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Obama's First 100 Days Pave Road for More Regulation

The first 100 days of President Barack Obama’s administration have been marked by pressure to stabilize and reverse the nation's financial crisis, and in doing so, establish regulatory reform within the financial and lending communities. While substantial regulatory changes have already been implemented - including the ""Senate's appropriation this week"":http://dsnews.comindex.php/home/news_story/2921 for additional funding to combat mortgage fraud, and ""new appraisal requirements"":http://dsnews.comindex.php/home/news_story/2913 from the GSEs set to take effect today - lawmakers are in the process of debating even more aggressive legislation that would better protect consumers.
The compliance experts at Minneapolis-based ""Wolters Kluwer Financial Services"":http://www.WoltersKluwerFS.com believe the Obama administration’s next 100 days, and many days after, will focus heavily on new regulatory changes in the financial services industry to help prevent another meltdown.
Edward Kramer, EVP of regulatory programs at Wolters Kluwer Financial Services, said, ""Regulators are feeling much more empowered than they were during the previous administration. More stringent regulatory exams, a rising number of enforcement actions, and the growing number of financial institution closings during the first quarter of this year are evidence of that.""
Kramer said he believes the mortgage reform bill expected to go before the House next week could be the beginning of major financial regulatory changes. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on non-prime mortgage lending and lender compensation. Perhaps more importantly, it would require lenders to establish what the bill calls a ""duty of care"" in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit.
According to Amy Downey, senior regulatory consultant at Wolters Kluwer Financial Services, the proposed mortgage reform bill, combined with numerous regulatory changes already scheduled to take effect this year, could likely put financial institutions in a significant crunch. ""These changes are very different from those of previous years that required a simple update to a document or disclosure,"" Downey said. ""Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt.""
The securities industry has also seen a number of issues discussed during the first 100 days of the new presidential administration, including the potential regulation and registration of hedge funds, changes to credit rating agencies, and harmonizing rules between investment advisors and broker-dealers. Legislation concerning some of these issues has been introduced, and more will likely come.
David Thetford, securities compliance principal analyst at Wolters Kluwer Financial Services says he expects regulators to work toward extending their influence over the coming months. ""The Securities and Exchange Commission (SEC) has already highlighted a number of areas where it would like to see reform, and has indicated it would like to increase the size of its staff,"" Thetford explained. ""I’m anticipating we’ll also see similar activity from other regulators, including the Financial Industry Regulatory Authority (FINRA).""
Thetford notes that this has created a level of suspense within the financial services industry, as it prepares for the growing pains associated with regulatory change, which will likely include adjusting and modifying compliance procedures and educating staff.
In addition to assessing their compliance programs in anticipation of regulatory changes, financial services firms are also evaluating the types of products they offer.
Jason Marx, VP and general manager of the mortgage division at Wolters Kluwer Financial Services says mortgage companies continued to expand their Federal Housing Administration (FHA) lending programs at a fast pace to keep up with market demand for government-insured lending programs. He expects them to increase their activities in response to currently lower rates, refinance initiatives, and loan modification programs throughout the rest of the year as they take advantage of the Treasury’s new Making Home Affordable Program.
Marx commented, ""Lenders are very interested in becoming involved with the program. They realize that by helping distressed borrowers refinance or modify their loans, they can assist those borrowers that have the intent and ability to make regular payments and stay in their home.""
Kevin Byrne, senior regulatory consultant at Wolters Kluwer Financial Services, added that financial institutions will also need to make sure they’re doing all they can in the coming year to combat identity theft, money laundering, and other financial crimes, such as mortgage fraud. He cited the record number of Suspicious Activity Reports (SARs) filed by institutions in 2008 as direct evidence that such financial crimes are on the rise.
Byrne explained, ""In a down economy, instances of fraud committed out of desperation by consumers, as well as an institution’s own employees, often grow dramatically. When you combine that trend with the growing sophistication and globalization of today’s financial criminals, you create an environment ripe for an overall spike in fraudulent activity.""
Downey added, ""Managing operational and compliance risks like fraud can no longer be viewed as a necessary evil. It has to be seen as a reality of doing business in today’s marketplace. Regulators and consumers were much more tolerant when times were good. But they’re not so much now that times aren’t so good. That’s not likely to change anytime soon.""
The team at ""Wolters Kluwer Financial Services"":http://www.WoltersKluwerFS.com provides financial organizations with compliance, content, and technology solutions and services to manage risk and improve efficiencies across their enterprise.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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