FHA Enacts Finance, Mortgage Reforms
In the wake of the one-year anniversary of the collapse of investment banking firm Lehman Brothers, a flurry of reforms were announced Friday that would affect the mortgage and financial services industries.
The Federal Housing Administration, which offers insurance against mortgage loan defaults, announced Friday that its capital reserve ratio is expected to drop below the congressionally mandated level of 2 percent.
The agency is changing policies that affect FHA-approved lenders in a push toward regulatory reform.
Starting Jan. 1, lenders must submit audited annual financial statements to FHA, to prove they are adequately capitalized. No one who earns a commission -- such as mortgage brokers, real estate agents or commission-based bank employees -- will be able to order appraisals or potentially influence valuations.
Also, participating lenders will be required to have a net worth of $1 million, instead of the current $250,000.
Among other pending shifts, the Securities Exchange Commission released a proposal Friday to ban "flash orders" in electronic trading systems.
Paul Schatz, founder and president of the wealth management firm Heritage Capital LLC in Woodbridge, said flash orders involve putting trades through in a matter of instants before they hit public markets such as the New York Stock Exchange or the American Stock Exchange.
"It's been going on legally for years and gives those firms a clear, millisecond advantage. Over time, that adds up to a significant amount of money, especially with fewer big players left in the industry," he said. "If we want to fully level the playing field again, we need to correct this."
Schatz also said FHA may not be asking for money right now, but could be firing a warning shot for 2010 or 2011.
"FHA is in full disclosure mode, not crisis mode," he said. "I don't think the taxpayer should pony up more money into the system. We're are much more stable than last year. Let's give capitalism and the system a chance to work this out."
(Source: New Haven Register)By Angela Carter, New Haven Register, Conn.