The House Financial Services Committee voted 39 to 29 to pass the Consumer Financial Protection Act of 2009 on Oct. 22. The bill includes an amendment that calls for appraisal independence to be introduced within 60 days, should the bill ultimately make it out of the House and Senate and passed into law. (See related story.)

The bill, H.R. 3126, would create a new federal agency responsible for policing consumer financial products and practices , such as mortgages, credit cards and overdraft fees . The proposed agency, known as the Consumer Financial Protection Agency, would have broad authority to investigate financial institutions ranging from small payday loan stores to large mainstream banks.

The legislation to create the proposed agency, which is part of a larger financial overhaul developed by the Obama administration, will now move to the House for a vote. If enacted, the legislation would strip power from the Federal Reserve and other banking regulators by centralizing it within the new agency.

The proposed agency would create baseline federal consumer protection standards and ensure that credit, deposit and payment products and services are offered in a fair and transparent manner. States would have the ability to write their own consumer laws to go beyond federal restrictions. However, those statutes could be overridden by the federal government if they significantly interfere with the ability of national banks to conduct business.

All financial institutions would be required to follow the rules established by the new agency. The agency would be able to investigate any consumer complaint against any financial institution, as well as determine fines and penalties. However, the legislation makes it difficult for the agency to examine institutions with less than $10 billion in assets.

According to The Wall Street Journal, banking and business groups believe the legislation not only gives the agency too much power, it potentially could drive up the cost of credit. "It would be more powerful than any other government agency," Wayne Abernathy, executive vice president at the American Bankers Association, told the Journal. "It can control every aspect of a financial institution's relationship with its customers."

However, Pam Banks, policy counsel for Consumers Union, the nonprofit publisher of Consumer Reports magazine, said, “Today’s committee vote does not come a day too soon for the millions of Americans who have been affected by a year of bad news and economic uncertainty. Making sure that consumers are protected from harmful financial products and practices is essential to safeguarding our economy and getting us back on track.”

An appraiser independence provision has been added to H.R. 3126, the Consumer Financial Protection Agency Act of 2009, which directs the agency – once created – to convene a negotiated rulemaking committee and establish uniform "appraisal independence requirements" across federal agencies. The provision was included in the bill as an amendment with the support of the Appraisal Institute.

The amendment – one of several debated and approved in the three-day markup – includes specific direction on how the new appraisal rules will affect lenders and mortgage originators. Specifically, licensed mortgage loan originators would be allowed to select, retain and compensate appraisers, subject to state or federal laws that make it illegal for lenders and mortgage brokers to make any payment, threat or promise with the intention of influencing their valuations. Lenders or those with an interest in a residential real estate transaction would be limited to requesting from an appraiser only additional details substantiating a valuation, or asking them to consider additional property information or correct errors in a report. Finally, the new rules would include a requirement that lenders and originators compensate appraisers "at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised."

“We have remained focused on the need for an independent appraisal process, and this amendment complements the substantial amount of work that has been completed since the signing of the cooperation agreement establishing the Home Valuation Code of Conduct,” said Bill Garber, director of government and external relations of the Appraisal Institute. “We believe this bill will help reconcile and better integrate all the positive actions to date and establish a long-term solution to ensue an independent appraisal process,” he said.

“In the last year, the Federal Reserve has strictly prohibited coercion of appraisers by all mortgage lenders and mortgage brokers, Congress has enacted and states have implemented new licensing requirements for mortgage originators, and nearly all of the states have included appraisal independence requirements. Further, FHA has updated their policies to remove the inadvertent cap placed on appraiser fees,” Garber added.

The amendment would leave the Home Valuation Code of Conduct intact until the negotiated rulemaking committee completed its work. The underlying cooperation agreement signed by Fannie Mae, Freddie Mac, the Federal Housing Finance Agency and the Office of the Attorney General of New York is scheduled to expire next year. However, the policies would remain in the Fannie Mae and Freddie Mac seller/servicer guides unless changed or a new cooperation agreement is signed, Garber said.    

H.R. 3126 may come to the full House for a floor vote in November, according to Garber. For a copy of the amendment, visit www.appraisalinstitute.org/newsadvocacy/downloads/key_documents/MILLER_012_Final.pdf. For a copy of the full bill, visit www.opencongress.org/bill/111-h3126/text.

House Ways and Means Committee Chair Charles Rangel, D-N.Y., announced that he is putting together draft legislation that would make permanent the current estate tax law. He plans to introduce the legislation to Congress when a break presents itself, according to the Bureau of National Affairs.

Under current law, the estate tax exemption amount is $3.5 million while the maximum tax rate is 45 percent. In 2010, the estate tax would be repealed, but in 2011 it would return to its 2002 level with an exemption of $1 million and a maximum tax rate of 55 percent.

According to BNA, Rangel says making the current amount permanent is a high priority. “The health agenda is overwhelming, and that is fluid and shifting and … that's the reason why we haven't been able to focus on (other priorities) even though we don't want them to fall through the cracks,” Rangel said. “So we'll be prepared once we get a pause here.”

BNA reports that Democratic lawmakers have expressed support for President Obama's proposal to make permanent the 2009 estate tax rates and index the exemption levels going forward. However, because of the estimated $256 billion price tag over the next 10 years, some lawmakers are in favor of addressing estate taxes in a long-term tax reform bill, according to BNA.

				
						In an effort to secure budget resolution support from the Democratic Blue Dog Coalition, House Speaker Nancy Pelosi, D-Calif., and House Majority Leader Steny Hoyer, D-Md., said they would not take up legislation, including estate taxes, unless 
						statutory pay-go had been enacted, statutory pay-go language was included or the items were paid for using conventional budget scoring. Their comments came in an April letter to conferees on the congressional budget resolution, according to BNA. The Statutory
				
		

Pay-As-You-Go Act, which passed the House in July and now is pending in the Senate, requires Congress to offset the costs of tax cuts or increases in entitlement spending with savings elsewhere in the budget.

Ways and Means Democrats are expected to address the draft legislation during the committee’s next caucus meeting, perhaps as early as this week. Rangel said details of the legislation will not be released until after the meeting, the BNA reported.

In an interview last week with Reuters, Treasury Secretary Timothy Geithner said the government is ready to begin winding down programs that have been part of the Troubled Asset Relief Program, or TARP. According to the head of the Treasury, the Obama administration will shift its focus to programs that are more targeted to providing small businesses and home owners with access to credit, which has remained hard to obtain as banks have tightened lending restrictions.

The Treasury is believed to be shutting down three TARP programs by year-end. These include the Capital Purchase Program that was used to pump funds into banks, the Targeted Investment Program that supplied $40 billion of additional capital to prop up Citigroup and Bank of America, and the revised version of the Capital Purchase Program, called the Capital Assistance Program, that was never officially tapped.

"We are now at the point where we can begin to wind down the programs that really defined TARP in its initial stages," Geithner told Reuters.

The TARP program, which was implemented last year, allows the government to purchase or insure up to $700 billion of "troubled" assets, including residential and commercial mortgages as well as other financial instruments. Under the program, the Treasury has purchased illiquid, difficult-to-value assets from banks and other financial institutions in hopes of reviving lending and the economy.

Currently, the TARP program is set to expire at the end of the year. In his interview with Reuters, Geithner indicated that the administration has yet to make a formal decision on whether or not to extend the life of the overall bailout program.

The Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF, program has received $2.12 billion in investor loan applications for legacy commercial mortgage-backed securities this month, a notable increase over the $1.4 billion in investor loan requests received in September, according to HousingWire. The high number of loan requests exceeded projections by Barclays Capital researchers, which predicted that the Fed would receive about $2 billion in investor loan requests.

While the legacy portion of the TALF program continues to draw investor interest, the Oct. 21 TALF CMBS deadline marked the fifth consecutive loan request deadline in which the Fed received no applications for newly issued CMBS.

The lack of loan requests for newly issued CMBS continues to be a red flag for economists as the failure of new debt sales is delaying efforts to revive the market for bonds tied to commercial real estate projects such as shopping malls, office buildings and apartments.

The TALF program, which has the potential to generate up to $1 trillion in lending for businesses and households, was initially expanded in June to include newly issued CMBS. The move was part of an effort to stave off waves of foreclosures as borrowers have been unable to refinance amid cutbacks in lending and continued drops in property prices.

In August, the Fed and Treasury expanded the TALF investment period for legacy CMBS to March 31, 2010, and the request window for newly issued CMBS through June 30, 2010. Originally the TALF program was set to expire at the end of the year.

The next loan application deadline for the CMBS portion of the TALF program is scheduled for mid-November.

Speaking at this week’s annual meeting of the American Bankers Association in Chicago, Federal Deposit Insurance Corp. Chairwoman Sheila Bair told attendees that the current “too big to fail” mentality of large financial institutions must end. Her recent comments reiterate what she told financial leaders earlier this month at the Institute of International Finance meeting in Istanbul.

According to Bair, the “too big to fail” mindset works against market discipline and could lead to risky investment policies by big banks who are overly confident that if their investment strategies fail, the government will be there to provide a bailout.

“’Too big to fail’ fed this (current) crisis,” Bair said.

In addition to advocating financial crisis policy change, Bair warned bankers that recent signs of optimism in real estate markets should not be mistaken for proof that the nation is out of the woods.

“We know the industry continues to face serious challenges,” Bair told attendees, “We need you to be realistic about what your loan losses might be.”

Bair told bankers that the FDIC wants to see “prudent loans,” “credit extended” to qualifying borrowers and “flexibility” employed when working with struggling borrowers. To further emphasize this last point, Bair noted that the FDIC is currently putting together a loan-workouts document that it expects to release soon. This document will contain suggestions for working with borrowers to adjust repayment plans when necessary and highlight steps bankers can take to prevent their borrowers from foreclosing.

According to Bair, prudent workout arrangements are generally in the long-term best interest of both the financial institution and the borrower.

The ABA’s three-day conference featured a variety of education sessions, including regulatory outlooks for the banking industry, an analysis of conditions impacting commercial real estate markets, and advice and best practices for managing commercial real estate portfolios.

The Federal Reserve named Patrick M. Parkinson the head of bank supervision, effective immediately, according to numerous news reports. As of Oct. 20, he replaces Roger T. Cole, who retired in August after 30 years of service as director of the Fed's division of banking supervision and regulation.

Fed Chairman Ben Bernanke said in a statement that Parkinson’s deep expertise in financial markets will be an important asset as Congress focuses on a multidisciplinary approach to banking supervision and regulation.

Parkinson, who has been with the Fed since 1980, was an economist in the Fed's research and statistics division. He has also worked with Bernanke and his predecessor, Alan Greenspan, on financial market issues, the Associated Press reported. Most recently, he helped craft the U.S. Treasury Department’s plan to overhaul the industry’s regulatory system, Bloomberg News reported. The Treasury plan proposes expanding the Fed’s oversight to include systemically important financial firms, a move opposed by lawmakers including Senate Banking Committee Chairman Christoper Dodd, D-Conn..

In his new role, Parkinson will help implement the Fed ’s own changes to bank examinations, which aim to identify potential threats across the industry, according to Bloomberg. The existing structure relies on hundreds of examiners from the 12 district banks, from San Francisco to Boston, visiting lenders – 5,757 U.S. bank holding companies as well as 862 state-chartered banks – overseen by the central bank. Examiners make recommendations on individual banks rather than focusing on the system as a whole. The unit had about 262 employees at the end of 2008, and Parkinson will help oversee 2,600 employees in supervision and regulation throughout the 12 Fed district banks.

Esther George, the No. 2 official at the Kansas City Fed bank, had been serving as acting director of the division.

Although economic conditions continued to stabilize or improve modestly in most parts of the country, suggesting that the economy is slowly improving, the Federal Reserve’s October Beige Book shows that all 12 district banks reported weak or declining commercial real estate conditions, according to Bloomberg News.

"Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed said in the report. "Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered."

With rising vacancy levels and falling rental rates, the Federal Reserve painted a negative picture of the commercial real estate sector, Bloomberg reported. "The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts," the Fed said. 

Commercial real estate loan defaults totaled $110 billion in the second quarter — roughly 11 times higher than the figure recorded during the fourth quarter of 2006 — repr