Frank: More rules on mortgage
Says House should reject $350 billion to
Treasury without loan modification
Ronald D. Orol, MarketWatch
Last update: 4:10 p.m. EST
Dec. 4, 2008
WASHINGTON (MarketWatch) - A key lawmaker on Thursday outlined a broad
agenda to hike regulations on securitized mortgage products, hedge funds
and beef up controls on executive compensation.
House Financial Services Committee chairman
Barney Frank, D-Mass., told consumer advocates that he plans to
introduce legislation that would require lenders to have a stake in the
mortgage before packaging and selling the loans as securitized products.
Mortgage backed assets are considered a key contributor to the financial
"Should you require the entity that packages
up the loans and sells them to retain a certain percentage of the
liability?" Frank said. "Don't let people sell 100%."
Frank also said he expects to pass "tougher"
across-the-board restrictions on CEO pay packages including a measure
that would give investors a so-called "say on pay," a non-binding vote
on corporate executive pay packages.
The House approved the measure last year,
but lawmakers in the Senate did not bring it up. Frank said he expects
to have more support for this and other executive compensation
legislation next year in the Senate, which now is more dominated by
"When we brought up 'say on pay' bill,
people criticized us, 'why weren't we tougher on those people?' I didn't
think we had the votes, but now that we do have the votes, I think we're
going to be tougher," said Frank.
The House Financial Services Committee is
expected to re-consider legislation that would require hedge fund
managers to register with the Securities and Exchange Commission and
open up their books to regulatory staffers.
In 2006, Frank introduced hedge fund
legislation, but it did not gain any support. However, in 2009, Frank
said he believed hedge fund regulations has more support, in part
because of the financial crisis and more Democratic support. One
possibility Frank considered in 2006 would require hedge fund managers
that accept capital from public and corporate pension funds to register
with the agency.
"In 2006, people believed hedge fund
managers were safe if investors in the entity had $1 million to invest,"
Frank said. "Tell that to a hospital that has several hundred million
dollars in a hedge fund and can't get their money back."
Treasury Secretary Henry Paulson's proposal
to reorganize financial regulators will also be examined by the
committee, but Frank said he expects to work on separating the function
of systemic risk protection and investor and consumer protection.
"Those areas have to be kept in separate
areas, because the investor and consumer protection will loose out,"
A congressionally appointed oversight panel
will make recommendations for the future of a $700 billion bank bailout
fund. Frank told reporters he supported the decision to nominate Harvard
Law School professor Elizabeth Warren to the board. Warren, who is
speaking at the consumer conference on Friday, has promoted an idea to
create a government funded independent Financial Products Safety
Commission that would regulate and rate mortgage assets.
"We believe Elizabeth Warren is not going to
neglect her responsibility," Frank said. "No better appointment made
than putting her on board and the other democratic nominees make her
chair on the board."
Frank also told reporters that he would push
lawmakers not to approve granting the Treasury Department the second
half of the $700 billion bank bailout package without a provision that
would require some of that capital be used for loan modification.
Senate Banking Committee Chairman Chris
Dodd, D-Conn., also urged more loan modification. "More mitigation, what
Shiela Bair is talking about, needs to be done," Dodd said to reporters
following a hearing on U.S. automakers' request for federal assistance.
Democratic lawmakers have endorsed a
proposal introduced by Federal Deposit Insurance Corp. chairwoman Bair
that would use $24.4 billion of the bailout funds to modify mortgages.
Bair estimated that her proposal, which so far has been rejected by
Paulson, would avert 1.5 million mortgage foreclosures.
"At the very least he would have to agree
that some of that money was put to use to foreclosure relief," Frank
It's unclear whether President-elect Barack
Obama will keep Bair as FDIC chairwoman, despite her efforts to support
struggling homeowners. A report Thursday indicated that incoming
Treasury Secretary Timothy Geithner may want to replace Bair.
Frank said Bair has support in Congress. "I
think she should stay on and I think she should be given a broader role
on formulating policy on mortgage foreclosures," Frank said.
Ronald D. Orol is a
MarketWatch reporter, based in Washington.
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