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Will They Get It Right This Time?

By: Bill Poquette

As is typical, June was declared National Home Ownership Month, and it turned out to be, if unintentionally, an appropriate and timely celebration of a sector of the economy showing tangible signs of improving health. S&P Case-Shiller reported record monthly growth and the fastest year-over-year growth since 2006 in April. And according to the National Association of Realtors, existing home sales improved in May and remained solidly above a year ago.

There is a dichotomy here. The Consumer Financial Protection Bureau has proposed rules that are already inhibiting mortgage lending by community banks and threaten to force them out of the business. And the fate of the primary secondary market in Fannie Mae and Freddie Mac is uncertain following their government bailout.

So why is the housing market showing renewed vigor? Of course, the overall economy is improving, releasing pent-up demand. But there may also be an element of hope that the regulators and Congress will do the right things, for a change, about the CFPB’s potentially crippling rules and rescuing the GSEs.

The CFPB is taking a lot of heat from bankers, their trade associations and Congress about its proposed ability-to-repay and qualified-mortgage rule — so much, in fact, that it has recently been issuing almost weekly revisions.

As recently as June 18, the American Bankers Association testified before the House Financial Institutions Subcommittee that the rule should be revised to avoid harming credit-worthy borrowers that want to own homes and undermining the housing recovery. On the same day, the chairman of the Conference of State Bank Supervisors, Charles A. Vice, told the subcommittee, “Lenders that retain the full risk of a borrower’s default — like community banks that retain mortgages in their portfolios — should be presumed to have determined a borrower’s ability to repay.” Vice is the state banking commissioner for Kentucky.

On June 25, a bipartisan group of senators introduced a bill to reform the secondary mortgage market. The legislation would replace Fannie and Freddie and the Federal Housing and Finance Agency with a new Federal Mortgage Insurance Corp. to regulate the secondary market and Federal Home Loan Banks.
The ABA and the Independent Community Bankers of America were pleased with this development, both issuing statements commending the senators.

ABA President and CEO Frank Keating said, “The mortgage market is a complex and intricate part of our nation’s economy, and addressing the many concerns and interests of a wide range of participants will require much negotiation, compromise and cooperation. There is much work yet to be done, but this bill is a strong foundation on which to begin the process.”

The ICBA said it “appreciates and is encouraged by the inclusion of certain provisions in the bill that would help provide access for community banks to the secondary market without requiring them to take on the additional risk and cost of securitizing loans. To maintain community bank access and participation in the secondary market, community banks must be able to sell individual loans for cash and have the option to retain the servicing on those loans.”

If community bankers can keep pressure on the CFPB for a workable rule and on Congress for a stable secondary market, maybe they will then be able to go about their business of helping their communities, customers and the economy with housing loans, unimpeded by onerous and unnecessary regulations. And after achieving this, they could use some benign neglect from their regulators, representatives and senators.

Bill Poquette is Editor-in-Chief of BankNews.

Copyright (c) July 2013 by BankNews Media