Sunday, April 20, 2014
Maine financial institutions have so far avoided the problems that have plunged a major California-based bank into receivership and the country's largest mortgage lenders into turmoil, according to industry observers and the state's top bank regulator.
Even so, the national financial-industry crisis that dominated attention in Washington this week has shown the need for additional regulation, according to members of Maine's congressional delegation.
On Thursday, there was a proposal being developed in Congress that would make executives' pay at struggling Fannie Mae and Freddie Mac -- giant corporations that buy mortgages and use them as investments or resell them to investors -- subject to government approval.
Fannie Mae CEO Daniel Mudd, 49, was paid $11.6 million in salary, stock awards and other compensation last year, according to Bloomberg News. Freddie Mac Chief Richard Syron, 64, received $18.3 million, although the value of both executives' stock awards has declined in the past year.
The idea to regulate executive pay is part of a federal plan to rescue these government-backed corporations that own or guarantee about half of the $12 trillion in outstanding mortgage debt in the country.
The Bush administration has suggested allowing the government to extend unlimited lines of credit to the companies and buy their stock. The plan has met with criticism from lawmakers, who consider it the equivalent of a blank check.
The developments in Washington came on the heels of last week's seizure by federal regulators of IndyMac Bank in Pasadena, Calif., the second-largest failure of a financial institution in U.S. history.
Banks and credit unions chartered in Maine have avoided problems seen elsewhere in the country, in part because they have not engaged in the kind of lending practices that put borrowers at undue risk, said Lloyd LaFountain III, superintendent of the Maine Bureau of Financial Institutions.
''I think our banks have done a really good job in not getting themselves in predatory lending,'' he said. ''They're not experiencing the foreclosure rates that other parts of the country are experiencing.''
For instance, one in every 501 U.S. households received a foreclosure-related notice in June, according to Realty Trac Inc. In Maine, that number was one in every 2,504 households.
Maine banks also are benefitting from the fact that the state has not gone through significant declines in real estate values, said Richard Lucas, president of Key Bank of Maine and a board member of the Maine Bankers Association.
''Maine doesn't tend to rise too high or fall too low with the economic times. We're more steady,'' Lucas said.
Banks in the state tend to be conservative in their practices, said Chris Pinkham, president of the Maine Association of Community Banks. Locally chartered banks wouldn't, for example, get involved in subprime mortgages for condominiums in far-off places such as Florida, he said.
Pinkham also said that despite grim news about the banking industry, the vast majority of banks in the country are well-capitalized.
''There is, nationally, probably no industry that is as tightly regulated as banking,'' he said.
Republican U.S. Sens. Olympia Snowe and Susan Collins, as well as U.S. Rep. Tom Allen, D-1st District, all believe greater oversight of the mortgage industry is needed. However, each also said more time is needed to evaluate the Bush administration's plan.
Collins said that although she is not enthusiastic about having to help Freddie Mac and Fannie Mae, it is necessary. ''We need to make sure -- although assistance may be warranted -- that there are protections for taxpayers and that taxpayers are not asked to bail out private stockholders,'' she said.
Allen, who is challenging Collins for her Senate seat this year, said Congress must make sure it addresses the problems of the middle classes, not just Wall Street. He said the current ''mess'' will require a long time to remedy.
''Fannie Mae and Freddie Mac are so essential to the housing market in this country that they have to be stabilized,'' he said. ''We have to do that, otherwise the economic consequences on ordinary Americans will be too severe. How we do that is still open to debate.''
Snowe favors increased regulation, but has not yet decided whether the Federal Reserve should have the oversight as proposed in the administration's plan, said John Getzel, a spokesman.
The three lawmakers all see energy issues as a key to dealing with the economic downturn. All favor tax credits to help people improve the energy efficiency of their homes, and heating assistance for low-income people.
Allen believes the problems in the economy warrant a second economic-stimulus package. He wants lawmakers to consider tax rebates for the middle class, increased food stamp benefits and infrastructure funding as possible elements of a package.
Spokesman Kurt Bardella said it's too soon for Snowe to decide which elements she would like to see in an economic-stimulus package. But she supports measures to help the econoomy now, such as addressing speculation in energy markets, Bardella said.
Collins believes that energy tax credits and infrastructure investments would be more effective tools than another round of rebate checks.
The Associated Press contributed to this report.
Staff Writer Ann S. Kim can be contacted at 791-6383 or at: