IN LATE OCTOBER, RMA's Regulatory Relations Council met with the bank regulatory agencies in Washington, D.C. to discuss market conditions. The meeting followed RMA's Annual Risk Management Conference in New Orleans, where participants voiced concern that policy makers may overreact to the current environment and cause a further restriction of credit. Highlights of the council's discussions are as follows.
The industry has clearly entered a more challenging period, and it will be important for all interested parties to maintain a balanced approach going forward. Bankers discussed the last serious credit events of the late 1980s and early 1990s and advised that examiners should be careful not to overreact. It was within this context that the council sought to communicate a message of "do no harm" to policy makers. Council members advised regulators, legislators, and accountants to consider carefully the consequences of any precipitous actions in light of the market's fragility.
There can be no question that markets are very uneasy, fueled by an environment of uncertainty. While it appears that the leveraged loan market may soon normalize, the housing market will likely require a protracted workout. Further housing depreciation is forthcoming, and it remains uncertain when conditions will stabilize. Continued housing depreciation is also producing downstream impacts for other products and customers. It remains unclear just how challenging the mortgage resets will ultimately become as many have yet to occur.
Housing Depreciation Spillover to the Broader Economy
Other non-mortgage consumer-related products such as credit cards and auto loans have experienced a slight up-tick in non-performing status, although it is too early to tell if the change will prove meaningful. Consumer payment patterns have changed recently, as homeowners are defaulting on their mortgage-related loans before other products. …