Thanks for the info, sanfan. FREE on-line classes is a great resource. Good luck on getting your habitat certified! Rhoda

Hi Tricia, I don't really understand what this is all about with the NAMB? Anyone working at a bank or credit union already has to pass a background check. So, that part of the NAMB's position doesn't make sense. Sure it does... if they're complying with a national requirement THE SAME AS proposed for brokers, no problem. True, there is no licensing of employees but the components of licensing are already in place. It's the brokers that haven't had to submit to background checks or testing until very recently. MOST state broker licenses require significant regulatory education & testing (including annual,) and full background checks. Loan officers (same as 'bank employees') have been able to skate below the radar. The proposal is simply to regulate the ACTIVITY (i.e., if you originate, you comply exactly the same way, regardless of your firm.) Banks/credit unions cross-train employees on a rotating basis as part of succession planning management. Even the tellers are required to take that annual test. What a PITA it would be if at every cross-training rotation licenses must be obtained. Any why? Everybody's already submitted to a background check. A teller doesn't get to rotate into a fiduciary advisory position without significant education & licensing. The regulatory world wants mortgage origination to be treated as a fiduciary advisory industry, no longer a "pushing product" sales industry. Is it a PITA... sure, but why does that have any relevance as to why banks ought to put uncleared personnel into such fiduciary positions? I agree that mortgage brokers should have background checks, be trained & tested annually. That's pretty much been the case in most states already, and for many many years. The issue is to reign-in the street-level soldiers-for-hire (the front end originators, regardless of who they get their checks signed by.) There are rogue thieves that get street-soldier "finance sales" jobs WHEREVER they can... and the national registry will prevent these hucksters from being pilloried in one state, then moving to the next-door state and getting the same job with a differently regulated organization. Cheers, Dave Donhoff Leverage Planner

dave_donhoff: "You can't lay this at the feet of the financial industry... the industry doesn't have the power to corrupt the natural constraints, to eliminate levels of competition, or to subsidize/lubricate one area of operation or another. ONLY governments have that capability." I disagree. The industry IS the power. This country is ruled by money and the ability to make billions...those who control that ability, control us....AND the gov't. While Wall St. was indeed enabled and abetted by lack of gov't oversight, regs, etc....they continue to hold the nation hostage by manipulating the market to drop anytime anyone even breathes the word "regulation". Case in point..the Dow rallied on the news of a bailout; as soon as noise was made about building in restrictions, oversight, etc...the Dow dropped. Message? Bail us out, but don't even THINK about trying to prevent us from doing this again as soon as we mange to cook up our next ponzi scheme. The entire finance system has been purposely and systematically engineered to operate covertly and in such a convoluted and often incomprehensible manner, with Gov't enabling and abetting the system...that most of the dirty deeds that generate millions or billions never come to light...or if so, it's too late..such as now. The bottom line is that "Wall St." has lost its credibility as the "experts" who are those best suited to choose their own SOP's. While I am hardly a fan of government regulation...I can't really see any other way to at least try to prevent them from screwing with everyone again at some point in the not too distant future....and most important, to instill some basic level of confidence in the system. Gov't regulates just about EVERY other profession much more stringently than this one...the SEC is pretty much a jokeÂand look what has happened. In addition, in respect to finance, the whole system is currently set up to foster and HUGELY reward fraud, deception and abuse...allowing penalty free activity that if you or I did the same, we would be charged with a crime. Case in point...CEO OÂNeal, formerly of Merrill Lynch, who presided over the company while all of these shenanigans were going on. He is either a moron ÂÂor a thief. Either wayÂhe ran off with millionsÂ....so far scott free...leaving us ALL holding the bagÂ.and he was THE key player in the ultimate demise of Merrill. I don't profess to know how to do it...but the double standard MUST stop. People and entities who know that they have little or no accountability should hardly be trusted with the finances that are the keystone to a healthy economy. Either that...or just give everyone a free pass on fraud and call it a day. Here is an interesting Op/Ed piece that is IMO, entirely on point: ******************************************************* Commentary: Blame boards of directors for financial mess Story Highlights Nell Minow: Wall Street directors ultimately to blame for financial crisis Boards approved huge pay unrelated to long-term performance, she says Executives reaped enormous sums while shareholders suffered, Minow says Minow: Shareholders should be allowed to vote on pay packages By Nell Minow Special to CNN Editor's Note: Nell Minow is editor and chair of The Corporate Library, an independent research company specializing in corporate governance. Minow was named one of the 20 most influential people in corporate governance by Directorship magazine in 2007 and "the queen of good corporate governance" by BusinessWeek Online in 2003. She has written more than 200 articles and co-written three books. Since 1995, Minow has also written "Movie Mom," an online parents' guide to "media, culture and values." Nell Minow says it's great when executives make a lot of money but only if they really earn it. As big Wall Street firms topple like dominoes, there is plenty of blame to go around. Failure this broad and deep takes a village, and regulators, lawyers, compensation consultants, auditors, executives, shareholders, and the press all played a part. But the people who are most responsible for the massive meltdowns of these institutions are the boards of directors. Their sole responsibility is to act as fiduciaries for the shareholders in managing risk. They not only failed to perform this task but indeed, in their approval of outrageous pay plans with perverse incentives, they all but guaranteed the current disaster. I am a capitalist. I love it when executives earn boatloads of money. But it infuriates me when they get it without earning it. If the executives' compensation is tied to the volume of business rather than the quality of business, we should expect dealmakers to be more attentive to the number of transactions than the value they create. This is the basis for much of the sub-prime mess, whose collateral damage is taking down the biggest firms on Wall Street. At Merrill Lynch, former CEO Stanley O'Neal received total compensation of more than $91 million for 2006, according to The Corporate Library's calculations. He was given that package based on performance numbers that came out before nearly $23 billion in write-downs by the company. O'Neal received more than $160 million in stock and retirement benefits while shareholders lost more than 41 percent of their investment value over the year. Three executives brought in to Merrill less than a year ago will share a $200 million payment as they turn over the company to Bank of America in a last-minute deal to help it survive. American International Group (AIG) replaced CEO Martin Sullivan after the company posted losses for two consecutive quarters totaling $13 billion. Sullivan's contract entitled him to about $68 million. His replacement, a board member who served as CEO for three months before the company was taken over by the government, will get as much as $7 million. The boards of directors approved pay that was completely disconnected to performance. This, after all, is the world of the ultimate oxymoron: the "guaranteed bonus." So we should not be surprised that executives took the money and ran. Fewer than 13 percent of public companies have claw-back policies requiring executives to return bonuses based on inflated numbers. All of the incentives are for them to inflate the numbers, take the money, and run. And that is why companies whose names used to be synonymous with stability and trustworthiness will live on through history and business school case studies as discredited, greedy and corrupt. The people who insisted that government regulation interfered with the perfect efficiency of the markets are now getting bailed out by taxpayers with some walloping welfare checks. I just hope that this time the government does a better job of protecting itself than it did with its bail-out of Chrysler almost 30 years ago and this time insists on a piece of the upside rather than a fixed repayment. If the government is going to run a business, it has to act like a business and make sure its interests are aligned with the executives. Despite the post-Enron adoption of the most extensive protections since the New Deal, a survey released this week by Kroll and the Economist Intelligence Unit found that corporate fraud rose 22 percent since last year. The option back-dating and sub-prime messes show that even the post-Enron Sarbanes-Oxley reform law and expanded enforcement and oversight cannot eliminate the severest threats to our markets and our economy. This proves that there are limits to structural solutions. Ultimately, markets are smarter and more efficient than regulation. What the government needs to do now is insist on removing obstacles to the efficient operation of market oversight. Shareholders must be able to replace directors who make bad decisions and they should have a non-binding "say on pay" vote on executive compensation as they do in the UK and several other countries. Our current system of executive compensation does not tie pay to performance, it does not provide an effective incentive to create long-term shareholder value, and it does not meet any possible market test. Executive compensation must be looked at as any other asset allocation. The return on investment for the expenditures on CEO pay is by any measure inadequate. Some have argued that the amounts at issue are so small in proportion to the assets being managed that they do not have any material impact. On the contrary, the CEO compensation in America's public companies is a leading indicator of serious problems -- and one reason my firm has consistently given most financial services companies "high-risk" ratings. And it is more than a symptom of the pervasive problem that is toppling our most respected financial services companies. It is a perversion of the market that imposes enormous and growing costs on America's working families -- as shareholders, customers, employees, and members of the community. These outrageous pay packages juxtaposed with losses in share value and jobs diminishes our credibility and increases our cost of capital. In today's global economy this is an expense we clearly can no longer afford.

Martin Weiss called this years ago. Were any of our elected officials paying attention? NO. They ALLOWED this to happen. It looks like crime really does pay. My Chat With FDR by Martin D. Weiss, Ph.D. 09-24-04 During the Depression, Franklin Delano Roosevelt had a dream -- to create a government agency that would help buy homes for American families that could otherwise not afford one. And in 1938, the dream came true: Congress gave birth to the Federal National Home Mortgage Association, later nicknamed Fannie Mae. Still later, Congress transformed it into a stock company with special government privileges. Today, however, that dream is turning into a nightmare: -- The company has grown into a government-subsidized monster that so thoroughly dominates the mortgage market, its contraction or failure could cause a collapse of the entire housing industry ... -- Its executives have just been caught with their hands deep in the cookie jar -- an accounting scandal that's potentially so serious, it could make the Enron and WorldCom scandals look like a game of marbles ... -- Its shares have just taken a big beating, wiping out more than $11 billion of shareholder value last week alone, and ... -- Its balance sheet is so shaky, any change in the marketplace, or even any sudden legislative or regulatory moves to fix its problems, could precipitate serious financial difficulties. This is not new. I warned about it over thirty years ago when I published my first book, The Money Panic. I warned about it again in the 1980s and the 1990s in my Safe Money Report. And on September 18, 2000, I warned my readers still another time, when I wrote: "Fannie Mae is already drowning in a sea of debt. It has $34 of debt for every $1 of shareholder equity. That's big leverage and of the wrong kind. Plus, the company has only one one-hundredths of a penny in cash on hand for every $1 of current bills. "How could a company get so laden down with debt and operate with such scant cash reserves? Because of Fannie Mae's unusually close relationship with Uncle Sam ... "Think Fannie Mae can't go under? Think again. [Someday] Fannie Mae ... could lose one of its most important assets of all: The implicit backing by the U.S. government. "Indeed, Representative Richard Baker is leading the charge in Congress to repeal the line of credit from the Treasury Department that Fannie Mae receives. That means Fannie Mae's bonds would no longer have government funds to back them up. "Fed Chairman Alan Greenspan himself has raised a related issue. He's apparently unhappy that government-sponsored enterprises like Fannie Mae are being subsidized by the government, in the form reduced borrowing rates from the Fed." That warning was published exactly four years and nine days ago. But since that day, even while this situation has continued to deteriorate, there have been few voices of protest ... and even fewer concrete steps taken to avert the disaster we face today. Reason: Fannie Mae's executives, while allegedly enriching themselves at the expense of investors and taxpayers, mobilized one of the most powerful -- and most fearless -- lobbies on Capitol Hill. Congress, the SEC and the Justice Department were pushed back. Even Baker and Greenspan were repeatedly forced into reluctant retreat. And throughout it all, the company just kept growing in size and power, virtually nonstop, emerging as the greatest single monopoly on the face of the earth. So this morning, I wondered ... IF FDR WERE HERE TODAY, WHAT WOULD I TELL HIM AND WHAT WOULD HE SAY? I imagined how I'd present the facts to Franklin Delano Roosevelt, and what his response would be ... "Mr. President, I have some surprising news for you. A lot has changed since the 1930s. Now, the agency you originally created, Fannie Mae, plus and a smaller, younger cousin, Freddie Mac, control 90% of the home mortgage market in America." The former president is shocked. "What?! 90%?! Fannie Mae was supposed to be like a national savings and loan. It was supposed to supplement and support home mortgages -- not take them over. How in the hell did this happen?" "Initially, it worked according to your plan. Fannie Mae bought some mortgages from banks, bundled them up and sold them to a few investors. This way, they helped pump some extra pump money into the housing market. But no one else besides Fannie Mae could do this. So the government agency had a virtual monopoly on this business, and the business grew like wildfire. A whole new market was created in America -- the secondary market for mortgages." "Was that a problem?" asks FDR. "Not immediately. But it kept ballooning in size. Then, in 1968, the U.S. was in a war in Southeast Asia and ran into budgetary problems. So the president at the time, Lyndon Johnson, along with Congress, transformed Fannie Mae into a semi-private company and moved its finances off the books of the federal budget." "Why did they do that?" "Most people in government knew it was mostly a gimmick to make the federal deficit appear smaller. But they went ahead and did it anyhow." GSEs FDR is perplexed. "If Fannie Mae is no longer a government agency, what the heck is it then?" "They have a new name for it. They call it a 'government sponsored enterprise' or a 'GSE.' It's essentially a private company with special subsidies and privileges." "What subsidies and privileges?" "They have a line of credit to the Treasury. They're exempt from some SEC insider trading rules. They're exempt from local taxes. They don't have to meet the same disclosure requirements as ordinary private companies." "How much are these subsidies worth?" "According to the Federal Reserve, somewhere between $119 and $164 billion." FDR seems surprised. "That's a lot of money. How much of that money are the shareholders and executives getting?" "About $50 billion to $97 billion, according to the Fed. So a big chunk of the taxpayer subsidy underwrites executive salaries and stockholder profits and is NOT passed on to borrowers in form of lower mortgage costs." FDR shakes his head in disapproval. "In other words, instead of pursuing the original mission we established in 1938 -- to help homeowners -- they're mostly helping themselves?" "Probably some combination of both." "DIDN'T ANYONE DO ANYTHING TO STOP THIS MADNESS?" The former president shakes his head again. "So what we did was to take a giant, formerly government- controlled monopoly ... let it fall into private hands under private-sector management ... and then let them play it up to the hilt without proper checks and balances? That's crazy. Didn't anyone in Congress or the administration do anything to stop this madness?" "Not right away. But some people in Congress eventually got around to saying: 'Hey! It's far too dangerous to have so much economic power in the hands of just one company. It's way too risky for the entire mortgage market -- and for millions of homeowners.' " "So what did they do?" "In 1970, they created another entity just like Fannie Mae, with essentially the same mission and a similar business model -- Freddie Mac. So now they had two of these semi-private mortgage giants instead of one." "Did that break up the monopoly?" "Of course not. We have over 10,000 commercial and savings banks in this country ... more than 7,000 life/health and property/casualty insurance companies ... and over a thousand security brokerage firms. That's free market competition." "Yes, it is. But what about the GSEs?" "We still have only TWO companies dominating virtually the entire market for secondary mortgages! That's anything BUT free market competition. Besides, Freddie Mac, although a giant compared to most companies, is still a midget in comparison to Fannie Mae. Bottom line: Fannie Mae is still a monopoly, the largest monopoly in the world." INCEST FDR smirks, but then asks: "Can you give me a better idea of the full dimensions of this monopoly?" "Sure. But take a deep breath. The facts are so shocking they could knock the wind out of almost anyone." The former president sits silently while I rattle off the facts one by one ... "Fact number one. As I said earlier, Fannie Mae and Freddie Mac control 90% of the secondary market for home mortgages. "Fact number two. Their combined debt is almost half as large as the current national debt of the entire U.S. government. "Fact number three. Among all private financial sectors of the U.S. economy, they have emerged as the single biggest borrowers of credit in the financial markets. They owe over two and a half times more credit market debt than all the commercial banks, bank holding companies and savings institutions put together. They owe nearly 44 times more credit market debt than all the nation's brokerage firms and THREE HUNDRED times more than all the insurance companies." "That's quite unbelievable," says FDR after a few moments of deep thought. "Even in the pre-Depression era, we had nothing even remotely similar to the situation you describe. Are you sure about your numbers?" "Absolutely. The proof is in the Federal Reserve's Flow of Funds for the second quarter of 2004, in the section covering the LEVELS of debt, under their table L.3, 'Credit Market Debt Owed by Financial Sectors.' And it's available in an easily accessible public forum known as the 'Internet.' Almost anyone can view this data instantly ... http://www.federalreserve.gov/releases/Z1/current/Z1r-4.pdf "Fact number four. These government-sponsored enterprises themselves actually hold more of their own securities than any other sector in the world." "What do you mean?" To clarify, I give FDR the following stats: -- All banks, including thousands of commercial banks, bank holding companies and foreign banks are currently holding $1.1 trillion in agency - and GSE-backed securities; -- Thousands of insurance companies are holding $733 billion of those securities; and meanwhile -- Just these two GSEs -- Fannie Mae and Freddie Mac -- hold over $2.6 trillion! That's two and a half times more than amount held by all banks and over three and half times the amount held by all insurers. (The source of this data is also the Fed's Flow of Funds, table L.210, 'Agency- and GSE-backed Securities.' ") Take a look ... http://www.federalreserve.gov/releases/Z1/current/Z1r-4.pdf A MEAN VICIOUS CYCLE Roosevelt is shocked. "Just TWO companies holding more of their own stuff than thousands of banks and insurance companies put together? What happens if these two companies fall on hard times?" "It could create a mean vicious cycle. The more their balance sheets deteriorate, the less the $2.6 trillion they hold in their own securities will be worth; and the less those securities are worth, the more their balance sheets will deteriorate. They have a name for this in the financial world." "What's that?" "Incest. It's supposed to be taboo. But it isn't." DERIVATIVES FDR's next question is right on point: "From what you're saying, it sounds like they're exposed to huge risks for themselves, for investors, for taxpayers, for homeowners, for everyone. My question to you is: Don't they know this? Aren't they aware?" "To some degree, yes, they are. That's why they engage in huge special transactions in instruments called 'derivatives.' That's their attempt to somehow offset some of the risk. But these instruments are very complex and potentially risky themselves. Just last year, Freddie Mac booked shocking losses in these derivates." "What does the current Federal Reserve Chairman have to say about this?" "His name is Alan Greenspan, and he recently opined on this very subject. He said 'the current system depends upon the risk managers at Fannie and Freddie do everything just right.' He says 'our financial system would be more robust if we relied on the market-based system that spreads risks, rather than the current system, which concentrates such risk with the GSEs.' " TOO BIG TO FAIL? OR TOO BIG TO SAVE? FDR raises his hand signaling he wants to interrupt. "Let me go back to what you said earlier. You said Fannie Mae and Freddie Mac own the biggest chunk of their own notes and bonds. That's the incest. But they can't be the only ones. Who else owns them?" "Banks. More than 3,000 banks have all their reserve capital requirements met by investing in these government-sponsored entities. Plus 74 central banks around the world invest in them. So as you can see, the Fannie Mae and Freddie Mac bonds are more common in financial institution portfolios than almost any other securities, perhaps even more than Treasury securities." "Banks?! Foreign central banks?! How in the heck did THEY wind up with so many Fannie Mae bonds?" "Remember: Fannie Mae bonds used to be like government securities. So nearly everyone in the market thinks they're still safe, that they still have the tacit backing of the U.S. government." "Do they really have that backing?" "Good question. Fannie Mae and Freddie Mac securities carry explicit disclaimers stating that they're NOT insured by the U.S. Treasury Department. And our current Treasury Secretary, John Snow, recently warned investors not to count on a federal bail-out. He said he doesn't believe in the 'too big to fail' doctrine. In other words, no matter how big they are, they can still go under." FDR nods and then asks: "So are investors getting the message?" "Stockholders? Yes, they're starting to get the message. That's one of the reasons they started dumping Fannie Mae shares last week. But bondholders like banks and insurers? No, not yet. They still don't get it. They still think the government and millions of American taxpayers will bail out Fannie Mae." "That's strange," says FDR with a smile. "From what I remember in the 1930s, bond investors were a pretty smart bunch. Why are they still believers in Fannie Mae?" THE ROLE OF RATING AGENCIES "The rating agencies share a large part of the blame," I respond. "They're rating Fannie Mae and Freddie Mac notes and bonds as if they still had some government guarantee. But that's going to change soon." "When?" "Don't know. But on Thursday of last week, Standard & Poor's said it may downgrade some of Fannie Mae's debt, noting that the company may be riskier than once thought. S&P said it may cut Fannie Mae's 'AA-minus' subordinated debt and 'risk-to-government' ratings. The latter represents Fannie Mae's credit quality exclusive of the implicit government support." "Then what?" "If the rating agencies are serious about the downgrades, they'll drop the ratings several notches further, one notch at a time. Then, Fannie Mae and Freddie Mac notes and bonds will get dumped in bigger and bigger amounts. Their prices will plunge, and you'll see gaping holes appearing in the portfolios of everyone who's loaded with these notes and bonds. That includes the banks, the central banks and, of course, Fannie Mae and Freddie Mac themselves." FDR is again pensive. "If I were still president," he says in a near whisper, "I wouldn't let them fail. But what about today's president?" "We don't even know who the president will be. But there's one thing we do know: The federal budget deficit is already huge. Some independent economists estimate that, unless Medicare, Medicaid and Social Security are cut, we could have a total, accumulated deficit of up to $9 trillion over the next few years. So, sure, there may be some GSE bail-outs by the government. But it's going to be partial, not total. It's going to be messy and complicated -- not a clean take-over." BAD BEHAVIOR "What about right now?" "Right now, no lobbyist in the world is going to be able to restore Fannie Mae's credibility to its former level. Fannie Mae is going to get smacked so hard for their bad behavior that their business will never be the same again." "What exactly are these people at Fannie Mae accused of doing?" "The authorities have been investigating them for eight months and just issued their report last week. They say that Fannie Mae's management deliberately developed and adopted inappropriate accounting policies. They say that management supported widespread violations of generally accepted accounting principles. They say management tolerated lax internal controls. And they accuse management of postponing $200 million in expenses so executives could get bigger bonuses. This looks like it's far worse than a similar accounting scam that came out in June of last year at Fannie Mae's smaller competitor, Freddie Mac. Freddie Mac manipulated profits to the tune of about $4.5 or $5 billion. But the Fannie Mae scandal may be both bigger and more egregious." "So what's going to happen next?" "Now, suddenly, the regulators are plowing in. Fannie Mae is going to come under more intense scrutiny by Congress to take away its taxpayer subsidies ... by the Justice Department to take away its monopoly ... and by the Securities and Exchange Commission to take away its insider trading and privacy privileges." "When is this starting?" "Almost right away. U.S. Representative Richard Baker, the same one who's been leading the charge against the GSEs for many years, has called for an October 6 hearing to unearth the extent to which Fannie Mae manipulated its financial statements." "Can he really have an impact? "Yes. Baker is pretty powerful now. He's chairman of the Capital Markets Subcommittee under the House Committee on Banking. In Fannie Mae's case, Baker says executives apparently manipulated the numbers not only to smooth earnings but to enrich themselves -- which, if proven, is criminal." "What's your point?" "My point is that, after this damning report that just came out, Baker may finally get enough political support to prevail and pass a law that could kill the golden goose of the GSEs. Fannie Mae is going to get dragged through the mud -- in Congress and in the press. And worst of all, its stocks and bonds are going to get punished by investors. Sure, their lobbyists will fight back. But this time, I think the GSEs will lose the political battle." THE VICTIMS Hurricane Jeanne is gone, and windless sunshine is flowing onto my laptop screen. I'm at my sister-in- law's condo in Tamarac, Florida, which, fortunately, was just beyond the storm's outer reach. As with Francis, everyone here is safe, and at the office, all our back-up systems are working -- so I can get this issue of "Martin on Monday" to you on schedule. Unfortunately, however, the storm coming in the mortgage market in America will not be over so quickly. The first victims will be stock investors. You saw that start already last week. The next victims will be bond investors, especially when the next rating downgrades are announced. Even before Congress passes tougher legislation, less money will be flowing into Fannie Mae and Freddie Mac. And these two companies, in turn, will have less money to pump into the home mortgage market. The housing industry, already a house of cards, could suffer a serious blow. Mortgages will be scarcer -- and more expensive. Result: Homeowners, especially those with adjustable- rate mortgages (ARMs), will be victims as well. My advice: If you own Fannie Mae or Freddie Max stocks or bonds, get out now. If you have an ARM, convert to a fixed-rate mortgage ASAP. Or better yet, if you have the cash flow, pay down your mortgage more quickly than scheduled. Good luck and God bless! Martin Martin D. Weiss, Ph.D. Editor, Safe Money Report Chairman, Weiss Ratings, Inc. *disclaimer-www.martinweiss.com/about/terms_of_use.asp A link that might be useful: www.moneyandmarkets.com/issues.aspx?My-Chat-With-FDR-564