Over the past few months, the United States Congress has been working hard to reach a consensus on exactly what it believes should be in the much-vaunted financial reform legislation. Whether you agree with Congress that this is vitally important or you believe that we’d be better off without it, the House and Senate committees have finally reached a consensus, and you need to be aware of what will be on the floors of both halves of Congress for debate.
Here are some key “highlights” that have already been controversial and that made it into the bill:
- Formation of a new Consumer Financial Protection Bureau.This authority will regulate mortgages and credit cards
- 5% risk retentionLenders will be required to retain as much as 5% of a credit risk, depending on the “quality” of the mortgage being granted. FHA, USDA and VA loans are exempt from this. As yet, there are no clear definitions for levels of quality but the SEC and FHFA will be working on the criteria. Negative amortization loans, loans with prepayment penalties and loans will balloon payments are already in the “unqualified” category, meaning a full 5% must be retained by the lender.
- Proposed tax on hedge funds and large bank.This is intended to raise $19 billion over five years to help alleviate the cost of some of the new initiatives in the bill.
- Banks no longer can trade on high-risk deals with their own moneyHowever, some types of trading and investments, including hedge funds and private equity funds, will still be permitted.
The President stated that the bill incorporates “90 percent of what I proposed when I took up this fight”. If this is the case, then there are likely many other issues in the bill that are not yet being highlighted in the media that will impact real estate investors – and possibly not all in a positive fashion. It will behoove us all to get a clear grip on exactly what our congressmen and senators are debating so that we can have an active, effective and just voice in this debate.
What are your opinions on the financial reform bill?
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