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Mortgage industry insider warns about a stifling regulatory cliff
Question of the Day
Major banks and lenders are exiting the mortgage business because of the high losses from defaults on loans made during the housing bubble and risks of further losses through regulation and litigation, Mr. Stevens said.
He pointed to Metropolitan Life’s recent decision to drop its mortgage-lending division and Wells Fargo’s decision to shut down its wholesale lending channel.
“People are running from the credit markets. It’s actually the greatest risk that we face,” he said.
Given the public furor against banks, mortgage lenders are resigned to more regulation, Mr. Stevens said, but would like the rules written with greater attention to the market’s needs and more coordination among the half-dozen federal agencies writing the rules as well as dozens of states that are taking action against banks.
“There’s a multitude of cases going on,” he said. “Consumers and lenders need to have clear rules of the road.”
Where lawsuits overlap, he said, the U.S. Department of Justice should coordinate and try to get a “common, mass settlement” so that banks no longer face an endless risk of litigation.
Despite the massive housing market collapse that sent the broader economy into a deep recession in 2008, Mr. Stevens said, political leaders seem to be reluctant to discuss or address the many remaining problems, including the continuing credit shortage and the need to revive the defunct private market for mortgage financing.
Since the crisis, more than 9 in 10 mortgages have been provided through federal guarantee programs sponsored by Fannie Mae, Freddie Mac and the Federal Housing Administration.
“There’s been really very little attention paid to the housing market” in the past couple of years, he said, despite its importance to the overall economy. “Chairman Bernanke is the only one focusing on it.”
The association estimates that housing drives about one-fifth of U.S. economic output, when taking into account not only homebuilding and sales, but also sales of furniture, utilities and many other businesses connected indirectly to housing.
Despite the Fed’s concern, the central bank could contribute to the mortgage market’s woes in the next year or two when it starts to sell off the trillions of dollars of mortgage bonds and Treasury securities it has accumulated since 2008 as it sought to drive interest rates lower through unconventional bond-purchase programs, he said.
The Mortgage Bankers Association expects the Fed’s exit from the market eventually to drive up mortgage interest rates by about one-half percentage point from today’s historic lows of less than 4 percent.
Although that doesn’t sound like much, Mr. Stevens said, it’s enough to snuff out the mortgage-refinancing boom and could stifle the tentative growth in mortgages for home purchases that has emerged.
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