Saudi Mortgages, Libor Panel, BlackRock, ITT: Compliance

Saudi Arabia issued final regulations on real estate financing, leasing and the supervision of financial companies as the kingdom tries to ease a housing shortage by opening up its mortgage market and enacting the first home-loans law.

The regulations outlining three of the five laws that make up the package of changes were posted Feb. 24 on the website of the Saudi Arabian Monetary Agency. Rules on the enforcement of foreclosures and mortgage registrations have yet to be completed.

The package goes into effect when regulations for the two remaining laws are finished and the final version of the legislation are publicized in the official newspaper, which should be in the next few weeks, said Abdulaziz AlGasim, the managing partner at Abdulaziz AlGasim Law Firm who helped draft the mortgage measure.

The mortgage law, which has been debated for more than a decade, will overhaul the kingdom’s home-finance market, from registering mortgages to allowing judges to prosecute police officers who fail to carry out eviction orders. The changes could increase residential lending to about $32 billion annually, according to estimates by Capitas Group International Ltd., a Saudi company focused on Islamic finance.

The law “will transform home financing in Saudi Arabia to property-secured lending from the current practice of extending loans based on salary assignment, or banks’ automatic deductions from borrowers’ salaries to repay home loans,” according to a Standard & Poor’s Ratings Services report on Feb. 18.

Most buyers rely on savings or help from family to buy homes in the kingdom. The government’s Real Estate Development Fund provides low-income buyers with interest-free loans.

The rules will lead to the creation of licensed private mortgage providers as well as a state-run company for refinancing resembling Fannie Mae and Freddie Mac in the U.S. Mortgage lenders in Saudi Arabia will be given two years to comply with all new requirements set for mortgage providers. They also must inform Saudi Arabia’s central bank, which will regulate them, of their plans to conform to the regulations within nine months of their enactment, the Saudi Press Agency said yesterday.

Compliance Policy

Capping Top Earners’ 401(k) Benefit Seen as Tax Cost Cut

Pressure is growing to change incentives for retirement savings as U.S. lawmakers look for revenue, and top earners may pay the price.

The budget challenges confronting the federal government are leading to scrutiny of tax-advantaged savings accounts such as 401(k)s because they’re among the costliest tax breaks. A Brookings Institution report scheduled for release today will add to research that recommends curtailing the benefits for top earners to boost U.S. coffers.

The shift from pension plans, which typically guarantee income for life, to tax-deferred 401(k)s has put more responsibility on savers to ensure they don’t run out of money in retirement. As the accounts have grown -- Americans held $3.5 trillion in 401(k)s as of September -- they’ve become a target in deficit-reduction talks because contributions usually are invested and compound on a pretax basis.

The benefits reward higher earners who would save anyway while not providing enough incentive for low and middle-income earners, according to Karen Dynan, co-director of the economic studies program at Washington-based Brookings and author of the report.

Individual retirement accounts, which many workers roll their 401(k) savings into when changing jobs or retiring, also benefit from tax deferral. The benefit for 401(k)-type plans is the U.S. government’s third-largest tax expenditure, behind only the mortgage interest deduction and exclusion of employer contributions for medical insurance. It is estimated to cost about $429 billion in forgone revenue from 2013 through 2017, according to the administration’s latest budget proposal. IRAs will cost about $100 billion over the five-year period.

The latest ranking is scheduled to be released as early as next month and will reflect changes in tax law as of Jan. 1.

Congress faces a series of fiscal deadlines this year, the first on March 1 when automatic federal budget cuts are set to begin. Democrats and President Barack Obama have said they want to increase revenue by curtailing tax breaks. While Republicans have said they won’t accept more tax increases, both political parties have called for simplifying the deductions, credits and benefits in the U.S. tax code.

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Bipartisan Panel Calls for Limited U.S. Role in Housing Finance

Fannie Mae and Freddie Mac should be replaced with a government corporation that would assume losses in catastrophic circumstances, a bipartisan panel of retired U.S. lawmakers and former officials said in a report yesterday.

The new entity proposed by the Washington-based Bipartisan Policy Center would guarantee principal and interest payments on mortgage-backed securities issued by private lenders, taking a fourth loss position behind borrowers, banks and insurers.

The blueprint is similar to those put forward by the National Association of Realtors, the Mortgage Bankers Association and other groups in that it envisions a continued government role as a backstop for the mortgage market.

Fannie Mae and Freddie Mac had no explicit government backing before they were seized in 2008 after investments in risky loans pushed them to the brink of insolvency. The two companies have since drawn about $190 billion in taxpayer aid and paid Treasury $50 billion in dividends.

Housing-finance reform has failed to gain traction in Washington, in part because Democrats and Republicans are divided over alternatives. Fannie Mae and Freddie Mac have returned to profitability, further sapping momentum for change.

FDIC, European Commission Meet on Resolution Initiatives

The U.S. Federal Deposit Insurance Corporation and the European Commission met Feb. 20 to discuss issues related to resolution of banks, systemically important financial institutions and deposit insurance regimes, the FDIC said in a statement.

Several working group sessions are scheduled for 2013.

Compliance Action

Bank Rossii, Moscow Exchange Discuss Currency Swap Auctions

Bank Rossii asked the Moscow Exchange to prepare necessary infrastructure for holding exchange-based currency swap auctions, Sergey Shvetsov, deputy central bank chairman, told reporters in Moscow today.

“If we feel it’s needed, we’ll attach them to repo” auctions, Shvetsov said.

The swap rate will be the same as the repo rate, Shvetsov added. The final timing depends on the Moscow Exchange. The start is planned for this year, according to Shvetsov.

Peabody Energy Gets Subpoena From SEC Relating to Prairie State

Peabody Energy Corp., the largest U.S. coal producer, said the Securities and Exchange Commission served it with a subpoena seeking information and documents relating to the development of the Prairie State power station.

Peabody is cooperating with the investigation and believes “pending or threatened proceedings” will be resolved without material impact on the company’s financial condition, it said in its annual report filed with the SEC yesterday.

The Prairie State Energy Campus became operational last year. Peabody, based in St. Louis, owns 5.06 percent of the 1,600-megawatt, coal-fueled power plant in southern Illinois. The balance is owned by public power agencies.

Vic Svec, a spokesman for Peabody, said in an e-mail the company looks forward “to sharing information on what is a highly successful project.”

BlackRock Gains U.S. SEC Approval for Fund Backed by Copper

BlackRock Inc. won U.S. regulatory approval for an exchange-traded fund backed by physical copper, which some industrial users said may disrupt the market for the metal.

The Securities and Exchange Commission approved the proposed rule change by NYSE Arca Inc. to list BlackRock’s iShares Copper Trust, the regulator said on its website in a notice dated Feb. 22. JPMorgan Chase & Co. won regulatory approval in December for its planned ETF, which would be the first U.S. exchange-traded fund backed linked to copper.

A group of industrial copper consumers including AmRod Corp., Southwire Co. and Encore Wire Corp. have opposed plans for copper ETFs, saying funds backed by copper would leave less of the metal available for manufacturers, creating shortages and driving up prices.

ETF Securities Ltd. also has said its plans to start physically backed ETFs for industrial metals in the U.S.

U.K. Starts Process to Replace Libor Operator After Scandal

The U.K. government formally started the search for a replacement body to oversee the London interbank offered rate as it tries to restore credibility to a benchmark tainted by scandal.

A seven-member panel including Sarah Hogg, chairman of the Financial Reporting Council, the Financial Services Authority’s Martin Wheatley, and the Bank of England’s Paul Fisher will recommend a new administrator this year, the Treasury said in a statement on its website yesterday. Members of the British Bankers’ Association, the lobby group that created the benchmark in 1986, voted earlier in the day yesterday to relinquish oversight of Libor.

Wheatley recommended in September the BBA should be stripped of responsibility for the benchmark rate for more than $300 trillion of securities after regulators found firms had tried to manipulate the gauge. Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc have been fined more than $2.5 billion by U.S. and U.K. regulators for rate-rigging, and more than a dozen more firms are still being probed.

ITT Educational Drops After SEC Demands Loan Program Documents

ITT Educational Services Inc., a for-profit college that focuses on technology, tumbled as much as 14 percent after disclosing that U.S. regulators subpoenaed documents related to private loan programs for its students.

The Securities and Exchange Commission demanded documents relating to “actions and accounting” for the programs, which helped students pay for education costs that weren’t covered by state, federal and other funding sources, Carmel, Indiana-based ITT said Feb. 22 in a filing.

The stock had lost three-quarters of its value in the past year before yesterday.

Congress, along with state and federal investigators, has been probing for-profit colleges’ recruitment practices and students’ debt loads after leaving school. The SEC’s subpoena asked for documents related to agreements ITT made with outside entities to loan funds to students, according to the filing.

ITT Educational said in the filing that it’s cooperating with the SEC. Lauren Littlefield, a spokeswoman, didn’t immediately return a call seeking comment.

Hong Kong May Increase Insurance, Dark Pool Oversight, SCMP Says

Hong Kong’s Securities and Futures Commission may increase its oversight of equity or investment fund-linked insurance products and dark pools, South China Morning Post reported, citing Chairman Carlson Tong.

The commission and the new Insurance Authority, to be set up in 2015, will review insurance offerings, Tong said.

Hong Kong’s 14 dark-pool operators make up three percent of total market turnover, according to the report.


Osborne Testifies Before Parliament on Banking Standards

Chancellor of the Exchequer George Osborne testified before the Parliamentary Commission on Banking Standards in London yesterday.

An advantage of what we are doing in the U.K. “is that we are moving by largely by consensus” on a bipartisan basis toward reform, Osborne said. While he acknowledged there are exceptions, he said the overall movement is on this basis.

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Comings and Goings

Senators Said to Plan Hearing on SEC Nominee White for Mid-March

The U.S. Senate Banking Committee is aiming to hold a hearing on the nomination of Mary Jo White to lead the Securities and Exchange Commission in mid-March.

The information came from a Senate aide who asked not to be identified because a final date has not been set.

Obama nominated White for SEC chairman on Jan. 24. She is a former U.S. prosecutor and retiring as a partner in the law firm of Debevoise & Plimpton LLP.