Financial Services and Retirement Security
Chairs:
Rep. Gary Peters (MI-14)
Rep. John Carney (DE-At Large)
Rep. Carolyn McCarthy (NY-04)
New Democrats’ Principles for Housing Finance Reform
Released 2011
- Preserve Accessibility of Traditional Mortgage Products: For generations of Americans, the 30- year fixed rate mortgage has provided opportunity for responsible home ownership, and affordable access to these products must be preserved in any reform of the housing finance system.
- Ensure a Robust Private Market: The Fannie Mae and Freddie Mac hybrid model of privatized gains and subsidized losses must be eliminated, and the current reliance on government backed loans must be reduced. The use of private sector mechanisms to reduce risk should be encouraged.
- Limit Taxpayer Liability: Any government guarantee should cover only the securities themselves, which should be based on fundamentally sound mortgages with strong underwriting standards, not the issuing entity. Companies issuing securities products must be subject to a strong and independent regulator that ensures the companies are well capitalized and capable of withstanding deep losses
- Accurately Price Risk: The guarantee must be explicit and priced in a way that fully accounts for the risk borne by taxpayers. The pricing mechanism must be insulated from political pressure to the greatest extent practical.
- Encourage Greater Competition and Deep Liquidity: Encouraging a large number of private sector entities to participate in the secondary mortgage market will create pressure to keep costs low, and having a large number of well capitalized firms securitizing loans will reduce systemic risk.
- Require Sound Underwriting: While there were many factors that contributed to the housing crisis and the 2008 financial collapse, one significant factor was a lack of sound underwriting standards. Firms participating in the secondary mortgage market must ensure that borrowers obtain loans that they can actually afford.
- Limit Activity: A strong and independent regulator must narrowly charter the activities of issuers to limit these companies from engaging in activity that is inconsistent with preserving the accessibility of traditional mortgage products.
- Produce a Full Range of Housing Options: In addition to the role they play in providing liquidity for the secondary mortgage markets, the GSEs are an important source of financing for the multifamily housing industry. Housing finance reform should not reduce the availability of multifamily mortgage credit.
NEW DEMOCRATS’ PLAN FOR CREATING A
21st CENTURY FINANCIAL REGULATORY STRUCTURE
Released 2009
With the near collapse of our financial system last fall, the American people are expecting Congress to modernize and reform our financial regulatory structure. The Democratic Caucus is looking to New Dems for leadership and counsel on these complicated issues. New Dems are well positioned with 16 Members on the Financial Services Committee and many Members with private sector financial experience.
As Congress considers comprehensive regulatory reform, New Dems will advocate efficient, effective regulation that strengthens consumer and investor protections and promotes market stability and transparency. In addition we support legislation which creates uniform financial regulatory standards across national and international markets.
Efficient and Effective Regulation
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Create a systemic risk regulator that can monitor systemically important institutions and their counterparties to mitigate the risk of systemic collapse.
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Reduce redundant regulatory structures in exchange for robust regulatory oversight.
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Ensure oversight over new financial instruments that currently do not have regulatory oversight.
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Require regulators to use prudential supervision to proactively work with those they regulate to prevent violations and keep communication lines open to better monitor efficacy and unintended consequences.
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Increase coordination and communication between federal regulators through expansion of the President’s Working Group on the Financial Markets to include all federal financial regulators.
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Modernize the regulation and oversight of the insurance industry to ensure adequate information and a consolidated U.S. position in international trade discussions.
Market Stability and Transparency
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Reform how regulators evaluate capital requirements when using fair value accounting values (mark to market) on hold to maturity assets in a temporarily impaired market.
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Prohibit excessive leverage on debt and derivative instruments by requiring necessary capital reserves to prevent against the potential risk of default.
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Create a countercyclical mechanism to temper extreme market fluctuations.
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Support measures to prohibit manipulation that can lead to extreme fluctuations in securities prices that could destabilize fair and orderly markets.
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Support open exchanges and price disclosure to increase transparency in opaque markets like the credit default swaps market.
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Require lenders to hold a small percentage of loans in a first loss position to ensure originators retain some stake in the loans they underwrite.
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Conduct a thorough review of rating agencies' methodologies, models and compensation structures to ensure that ratings are accurate and not subject to conflict.
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Hold Treasury accountable to regularly collect data from all federal sources that receive financial data from recipients of TARP funds.
Robust Consumer and Investor Protection
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Aggressively pursue a multi-tiered strategy that prevents unnecessary foreclosures for credit worthy borrowers while protecting taxpayers and preserving the moral hazard principle.
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Work towards reintroduction of mortgage reform legislation and pass into law
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Ensure that credit is available and appropriate for consumers through strengthened oversight and regulation of predatory loans while protecting businesses' ability to price for risk.
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Hold federal financial regulators accountable for enforcement of consumer and investor protections.
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Protect and continue to encourage simpler disclosure of status and terms and conditions of Americans' retirement and investment accounts.
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Reduce incentives for excessive risk taking and improve corporate governance by empowering shareholders.
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Increase fraud prevention efforts