Academic journal article ABA Banking Journal

Home Lending Changes: More Than Just a Hassle

Academic journal article ABA Banking Journal

Home Lending Changes: More Than Just a Hassle

Article excerpt

Homeownership has always been a big part of the American dream. But for banks, the Dodd-Frank Act and new rules to implement it have made the home-loan business significantly more complicated for banks and our customers. Many banks feel compelled to limit the kinds of mortgage loans they offer to protect themselves from legal liability. Others are getting out of the mortgage servicing business because Basel III requirements have made it so expensive.

This is a problem. And you may have heard me say that we bankers cannot make our problems our customers' problems. If regulators tell us we need to jump through five hoops before we can close on a loan, we'll do our best to keep that from inconveniencing our borrowers.

But sometimes we cannot shield our customers and communities from the effects of new policy. Sometimes the unintended consequences are not just a hassle for banks, they are potentially harmful to the economy.

A recent report from the Financial Stability Oversight Council helps validate this. It flagged the alarming growth of nonbank mortgage servicers as a potential threat. That growth--fueled in part by the outflow of mortgage servicing rights (MSRs) from banks to less regulated nonbanks--is no coincidence. It is a direct result of Basel Ill's punitive treatment of mortgage servicing assets on bank books.

I took the opportunity of the FSOC report to write to Treasury Secretary Jack Lew, and suggest a regulatory solution that ABA had formulated to stem the outflow of MSRs from banks. We need more focus on the cause of the MSR outflow, and we must find a fix that allows banks to continue to service our customers' mortgages. …

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