Emergency Economic Stabilization Act…

  

Emergency Economic Stabilization Act

H.R. 1424 Key Highlights

On October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 (H.R. 1424), a bill authorizing the Treasury to establish a troubled asset purchase program (TARP). The bill also includes the extension of several tax provisions and energy-related programs. Highlighted below are key provisions of primary interest to us in the real estate and financial industry.

Program Overview

•  Considerations: In undertaking the program, Treasury must promote not only liquidity and market stability, but also community stability, diversity, small institutions, student loans, retirement plans, and multifamily properties. Treasury must establish an insurance program to guarantee principal and interest payments to purchasers of troubled assets; the program’s risk-based premiums must be paid by participating institutions.

• Termination: Program expires on December 31, 2009 but may be extended.

• If TARP results in net loss after five years, the President must submit a legislative proposal on how to seek reimbursement from participating financial institutions.

Loan Modifications/Servicing

• Treasury and other federal agencies should coordinate loan modification programs with HOPE for Homeowners program (H4H) and protect renters and state/local subsidies; guarantees and credit enhancements are allowed; servicers should maximize loan modifications. Permits the H4H Board to refinance loans higher than 90 percent of appraised value. Servicers are deemed to have acted in the best interest of MBS investors if the servicer agrees to/implements a modification/workout plan when the servicer takes reasonable loss mitigation actions, including partial payments.

Executive Compensation

• Participating institutions must have executive compensation limits that: 1) exclude incentives for inappropriate risk taking; 2) include claw-back provisions for compensation based on inaccurate earnings, gains or other criteria; and 3) prohibit golden parachutes.

• For Treasury auction purchases over $300 million, the participating financial institution also cannot give golden parachutes to employees hired after the purchase.

Definitions

• Troubled asset: Residential or commercial mortgage-related assets, including securities, obligations or other instruments Treasury believes purchasing would promote financial stability. Assets must have been originated or issued before March 14, 2008. Treasury must consult with the Federal Reserve Board Chairman and notify Congress prior to expanding the definition.

• Financial Institution: Any institution, including any bank, savings association, credit union, security broker or dealer, or insurance company established and regulated under the U.S. or state/territorial laws. The definition specifically states it is not limited to these institution types, and Congressional staff has reassured MBA that mortgage banks are eligible to participate.

Temporary Increase in Deposit Insurance

• From the date of enactment until December 31, 2009, the amount of qualifying deposits the FDIC and NCUA will insure increases from $100,000 to $250,000. The increased amount will not be factored into setting premium assessments.