On May 19th, Acting Comptroller of the Currency John Walsh spoke before the Housing Policy Council of the Financial Services Roundtable. His remarks centered on challenges that continue to persist in the housing market, and the onslaught of new laws that may have the unintended consequence of delaying a full recovery further.
During Mr. Walsh’s remarks, he made the following comment: “Another factor that may be restraining activity in housing markets is the generally tighter outlook for residential mortgage credit. No one would want a return to the excesses that we saw prior to the financial crisis, but mortgage underwriting is tight right now, in part because of the huge degree of uncertainty around the direction of housing markets, the path of foreclosures, and the future of securitization, among other things."
Concerning recent regulatory proposals designed to curtail past abusive practices, he went on to say: “There are 15 to 20 new mortgage lending requirements in the regulatory pipeline, and their impact on the mortgage and servicing businesses will be more tsunami than simple wave…”.
No one argues against stopping the abusive mortgage practices of the past. In fact, all respectable bankers insist upon it. However, both legislators and policymakers need to exercise caution, so that the solution to these problems does not result in unintended consequences that negatively affect consumers.
Mr. Walsh commented further: “The real concern is the housing market and the millions of American homeowners who rely on it to acquire and trade their single biggest asset, their home; the millions more who aspire to home ownership; and the nation’s economic health, which is so dependent upon the strength of the housing industry... “.
And more: “Every law and every regulation, no matter how well defined, carries the potential for unintended consequences. How can we evaluate each rule, see how it works, and decide if adjustments are needed? How can we judge the individual, cumulative, and interactive impact of so many major new requirements affecting every aspect of the business?”.
Mr. Walsh sums up his remarks with the following: “Corporate America can’t grow and develop and compete with the rest of the world without a financial system that allows lenders to take on reasonable and manageable risks. Local communities won’t thrive without local banks that are willing to take some reasonable risk in the extension of credit and have the wherewithal to manage that risk. Families cannot buy homes and build wealth to improve their lives without lenders willing to take a chance on them. We need to make sure the pendulum doesn’t swing so far that in the process of reducing risk, we extinguish the impulse to take appropriate risks, stifle the economy, and hurt ordinary people. We need to find a middle ground that manages risk in the system without sacrificing the energy and vitality that has brought so much prosperity to so many...”.
As I’ve said in past comments, the primary source of revenues for the vast majority of traditional banks is the interest earned from loans we make to our local customers. We have money to lend, and at Monroe Bank & Trust, we actively seek customers and potential borrowers who demonstrate the ability to repay the loans they seek to expand their business, purchase a new car, or buy a home.
Congress and the regulators who enforce the laws that Congress makes need to insure that banks continue to have the ability to serve our customers, and that the new rules as explained by Comptroller of the Currency Walsh does not “restrain activity in the housing markets”, or inhibit lending in general.
In Class Week of April 14, 2014
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