FDIC Doesn't Plan To Wait On Congress

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WASHINGTON-If the Federal Deposit Insurance Corp. has its way, federal regulators would not wait for Congress to create national servicing standards, but instead write such rules as part of risk retention guidelines set to be released soon.

The agency's idea has divided the banking agencies, with the Federal Reserve Board and Office of the Comptroller of the Currency arguing risk retention is not the place for new servicing standards. But FDIC officials said that with all the problems in the servicing industry, regulators must act now, according to American Banker, an affiliate of Credit Union Journal.

"We shouldn't wait for legislation," said Michael Krimminger, FDIC acting general counsel. "In Dodd-Frank, Congress instructed us to apply the risk-retention rules to help ensure high-quality risk management practices, and servicing standards are critical to achieve this. If Congress wishes to adopt further servicer standards that may be a good thing, but we have a rule in Dodd-Frank that applies across the board."

Regulators largely agree on the need for new servicing standards, but disagree on how and when to create them. Fed Gov. Dan Tarullo first called for such standards at a Dec. 1 hearing, and the concept has been endorsed since then by Treasury Secretary Tim Geithner and lawmakers such as Rep. Barney Frank, D-Mass. FDIC officials argue the risk retention rules are the perfect opportunity to write servicing standards.

The Dodd-Frank Act orders the Financial Stability Oversight Council to write rules that would require lenders to retain at least a 5% stake in any loan they sell to the secondary market, unless the loan meets a test for "qualified residential mortgages." Regulators have until April to finalize risk retention rules, but the agencies have so far delayed releasing a proposal.

"There are mixed views on how best to approach this among regulators," Krimminger said. "Our concern is we have the statutory vehicle to do it now, and it is critical to ensuring that risk retention can accomplish the goals set by Congress. We shouldn't do it by separate rules adopted regulator by regulator because that creates opportunity for arbitrage."

For example, the FDIC said regulators could create standards to realign compensation incentives for true loss mitigation and limit monthly payment advances by servicers unless there is a process other than foreclosure to repay the servicer for the advances. The FDIC is also seeking to require servicers to conduct their business for the benefit of all investors, rather than a particular class or tranche.

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