Are Regulations Hurting Mortgage Lending?

What impact has the Dodd Frank Mortgage servicing rules and pending risk based capital requirements had on credit unions and small banks? The question is an important one since many credit union advocates, including this blogger, have been predicting for years that Dodd Frank would result in larger banks becoming more, not less dominant,  in the housing industry.

For those of you who think that the impact of mortgage regulation on credit union lending has been exaggerated the GAO, in a report released yesterday  reported that  “credit unions are generally participating in residential mortgage lending at least as much as they have in the past. Throughout the period from the first quarter of 2002 through the third quarter of 2015, larger credit unions were more likely to have residential mortgages than smaller credit unions. However, for credit unions of all sizes, the percentage with residential mortgages increased.

For skeptics it reports that much of this growth has been driven by larger credit unions.  Smaller credit unions have seen mortgages as a percentage of their assets  decline  in recent months while larger ones have seen increases. Larger credit unions had between 24% and 45% of their assets in mortgage loans.

My take on these numbers is not that compliance costs haven’t impacted lending, they have; but with  yields are so low  any credit union able to do so is willing to absorb higher compliance costs in return for mortgage income. The smaller you are the more the compliance burden just isn’t worth it.

Fortunately the CFPB  prides itself on being a data driven organization. As we speak it must be analyzing the impact of one its most important initiatives on the housing market Right?  Not quite.  The most surprising take away from the report is that the CFPB is not prepared to adequately measure the impact of its servicing regulations on community banks and credit unions by its  mandated date of 2019 .

In relatively blunt language for the GAO-which makes CSpan look as fair and balanced as Roger Ailes conducting a sexual harassment investigation- the GAO warns that “CFPB officials said it was too soon to identify relevant data and that they wanted flexibility to design an effective methodology. However, without a completed plan, CFPB risks not having time to perform an effective review before January 2019—the date by which CFPB must publish a report of its assessment.”

I always get suspicious of agencies and organizations that proclaim  that their policy judgments are driven by data and not ideology.  Is it possible that the CFPB is concerned with what a comprehensive review of  its congressionally mandated regulations might reveal? It’s too soon to tell but this is a story that’s worth keeping an eye on.

July 26, 2016 at 8:48 am Leave a comment

For Dems, Postman Always Rings Twice

Democratic DonkeyLast week I highlighted financial issues in the Republican platform and with the Democrats set to kick off their reality TV show called the National Convention, today here are some of the intriguing tidbits in their platform.

If you just arrived from another planet, you would think that post offices, not credit unions or community banks, are the key counterweight to a banking industry run amok.  The financial service offerings of post offices were mentioned in two separate parts of the party’s platform.  In one section the Democrats want to help save the Post Office by, among other things, allowing them to offer basic financial services such as check cashing.

In another section dedicated to reigning in Wall Street and fixing our financial system, the platform explains that “Democrats believe that we need to give Americans affordable banking options, including by empowering the United States Postal Service to facilitate the delivery of basic banking services.”

Now, there are some who believe that expanding the authority of Post Offices is a win-win for the American taxpayer.  They argue that since all communities have a post office, by allowing the service to provide banking services, perhaps including small dollar alternatives to pay-day loans, all Americans would be assured access.  They also argue that the Postal Service has to be preserved even as it is made increasingly anachronistic by technology. Either way, it looks as if credit unions will be competing for political oxygen not only against banks, but the mailman.

Other highlights of the Democratic platform include:  calling for an updated version of Glass-Steagall and “breaking up” too big to fail financial institutions that pose a systemic risk to our economy.   Democrats implicitly called for the preservation of an active public role in housing.  For instance, they support preservation of the 30 year fixed mortgage, “modernizing credit scoring, expanding access to housing counseling, defending and strengthening the Fair Housing Act and ensuring that regulators have a clear direction” and authority to enforce rules effectively.

Finally, while Republicans support major reform of the CFPB, Democrats view defending its current structure as an important means of defending the housing rights of Americans in general and minority communities in particular.

High Priced Mortgage Loan Appraisal Exemption Clarified

Pursuant to the Dodd-Frank Act, special appraisal requirements are mandated for higher-priced mortgage loans.  Starting in January of 2014, the banking agencies, including the NCUA, exempted mortgage loans of $25,000 or less from these requirements.  Regulations have been introduced to clarify the method by which this threshold is adjusted for inflation.

July 25, 2016 at 8:46 am Leave a comment

FINCen Issues Q&A On Beneficial Owner Regulation

My time for posting a blog today is running a little short, courtesy of Albany’s woefully inconsistent  transportation system. For me,  Uber can’t come soon enough.  But I wanted to give you a heads-up on a Q&A guidance issued by FINCEN  yesterday  clarifying  the Customer Due Diligence requirements obligations of financial institutions that open accounts for entities such as corporations  and trusts  with beneficial owners. The rule has taken effect but you have until May 11 , 2018 to comply.

To demystify this regulation it’s important to put it in context. There have been a series of articles in the New York Times reporting on how corporations often act as fronts for shall we say, individuals with questionable backgrounds. Setting  up corporations to open up accounts where   ill-gotten gains can be stored and from which  a Manhattan  penthouse can be purchased is a classic form of money laundering.  After all, public  pensions  only go so far and  any prudent  dictator has to put aside funds for safe keeping in the event of an ill- timed coup. In addition, businesses  can be controlled by persons not  readily  identifiable.

It didn’t get all that much attention in the compliance world but in May FINCen finalized regulations requiring  credit unions and banks to extend account opening customer identification  due diligence procedures to the beneficial owners of legal entities.  The Q & A is intended to further clarify these obligations.

By the way, a beneficial owner is:

“each individual, if any, who, directly or indirectly, owns 25% or more of the equity interests of a legal entity customer (i.e., the ownership prong); and  a single individual with significant responsibility to control, manage, or direct a legal entity customer, including an executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or any other individual who regularly performs similar functions (i.e., the control prong). This list of positions is illustrative, not exclusive, as there is significant diversity in how legal entities are structured. ”

Hoping your journey to work was better than mine,  your faithful blogger wishes you all a good day.

July 21, 2016 at 8:51 am Leave a comment

Bad Moon Rising: The Big Guys Want Your Members

Credit unions have traditionally not had to pay much attention to the quarterly earning reports provided by the banking behemoths.  But the second quarter of 2016 may well mark a turning point. 

Both JP Morgan Chase and Goldman Sachs used the roll out of their second quarter results to underscore their intention to use technology to aggressively move into consumer banking.  They are taking aim at your members like never before.  At its conference call, JP Morgan Chase highlighted the fact that it recorded consumer deposit growth of 10% or $54 billion.

I just got done listening to Goldman Sachs CFO Harvey Schwartz recap his second quarter earnings.  What I found most intriguing was that at the end of his initial comment, he highlighted Goldman’s initiative to roll out an online consumer lending platform later in the Fall.  When one of the analyst asked him to flesh out the details, he noted that consumers want a simple, high quality user experience.  Goldman will be offering them an online platform to get unsecured consumer loans but he was unwilling to commit to further details such as the target consumer, the size of the loan, or the length of its terms.  Perhaps Goldman is waiting for the CFPB to finalize its payday lending rules. 

Goldman’s impending foray into online lending comes on top of its aggressive move into traditional consumer banking with the purchase of $15 billion in deposits as part of its acquisition of GE Capital’s online banking platform.  Goldman has offered attractive rate terms and it announced in yesterday’s conference call that since the acquisition, it had opened 20,000 new accounts.

The sudden embrace of consumer banking is remarkable.  As recently as 2012, banking executives were openly explaining that unless you had $100,000 to put into an account, you weren’t worth their time.  What has changed?  For one thing, the Dodd-Frank Act and BASEL III reforms both emphasized capital buffers, particularly for the most systemically important banks. Another change is technological.  Fintech is all the rage and none of these banks want to be left behind.

All this means, however, is that the biggest of the big are now competing directly for your members in a way not seen in at least a generation.  Not only that, but their deep pockets will allow them to bring the latest technology and most competitive rate to this competition. 


July 20, 2016 at 9:38 am Leave a comment

Republican Platform: Breakup The Big Banks

7TaKLqXTAParty platforms are little more than vehicles to pander to a party’s most ardent supporters and provide little guidance as to what a presidential  candidates would do if elected.  This is particularly true in a year in which the Republican party has been Trumped. Nevertheless,  they provide  good guideposts of  where our politics is headed.  Here is a look at the Republican’s 2016 platform.  I’ll do the same for the Democrats next week. A quick note to the Republicans:  You have a lot of credit union supporters.  Joint references to community banks AND credit unions would be nice to see.

The proposal that has gotten the most attention in the financial press  this morning is the Republican call, apparently at Trump’s urging,  to reinstate the Glass-Steagall Act of 1933 which put up a firewall between investment and consumer banking until it was repealed  in 1999 at the urging of the  Clinton administration.  It means that both the Trump Wing of the Republican Party-whatever that is-and the Sandernista’s on the Left of the Democrats   both firmly believe that not enough has been done to reign in banking excesses in the aftermath of the Great Recession. They are correct.

This is shrewd politics and good policy. Its good politics because it gives Trump  a wedge issue with which to  further alienate Sanders supporters from Hilary Clinton.  As Trump’s campaign manager explained in a press conference yesterday  “We believe that the Obama-Clinton years have passed legislation that has been favorable to the big banks, which is one of the reasons why you see all of the Wall Street money going to her.”

Good Policy? One of the biggest reactions I  get from this blog is  when I point out that any true free market conservative should be in favor of breaking up the big banks.  If a bank is too big to fail than it is too big.  The guarantee of a government bailout is an indirect subsidy to the largest banks that isn’t extended to community banks or credit unions.

Among the other highlights:

–It calls for scaling back the federal role in the housing market coupled with “clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices.” Interestingly, it doesn’t call for the elimination of Fannie and Freddie but says that the “utility” of both   should be “reconsidered” as part of housing reform.

–The platform complains that over the last century too much power has been handed to bureaucrats. It calls on Congress  “to begin reclaiming its constitutional powers from the bureaucratic state by requiring that major new federal regulations be approved by Congress before they can take effect.”

–Not surprisingly, it colorfully describes the Dodd-Frank Act as the  “ the Democrats’ legislative Godzilla,” that “ is crushing small and community banks and other lenders.”




July 19, 2016 at 9:01 am Leave a comment

Are NY’s Healthcare Costs Out-Of-Control?

healthcare-costsIf you’re a New York credit union executive pulling your hair out  over rising healthcare costs,  or  a credit union employee trying to manage increasing  out-of-pocket medical  expenses  you are not alone.

In some of the most alarming news I read all week, an analysis  by  Bill Hammond of the Empire Center reports that New York has the second highest healthcare costs in the country second only to the great state of?…Alaska.

Writing in the Empire Center’s NY Torch blog, Hammond tells us that “New York emerged as the second-costliest state for employer-sponsored health insurance after its premiums rose at more than three times the national rate in 2015, according to just-released federal data.” Some of the numbers are staggering. The average family premium in New York was $19,630, compared to a national average of $17,322.  And things are probably going to get worse before they get better.  Many plans are losing money.

Somehow I don’t think you will be seeing these facts highlighted in those ubiquitous commercials extolling NY’s  pro-business environment.

On  that happy note,  stay healthy and have a great weekend.

July 15, 2016 at 8:59 am Leave a comment

(Updated) Herrera Nominated to NCUA Board

President Obama has named John Herrera, a member of the Board of Directors of the Latino Community Credit Union (LCCU) in North Carolina, a  fill the vacancy on the three member NCUA  board created by  the departure of former Chairman Debbie Matz.  Herrera ,  an immigrant from Costa Rica,  is the   Co-Founder of LCCU which is the first fully bilingual financial institution in the state of North Carolina.

This isn’t the first time he has been on the Whitehouse radar.  Last Month it honored him as “A champion of Change. ”   In accepting the honor he said that he was inspired to create the credit union in the mid- 1990s after observing “first-hand the rapid growth of the immigrant population in North Carolina, especially among working-class, low-income Latinos.  This new and largely unbanked population experienced cultural and language barriers to accessing financial services.  Most mainstream financial institutions did not view Latino immigrants as promising potential clients due to lack of credit history and low account balances.  This fed a reliance on cash that resulted in increased crime against Latinos, as they were viewed as “walking banks.”  I began looking for a grassroots response to the problem, gathering state and local leaders, community advocates, and the credit union community.”

Unfortunately, the Senate hasn’t exactly been in a hurry to advise and consent lately.  Still, his nomination decreases the likelihood that the board will have to operate with only one member if and  when the Senate gets around to acting on the President’s nomination of current NCUA board member  J. Mark McWatters to the Board of Directors of the Export-Import Bank of the United States

July 14, 2016 at 8:30 am Leave a comment

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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