Mark-to-Market Issues Addressed at House Hearing
At a hearing last week on mark-to-market accounting issues by the Capital Markets Subcommittee of the House Financial Services Committee, Rep. Barney Frank (D-Mass.), chairman of the committee, and Rep. Paul Kanjorski (D-Pa.), chairman of the subcommittee, warned representatives of the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission that they must act quickly to revise the rule.
“If the regulators do not act now to improve the standards, then the Congress will have no other option than to act itself,” said Kanjorski.
Mark-to-market requires banks to value assets based on their current market price. It has been blamed by many in the financial and business community for exacerbating the current financial crisis by forcing lending institutions to write down the value of billions of dollars of their holdings — including illiquid mortgage securities — making it difficult for some of them to meet their regulatory capital requirements.
NAHB has joined a recently formed coalition that includes the Mortgage Bankers Association, Independent Community Bankers of America, U.S. Chamber of Commerce, Financial Services Roundtable, several of the Federal Home Loan Banks and others to seek solutions to the mark-to-market accounting problems that will allow for greater flexibility in applying the rules. These efforts are aimed at ending the unnecessary practice of writing down illiquid but economically viable securities, which would strengthen bank capital and provide a strong incentive to make credit more widely available.
The coalition has met with several members of Congress and submitted a letter to the Financial Crisis Advisory Group, which was established by the FASB and the International Accounting Standards Board. A letter has also been submitted to the Public Company Accounting Oversight Board, a corporation that oversees the auditors of public companies and is responsible for providing them with guidance on the application and use of mark-to-market rules.
The coalition’s efforts seem to be making significant headway. At the congressional hearing, FASB Chairman Robert Herz told lawmakers that his organization would expedite guidance on the application of mark-to-market rules within three weeks.
NAHB will continue to work with the coalition on the mark-to-market issue, but changes in this area will not directly address problems builders are experiencing with their acquisition, development and construction (AD&C) financing such as lenders requiring additional equity for outstanding credit and balking at loan extensions. These actions are largely due to the enforcement of bank regulatory real estate lending rules based on excessively low appraisals, which are applied independently of mark-to-market accounting rules.
Tackling the broader issue of AD&C lending head on, NAHB is urging regulators and lenders to give leeway to residential construction borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance on loans to give builders time to complete and sell their inventory.
The AD&C issue will be a major part of the upcoming Legislative Conference on March 24, where members of Congress will be asked to urge banking regulators to provide this flexibility. In addition, NAHB will seek an allocation from the financial “bailout” funds to allow banks to avoid excessive equity calls and other adverse actions on performing loans.
For more information on this issue, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144; or contact John Dimitri x8529.
Attend the Crucial 2009 NAHB Legislative Conference on March 24
Builders and housing industry professionals should attend the 2009 NAHB Legislative Conference on Tuesday, March 24 in Washington, D.C. to tell members of Congress that housing deserves 100% of their ongoing attention so housing can once again lead the nation out of this troubled economy.
With policymakers in Washington confronting the most difficult financial crisis since the 1930s, attending this year’s conference could be one of the most important decisions that builders make this year — especially considering the growing downward momentum in housing and the nation’s job market.
This year’s NAHB Legislative Conference on March 24 will take place earlier than the NAHB spring board of directors meeting because of the depth of the downturn and the need for a solution.
For more information and to register for the legislative conference, click here; or e-mail Molly Murray at NAHB or call her at 800-368-5242 x8282.