a savings of up to $125 million a year.

But beside the obvious administrative benefits, this strategy signals there is real government interest in delivering a low-cost, high-value financial product to the elderly and other Americans of modest means.

The federal government is not the only one interested in facilitating the delivery of reasonably priced financial products and services. Mayor Michael Bloomberg's campaign to fight poverty in New York has led to the design of new policy, programs, and even products for this population.

The inaugural step for participants in the mayor's program is establishing a formal connection with the mainstream financial services industry by opening a basic Opportunity New York account. This new product, the result of a unique public-private collaboration, is emblematic of a reinvigorated campaign to bank the unbanked.

It is telling that more than half of Opportunity New York families are unbanked or underbanked. For a myriad of reasons, families across the country are using alternative financial institutions to conduct routine transactions. And it's not cheap. Estimates suggest that as many as 40 million households nationwide are spending significant amounts of their income on things like cashing checks, making payments to others, and changing their paychecks and cash into money orders to pay rent and other bills.

Low-income households use alternative providers because their products and services meet their needs: access to cash; tools to pay bills and send money to friends and family; and small loans to cover emergency expenses. Moreover, depending on the product, the cost actually can be lower than conducting the same transaction at a bank.

A checking account may be advertised as "free," but with an average fee of $34 for bouncing a single check and New York check-cashing fees capped at 1.7%, using a check casher may well be a cheaper alternative than a bank.

However, with new technologies, product designs, and insights into underbanked consumers' demand, banks and credit unions can provide competitive products and services to this population at a lower cost and with more protections.

This demographic represents real profit potential for financial service providers who make an effort to design products these consumers need.

Across the country, city leaders have partnered with the industry to create initiatives such as Bank on San Francisco, an effort to bank the underbanked that couples targeted outreach with redesigned products.

Our research has provided the basis for bipartisan legislative proposals that would get people banked and spur new savings. The New Savers Act, which was introduced in August by Senators Hillary Rodham Clinton and Gordon Smith, would provide low-cost accounts to those without them. What's more, it would create an innovation fund for the industry to explore new products and strategies to meet the needs of lower-income families.

A growing number of bipartisan proposals call for the establishment of children's savings accounts to ensure the next generation is banked from birth. And getting individuals banked early can have a number of positive effects. Account ownership is one of the better ways to learn how to manage finances. Our newly released research shows that account ownership, when combined with financial education, leads to more frequent and wiser use of financial products.

We are developing a proposal that would connect underbanked consumers with accounts for transactions and savings at tax time. We propose leveraging tax refund dollars in combination with a pooled account structure to generate sufficient volume to entice financial institutions to deliver a transaction and savings account at tax time.

Filers with adjusted gross incomes of $30,000 or less are refunded $80 billion each year, according to 2005 IRS data. The accounts would be structured so that holders would receive their refunds on their account and reload them throughout the year with wages and salary. The account, accessible with a network-branded card, could be used for point of sale transactions, to access cash, to make online purchases and pay bills, and possibly to make remittances and secure money orders. It also would contain a savings component, which could help to meet short-term emergency expenses. We're calling it the ATA, short for Assets and Transaction Account.

Demonstration projects have proven the poor can and will save. Technology has cut transaction costs, and new products are beginning to emerge. It's time for the financial industry, with a boost from government, to develop products and services that meet underbanked consumers' needs at a reasonable price and yield fair returns for the industry.

Ellen Seidman in American Banker on Helping Homeowners

Communications — Thu, 11 Oct 2007 04:23:00 -0400

Amid widespread complaints that mortgage loan modification is not moving fast enough, Treasury Secretary Henry Paulson on Wednesday opposed pressure for across-the-board modifications, said bankruptcy reform could prove counterproductive, and painted a relatively upbeat picture of the ability of struggling homeowners to handle interest rate resets.

At a press conference announcing a group of lenders, servicers, and others who have agreed to step up counseling efforts, Mr. Paulson said the group would not consider categorical modifications, signaling that they should be handled on a loan-by-loan basis. ...

Ellen Seidman, director of the Financial Services and Education Project at the New America Foundation and a former director of the Office of Thrift Supervision, said Treasury's announcement fails to make an impact. Doing modifications "on a loan-by-loan basis is not going to work fast enough," she said. "We've got to do something other than - as someone put it - social work."

For more on this story, please visit American Banker online.