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» VISIT US ONLINE @ DSNEWS.COM 43 FED AND FDIC COMPLETE REVIEW OF BANK 'LIVING WILLS' e Board of Governors of the Federal Re- serve and the FDIC announced recently they completed the review of the second round of resolution plans submitted by 11 large banks. e Dodd-Frank Wall Street Reform and Consumer Protection Act requires that banking organizations with total consolidated assets of $50 billion or more periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. e plans are commonly referred to as "living wills." Each plan must describe the company's strategy orderly resolution in the event of the failure of the company or severe financial distress. e 11 firms in the first wave of filers include Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp., and UBS. e agencies noted that the review of the resolution plans highlighted some improvement from the first submissions in 2012. However, multiple common failures still remain that must be addressed in the submissions next year. ese common failures include "assump- tions that the agencies regard as unrealistic or inadequately supported, such as assumptions about the likely behavior of customers, counter- parties, investors, central clearing facilities, and regulators." Another defect noted was "the failure to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for orderly resolution." e letters to each first-wave filer detail the specific shortcomings of each firm's plan and the expectations of the agencies for the 2015 submission. SURVEY: ATR, QM AREN'T MAJORLY IMPACTING PRIME MORTGAGE MARKET e ability-to-repay and qualified mortgage (QM) rules that went into effect earlier this year are not having a significant impact on approvals of prime conforming residential mortgage loans, but they are impacting the jumbo and nontraditional loan markets, according to the July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices, conducted by the Federal Reserve. Meanwhile, the Fed reports, credit standards continue to ease at major lending institutions. Most large banks reported that because of the safe harbor for loans that meet GSE standards, the ability-to-repay/QM guidelines are not having a major impact on their approval rates for prime, conforming loans. However, "a more substantial share of other respondents" reported their approval ratings are lower due to the new industry rules. While 77.8 percent of large bank respondents said their approval rating for prime residential mortgages is "about the same" as it would be without the new rules, 47.1 percent of other banks said the same is true at their institutions. In particular, jumbo loans and nontraditional loans are being impacted by the new rules, according to the Fed's survey results. More than half of survey respondents said these two types of loans are at least "somewhat lower" than they would be without the new rules. e two pieces of the ability-to-repay and QM rules that are most impacting approval rates, according to the Fed, are the mandatory assess- ment of credit history, assets, and debt payments; and the debt-to-income ratio cap of 43 percent. Overall, banks reported easing credit standards for residential home loans. However, standards for nontraditional loans and home equity lines of credit (HELOCs) remained about the same. Many banks also reported that despite easing credit standards, their standards remain stricter than their institution's long-term average. Demand for residential loans increased for the first time in one year, and demand for HELOCs increased for the first time since October 2013, according to the Fed's survey. Credit standards for commercial real estate loans are also easing at most banks and are now below their long-term average standards at some institutions, according to the Fed. RISING PRICES SHRINK POOL OF POTENTIAL HOMEOWNERS As home prices continue to recover nation- wide, a new study from the National Associa- tion of Home Builders (NAHB) suggests even a small increase in new home prices can leave hundreds of thousands of prospective buyers out in the cold. Measuring housing costs against income distribution, the group estimates that as many as 206,269 households are effectively "priced out" of the market for each $1,000 increase in national median new home prices. As of June, the Commerce Department estimates the median sales price of new homes was $273,500. With increases in construction fees accounting for part of the rise in new home prices, NAHB chairman Kevin Kelly said the recent study "highlights the real effects that building regulations have on housing affordability." e association estimates every $833 in- crease in construction fees adds an additional $1,000 to a new home's final price. While "price-out" numbers were high at the national level, NAHB noted the number of households affected varied from area to area, depending largely on population, income distribution, and local new home prices. Among the states, the number of prospec- tive buyers who would no longer be able to qualify for a conventional mortgage based on each $1,000 gain ranges from a low of 313 in Wyoming to a high of 18,250 in Texas. "Local, state, and federal government offi- cials need to know that higher regulatory costs have real consequences for working Ameri- can families," Kelly said. "Oftentimes, these government regulations end up pushing the price of housing beyond the means of many teachers, police officers, firefighters, and other middle-class workers."

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