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.