WASHINGTON – A new bill introduced in the House would set up a financial institutions ombudsman who would referee regulatory disputes over credit union and bank exams and allow lenders to delay realizing losses on troubled mortgages.
The bill would provide major relief on troubled mortgage loans by making it easier for credit unions and banks to count recently modified mortgages as accruing as long as the borrower hadn't been delinquent in the last six months. The bill would also stop regulators from forcing a credit union or bank deemed well capitalized to raise additional capital for any modified mortgages counted accruing.
The proposed accounting provisions are gaining momentum and are already included in a regulatory relief bill that is expected to be broadened to include credit unions, even while a similar accounting proposal was voted down by a different House committee last week.
The proposal is reminiscent of a dispute over mark-to-market accounting during the 2009 height of the mortgage meltdown when Congress forced the Financial Accounting Standards Board to ease its rules in order to delay billions of dollars of mortgage-backed securities losses for banks and corporate credit unions.
The banking regulator, the FDIC, and its chief lobbying group, the American Bankers Association, have expressed concerns over the latest accounting measures because of the possible distortions it could create in the financial condition of banks. The FDIC testified before Congress recently the proposal could allow banks to count modified mortgages as an asset and not a liability. This may create a false assumption of capital requirements, especially for lenders with large amounts of modified mortgages on the books.
CUNA and NAFCU have yet to take a position on the accounting proposals.
The new bill, dubbed the Financial Institutions Examination Fairness and Reform Act, would create an Office of Examination Ombudsman to investigate complaints about examinations and allow financial institutions to appeal any material supervisory determination in an examination to an independent administration law judge. It would also require regulators to list any information that was used to support a certain regulatory action or request.
“We have heard significant concerns about the fairness of the examination process for financial institutions and their ability to effectively appeal regulator decisions,” said Rep. Shelley Moore Capito, the Republican chairman of the House Financial Services Subcommittee on Financial Institutions, who co-sponsored the bill. “This legislation provides financial institutions with a fair and impartial process to appeal examination reports for federal financial regulators and providing further clarity to regulators.”
The bill has bipartisan support with co-sponsors including: Reps. Spencer Bachus, the Republican chairman of the Financial Services Committee; and Carolyn Maloney, D-N.Y.; John Carney, D-Del.; Sean Duffy, R-Wisc.; Steven Pearce. R-N.M.; Bill Posey, R-Fla.; Jim Renacci, R-Ohio; David Schweikert, R-Ariz.; and Lynn Westmoreland, R-Ga.
