Senate Financial Regulatory Reform Bill
On Monday, the Senate Banking Committee held its much anticipated markup of Chairman Christopher Dodd’s (D-CT) “Restoring American Financial Stability Act of 2010.” Republicans declined to offer any of their more than 200 prepared amendments to the financial reform bill because Ranking Republican Richard Shelby (R-AL) believes they will have a better chance of incorporating their suggested changes as the pressure builds on Dodd to bring the bill to the floor and get the measure passed — an effort that will require Republican support. Dodd’s bill was passed out of the Committee on a strict party line vote of 13-10. Following the markup, Dodd indicated he will be reaching out to Republicans off the Committee such as Senators Olympia Snowe (R-ME) and George Voinovich (R-OH). President Obama met with Dodd and House Financial Services Committee Chairman Barney Frank (D-MA) on Wednesday to discuss the legislation and to develop a strategy following the expected Senate passage of a bill in the near future. The meeting signals the White House’s decision to turn its focus to the financial legislation following the conclusion of the health care debate.

In a speech at the U.S. Chamber of Commerce on Wednesday, Senate Banking Committee member Republican Bob Corker (R-TN) offered a sharp rebuke to the emerging Republican strategy of trying to keep all 41 GOP senators united against the bill in order to change key aspects of the reforms. In a letter to Secretary Geithner on Thursday, Senator Shelby also stated a desire to work toward a bipartisan bill. However, the letter also expresses concern that Chairman Dodd’s current draft fails to end the problem of  “too big to fail” and “taxpayer bailouts.”

A summary of Shelby’s draft derivatives title amendment was circulated to industry sources on Thursday, and the derivatives portion of the Dodd bill remains one of the primary items of contention. Shelby’s draft amendment grants exemptions to corporate end-users from the clearing and margin requirements currently in the Dodd bill. Dodd has yet to comment on Shelby’s proposed amendment to this section, but it is anticipated Dodd will continue to allow Senator Jack Reed (D-RI) to lead the negotiations with Republicans over the derivatives section of the bill.

Administration Unveils New Home Owners Assistance Program
On Thursday, the Administration unveiled a new plan to aid struggling homeowners that would offer payment breaks for the unemployed and those with negative equity in their homes. The plan would require mortgage lenders to reduce payments to a level no higher than 31 percent of the mortgage holder’s income for as many as six months. The programs principally affected by the changes will be the Home Affordable Modification Program (HAMP) and the Federal Housing Administration (FHA), and the plan will be funded by unspent TARP funds.

The Administration’s plan is a step that Congress has been reluctant to take. Under the planned revisions, banks will receive additional payments from the government depending on how much principal is adjusted. However, unlike the current HAMP, which is designed to help borrowers who have already missed mortgage payments or are at risk of default, the FHA initiative will be for borrowers who are current and can qualify for a standard FHA-backed loan once their principal has been reduced.

Geithner Testifies on the Future of Fannie and Freddie
On Tuesday, Treasury Secretary Timothy Geithner testified before a hearing of the House Financial Services Committee. In his testimony, the Secretary outlined the Administration’s plans for mortgage giants Fannie Mae and Freddie Mac, which went into government ‘conservatorship’ on Sept. 7, 2008, near the height of the financial crisis. He indicated that “ambiguity” over the government’s role in Fannie and Freddie must be addressed, and that private gains can no longer be supported by the umbrella of public protection. He also stressed that capital standards must be higher and excessive risk-taking must be appropriately restrained. He further noted that the government is committed to ensuring that the government-sponsored enterprises have sufficient capital to perform under any guarantees issued now or in the future, and that they have the ability to meet any of their debt obligations.