New Legislation For Financial Industry
By Hilbert Morales
El Observador
Last Friday, June 25th, Congress announced that new 'almost' comprehensive legislation had been formulated and will be enacted before July 4th when President Obama plans to sign it, which will make it the law of the land. This legislation is the first time since the Great Depression of the 1930s that Congress has addressed the issues involved in monitoring, establishment of oversight and new regulations of the financial industry. Every resident of this nation will be impacted by this legislation dealing with the financial industry. It is recommended that everyone become familiar with these new standards of doing business because it will impact your credit cards, your mortgage, and many other financial transactions.
As usual, financial industry lobbyists did their job. For example, mortgage lenders will now be required to validate the income of a homebuyer before approval of a mortgage loan. What is not in the new legislation are the contract obligations which apply should the mortgage payments not be made because of events that are no fault of the wage earner. During events such as the recent recession from which full recovery has yet to happen, many wage earners simply get laid off.
This also happens when their job is outsourced offshore. I recommend that a mortgage contract contain default conditions which when met, permit the mortgage to stay in effect providing the mortgage holder continues to make alternative payments amounting to at least 30% of their new current income level. Current mortgage contracts favor lenders acting on ‘foreclosure’, which effectively deprives a family of their home or results in the loss of the accumulated home equity.
At the minimum, a period of adjustment, let's say for 18 months (for 15 year mortgages) or 36 months (for 30 year mortgages) be permitted during which the mortgage holder is allowed to re-establish personal income through retraining or relocation to a new job. Simply stated, mortgage contracts today overwhelmingly favor the lender and do not protect the purchaser having the mortgage contract obligation.
There is much to applaud in this financial regulatory reform legislation presented in more than 2,000 pages. Everyone is advised to learn about those specific items that impact them personally. Do take time to send your comments to your senator and congressional representative. Excellent summaries and commentaries have already been presented in the New York Times (nytimes.org) and Wall Street Journal (wsj.com).
The summaries deal with new governmental agency authority to enforce regulations; restrictions on banks, especially when dealing with derivatives; establishment of new bank cash reserve levels; and new rules for investment advisors.
Of great interest to all will be the newly established consumer agency called The Consumer Financial Protection Bureau (CFPB). This agency will deal with rulemaking and have some enforcement regulations on banks and other financial companies. This agency can authorize State Attorney Generals to enforce certain CFPB rules to be established. This new CFPB is granted authority to examine and enforce regulations for all mortgage-related businesses; banks, and credit unions with assets of more than $10 billion; pay-day lenders; check cashers; and certain other non-bank financial firms. One caution is that the consumer lobbyists (such as AARP) need to be present when the new CFPB rules are formulated so as to mitigate the influence of lobbyists representing any and all financial institutions. Another caution is that those financial firms with assets below $10 billion may become the loophole that keeps things as they are today. So buyers beware.
It is essential that Congress provide this new Consumer Financial Protection Bureau with the authority to review, monitor, document best practices and propose new legislation regarding the murky life insurance industry which up to now has escaped any and all monitoring and oversight efforts. Too many insurance firms seem to collect premiums without being obligated to make payments on valid claims.
The main thing is that this Obama Administration has done more for the consumer with its legislative agenda (health care and consumer financial protection) than has any Republican administration since the 1930s Great Depression.
Remember that come Election Day, November 9, 2010. All Republicans have voted against these new legislative developments. If, as a constituent, you want to have this progress continue, it is essential that the Democrats gain seats in the Senate (over 2/3rds to be filibuster proof) and retain a 2/3rds majority (291 votes) in the House of Representatives.
 Do not fear 'big government' because it does take care of the people's business and mitigate the power of 'big special interests' (i.e., multi-national corporations) to continue to exploit the consumer. Finally, a 2/3rds majority in both the Senate and the House will favor the passage of comprehensive immigration legislation next year. ∆