Category Archives: Investing

Mnuchin declares support for Republican Dodd-Frank replacement

The Financial CHOICE Act, the Republican-crafted replacement for the Dodd-Frank Wall Street Reform and Consumer Protection Act, took its first official steps towards becoming law on Wednesday when House Financial Services Committee Chairman Jeb Hensarling, R-TX, formally introduced the bill in the House of Representatives.

And as the bill moves through the legislative process, it will do so with the support of Steven Mnuchin, the secretary of the Department of the Treasury.

On Thursday, Mnuchin declared his support for the Financial CHOICE Act, which Republicans bill as a “pro-growth, pro-consumer” alternative to Dodd-Frank that would end “too-big-to-fail” bailouts, bring significant reforms to the Consumer Financial Protection Bureau, and provide some regulatory relief for certain financial institutions.

In a statement released Thursday by the Treasury Department, Mnuchin said that he welcomes the Financial CHOICE Act regulatory reforms, adding that the Treasury Department is also focused on regulatory reform measures of its own.

“As Secretary, I am committed to policies that will ensure sustained economic growth that is driven by Main Street and not held back by Washington,” Mnuchin said in the statement.

“The existing regulatory system is limiting, not stimulating our economy,” Mnuchin continued. “At the Treasury, we are focused on delivering regulatory relief that encourages banks to provide the capital and liquidity needed to create jobs and opportunities for growth, and that provides protection against taxpayer-funded bailouts.”

Mnuchin added that the Treasury Department is continuing its review of the regulatory system, as President Donald Trump directed the department to do earlier this year.

“I applaud the steady commitment and leadership that Chairman Hensarling and his colleagues have provided on these issues, and welcome the reintroduction of the CHOICE Act,” Mnuchin concluded. “While I continue my work to implement the President’s executive order setting the core principles for financial regulation, I look forward to working with Congress to both support and strengthen our financial system and safeguard taxpayers.”

For a look at the Financial CHOICE Act “executive summary” published by the Republican side of the House Financial Services Committee, click here.

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Mnuchin: White House to negotiate 15% corporate tax rate

[Updated to include official tax reform plan revealed Wedensday afternoon]

Treasury Secretary Steven Mnuchin confirmed that the Trump administration tax plan will call for a 15% corporate rate, according to an article in CNBC by Jacob Pramuk.

Mnuchin and White House chief economic advisor Gary Cohn gave more details about the plan later in the day on Wednesday, the article stated.  

From the article:

At an event hosted by The Hill, Mnuchin — who declined to go into many specifics about the proposal — contended it would be “the biggest tax cut and the largest tax reform in the history of our country.”

When Trump floated a 15 percent corporate tax rate as a candidate, analyses of the proposal estimated that it could add atrillions to the national debt. It is unclear what the current proposal would do to raise revenue to offset those major cuts, and Mnuchin declined to say Wednesday how specifically the administration would pay for the 15% rate.

The exact details on President Donald Trump’s tax reform are were scarce leading up to the reveal, but Mnuchin has said in the past that the mortgage interest tax deduction will not be changed.

The tax deduction was brought up as an issue this past election season when House Republicans proposed tax reform that would make the mortgage-interest tax deduction irrelevant for most Americans.  

Here are highlights from the tax reform plan Cohn and Steven revealed in a briefing to reporters at the White House Wednesday afternoon, according to a follow-up piece from CNBC.

  • Trump’s plan will cut the number of income tax brackets from seven to three, with a top rate of 35% and lower rates of 25% and 10%. It is not clear what income ranges will fall under those brackets.
  • The proposal will chop the corporate tax rate to 15% from 35%.
  • It would eliminate all tax deductions except for the mortgage and charitable contribution deductions

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Community bankers: GSE reform should keep what works and just fix the problems

As talks of reforming the government-sponsored enterprises start to resurface under the new Trump administration, the Independent Community Bankers of America penned their version of how GSE reform should take place, taking a different stance from other options floating around.

The ICBA, along with other organizations that represent smaller lenders, have already publically denounced calls for reform in the past from trade associations, such as the Mortgage Bankers Association, which published its plans for GSE reform earlier this month.

The new six-page white paper details the ICBA’s principles and recommendations for reforming Fannie Mae and Freddie Mac to support continued access to the secondary mortgage market for community bank lenders.

Under the current system, Fannie Mae’s and Freddie Mac’s capital reserves will be drawn down to $0 in 2018. Both GSEs sent their latest dividend payment to the Department of the Treasury back in March, following the release of their 2016 fourth-quarter earnings.

But if the ICBA has their way, that money will stay with the GSEs to help rebuild their dwindling capital base.  

The ICBA isn’t alone is this call, banding with fellow community groups and lenders to urge elected officials to suspend the GSEs’ dividend payments to avoid the future need for another GSE bailout. As it stands now, under current conservatorship, the GSEs must reduce capital buffers to $0 next year. This means if they need money, they’ll need another bailout.

This new GSE reform white paper gives the ICBA’s general position on reform along with how to move forward with reform.

“Policymakers, industry stakeholders, think tank gurus, and politicians have weighed in on how to resolve this last remaining part of the Great Recession. There have been multiple papers and numerous legislative proposals, including some that have been attached to appropriations legislation, all seeking to end the conservatorship of the GSEs,” the paper stated.  

“Yet, the GSEs remain in conservatorship and subject to the net-worth sweep that is slowly bleeding away what little capital they have. This will eventually bring a day of reckoning for FHFA, the Treasury, and the housing market.”

Instead, ICBA stated that its approach to GSE reform is simple: use what is in place today and is working, and address or change the parts that are not.

The ICBA’s approach has two parts:

  1. Reforms that can be accomplished administratively by Federal Housing Finance Agency within Housing and Economic Recovery Act 
  2. Reforms that will require congressional action.

Here are only a few snippets from the ICBA’s principles for GSE reform. Check out the full white paper here.

1. The GSEs must be allowed to rebuild their capital buffers.

The first step in GSE reform requires the FHFA, the GSEs’ safety and soundness regulator, to follow the mandates prescribed in the 2008 Housing and Economic Recovery Act (HERA), namely, to restore the GSEs to a safe and sound condition. Regardless of which approach or structure reform takes, the existing system must be well capitalized to prevent market disruption or additional taxpayer support in the event of one or both GSEs requiring a draw from the U.S. Treasury during what’s likely to be a lengthy debate and transition period to any new structure or system.

2. Lenders should have competitive, equal, direct access on a single- loan basis.

The GSE secondary market must continue to be impartial and provide competitive, equitable, direct access for all lenders on a single- loan basis that does not require the lender to securitize its own loans. Pricing to all lenders should be equal regardless of size or lending volume.

3. An explicit government guarantee on GSE MBS is needed.

 the market to remain deep and liquid, government catastrophic-loss protection must be explicit and paid for through the GSE guaranty fees, at market rates. This guarantee is needed to provide credit assurances to investors, sustaining robust liquidity even during periods of market stress.

“Community banks depend on Fannie Mae and Freddie Mac for direct access to the secondary mortgage market, which promotes lending in local communities and offers an alternative to the largest and riskiest financial institutions,” ICBA President and CEO Camden Fine said.

“ICBA and the nation’s community bankers urge Congress and the Trump administration to end the destructive sweep of the GSEs’ earnings directly to government coffers, put the GSEs on sound financial footing, support equitable access to the housing-finance system, and protect taxpayers from another housing crisis,” Fine continued. 

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