By Brad Crandall
The industry news has been buzzing this summer about regulatory relief efforts from both Congress and regulators. I pulled together some pertinent regulatory reports and Congressional hearings where mortgage regulation relief was discussed. Below, I’ve also pulled out some of my mortgage takeaways.
Here are some of the things we’ve followed thus far this summer:
On June 12, the U.S. Treasury released a report titled “A Financial System That Creates Economic Opportunities-Banks and Credit Unions.” In it, Treasury makes numerous recommendations to create more effective and proportionate mortgage regulation.
On June 22, the Senate Committee on Banking, Housing, & Urban Affairs held “Fostering Economic Growth: Regulator Perspective”; the witnesses were leaders of the Federal Reserve, FDIC, NCUA, OCC, the Conference of State Bank Supervisors.
On July 12, the House Financial Services Committee conducted a hearing titled “Examining Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial Institutions.”
From a mortgage standpoint, my takeaways have been:
–In its June 12 report, Treasury acknowledges the housing market’s significant contribution – some 18 percent of U.S. GDP – to the country’s economic growth. Our secondary mortgage market is a “debt market second in size only to the U.S. Treasury market,” the U.S. Treasury said.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” said U.S. Treasury Secretary Steven T. Mnuchin. “We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.”
Treasury made various recommendations to change or remove mortgage regulations which “may be holding back the supply of mortgage credit.” Law firm Ballard Spahr has a great synopsis of Treasury’s mortgage proposals here.
–In his testimony before the House Financial Services Committee on July 12, Rick Nichols, President/CEO of River Region Credit Union, Jefferson City, Mo., correlated industry consolidation with a decline in mortgage lending.
Since the outset of the crisis, credit unions have been subject to more than 8,000 pages of new regulations. “This never-ending stream of new regulations,” Nichols said, “has caused credit unions…tough choices regarding limiting and eliminating certain products and services.”
More than four in 10 credit unions offered mortgages sometime during the past five years. Of those, some 33 percent have eliminated certain mortgage products or services. About 11 percent have stopped offering them. “Credit unions with assets of less than $100 million are the asset group most apt to have dropped their mortgage program altogether,” Nichols said, referring to a survey of credit union executives by the Credit Union National Association.
During the same time period, “regulatory burden has accelerated consolidation,” he said. “In fact, 2014 and 2015 [for example] were among the top five years in terms of attrition rates since 1970, at 4.2 percent and 4.1 percent, respectively. These higher attrition rates are a direct result of both the dramatically higher regulatory costs incurred by small credit unions and the increases in those costs since 2010.”
–Regulators commented in depth on regulatory reform on June 22. Generally speaking, they supported relief efforts.
“We must slow, if not stop, the machine that grinds out a relentless flow of new regulatory burdens,” said Mark McWatters, Acting Chairman of the National Credit Union Administration. “Absent safety and soundness concerns, the NCUA must not stand in the way of credit unions’ efforts to develop and execute their business plans, meet the expectations of their members, and build a robust and dynamic credit union community for the future.”
Some witnesses specifically addressed mortgage relief for community financial institutions. One of the opportunities for regulatory relief is to grant “relief from QM mortgage rules and HMDA reporting requirements,” said Charles Cooper, Commissioner of the Texas Department of Banking, who spoke on behalf of the Conference of State Bank Supervisors.
Cooper also recommended Congress pull back on: Capital rules for mortgage servicing assets, HMDA reporting requirements, and on examiner scrutiny.
Recent efforts by Congress to pass health care reform don’t make me optimistic that we will see mortgage regulatory relief this year. While it’s good that Congress is talking about relief, it creates uncertainty, which create more challenges for community financial institutions as they make decisions. If you and your board are weighing your future when it comes to offering mortgages, bring us in on the discussion. We have the flexible options that can keep you in the mortgage business, even in the midst of uncertainty.