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Fannie, Freddie announce new refi fee; Wells compliance chief is leaving

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Fannie, Freddie fee

Fannie Mae and Freddie Mac “said they would impose a new fee to insulate themselves from losses on refinanced mortgages they guarantee, a sign of potential turbulence in the housing market and a move likely to generate pushback from lenders,” the Wall Street Journal reported. The fee, which goes into effect next month, “is equal to 50 basis points on each loan Fannie and Freddie guarantees, or roughly $1,400 on the average mortgage backed by the companies.”

“Industry officials said the fee isn’t correlated with the risk of refinanced loans and would simply be passed on to consumers, increasing their costs at a time when the Federal Reserve was acting aggressively to support lower interest rates.”

Fannie, Freddie and their regulator, the Federal Housing Finance Agency, “are justifying the new fee as a prudent measure to deal with anticipated losses from the pandemic,” the New York Times said. “Consumer advocates and banking officials denounced the move as an unfair tax on homeowners who are trying to reduce their mortgage bills to free up money for new spending, which the ailing economy could use.”

“The announcement by Fannie and Freddie on Thursday night drew an immediate backlash from the mortgage industry,” American Banker’s Hannah Lang reports.

It also drew criticism from the White House, which said it “has serious concerns with this action, and is reviewing it. It appears only to help Fannie and Freddie and not the American consumer.”

Another Wells departure

“Wells Fargo’s chief compliance officer, Mike Roemer, is leaving after two years of attempting to turn around the troubled bank’s internal oversight and risk management functions,” the Financial Times reported. “The departure of Mr. Roemer, who joined in January 2018 after performing the same role at Barclays for four years, comes shortly after chief executive Charles Scharf reversed a previous decision to centralize the risk and compliance functions.”

“He will be replaced by Paula Dominick, who has been chief compliance officer for Credit Suisse Americas for more than four years and previously worked for Bank of America. The executive role is one of the most vital at the U.S.’s third-largest bank considering its checkered recent history. For the past two years, Wells has tried and failed to lift an asset cap imposed by the Federal Reserve and other U.S. regulators in the wake of” the phony accounts scandal.

“The move comes after Wells Fargo said in July that Mike Santomassimo would replace John Shrewsberry as chief financial officer,” Reuters said. “Since taking over as chief executive in October, Charles Scharf has shaken up leadership at the bank and installed a slew of former colleagues and confidants in top positions. The change at Wells Fargo also comes as it gears up to launch a broad cost-cutting initiative this year and continues to work through expensive regulatory and operational problems tied to a long-running sales scandal.”

Wall Street Journal

Caught in the net

“Efforts to root out scammers in the $670 billion Paycheck Protection Program and $374 billion Economic Injury Disaster Loan program are sweeping up legitimate borrowers. Business owners have had their loan funds frozen, often along with their personal bank accounts, after tripping alarms meant to prevent fraud. The Justice Department has charged at least 50 people with fraudulently obtaining loans, including two who allegedly used the money to buy Lamborghinis.”

“But the dragnet has also snared lawful companies. Nick Oberheiden, a Dallas-based lawyer, said he has heard from hundreds of small-business owners whose bank accounts were frozen after receiving government loans. Some were subsequently contacted by the Federal Bureau of Investigation or Secret Service.”

Bad incentives

A former American Express employee says the company has “created a culture where employees can get rewarded for breaking rules.”

“In the race for customers, AmEx has relied heavily on commissions to motivate salespeople. More than a dozen current and former AmEx employees in sales, customer service and compliance previously told The Wall Street Journal that salespeople strong-armed small-business owners to increase those card sign-ups, sometimes misrepresenting card rewards or issuing cards that weren’t sought. An AmEx spokesman said at the time that the company had found only a very small number of problems, which were resolved ‘promptly and appropriately,’ including through disciplinary action.”

Not ready for prime time

The pandemic has accelerated the use of contactless payments, but the U.S. has been slow to catch on. “Visa and Mastercard reported 40% year-over-year global growth for tap-to-pay or contactless transactions in the first three months of this year. But there remain roadblocks. Only around one third of U.S. debit cards will have near-field communication, or NFC, technology needed to tap by the end of year, according to a recent forecast by consulting firm Oliver Wyman. It also notes that some contactless transactions aren’t entirely touch-free, because some merchants’ terminals may also prompt keypad touches or signatures.”

Oops

Citigroup “paid nearly $900 million by mistake to Revlon’s lenders and is asking for the money to be returned. Lenders that sued Revlon on Wednesday over its debt-restructuring tactics were surprised to learn Thursday they had been fully repaid on a loan issued in 2016. Citi executives were soon asking for the money back, saying it was paid inadvertently due to a clerical error.”

“The lenders were paid the full principal and accrued interest on the loan. The money didn’t come from Revlon.”

Financial Times

Shaky banks

“The collapse of Wirecard is rooted in an accounting scandal made possible by gross failures on the part of Germany’s supervisory authorities,” an FT op-ed argues. “This is shocking enough in a country that prides itself on a highly skilled bureaucracy. At its core, though, the Wirecard affair is about much more. First, it reflects the shaky state of the national banking sector, systematically distorted by a political and business culture peculiar to Germany.”

Germany’s fragile banking sector “is teetering no matter where you look,” it says. “Deutsche Bank is a shadow of its former self. Commerzbank is even worse off. Savings banks cannot cope with zero interest rates. The once grotesquely overblown Landesbanken are still in the throes of consolidation. Co-operative banks are not in good shape, either. For a country that is the world’s fourth-largest economy, this is disturbing. There is a genuine question about whether Germans can really operate a successful banking sector.”

Brand shift

HSBC will start moving customers of its First Direct brand “from Visa to Mastercard debit cards next year, as Mastercard attempts to break its larger rival’s dominance in one of the most important parts of the U.K. payments sector.”

Washington Post

Blaming the Fed

The Federal Reserve “has plenty to answer for” when it comes to racial inequality, “not in its conduct of monetary policy but in its other role as the country’s leading financial regulator,” a Post op-ed argues. “The radical deregulation that began under former chairman Alan Greenspan led to a level of bank consolidation that eliminated thousands of community and regional banks and the kind of relationship banking that they practiced. One consequence was to reduce the flow of credit to minority communities. Another was that it opened the door to the explosive growth of an unregulated shadow banking system that has no obligation not to discriminate against minority borrowers or reinvest the savings of minority depositors in the communities in which they live.”

“A new mandate requiring the Fed to significantly reduce racial, class, gender and geographic disparities in the availability of credit — also part of the Democratic proposal — is a great idea that is long overdue.”

Quotable

“For the GSEs to add a 50-basis-point surcharge on refinances when the nation is struggling with the greatest economic downturn since the Great Depression is outrageous.” — Mortgage Bankers Association CEO Robert Broeksmit, on the announcement by Fannie Mae and Freddie Mac to impose a new fee on mortgage refis.

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