By Lindsey R. Pinkham
"Don’t blame us” has been the response of community banks, large and small, when lumped into the credit crunch/subprime lending morass. Yes, banks make subprime loans, but this time the majority of the problems lie with the non-bank mortgage brokers and the investment bankers on Wall Street, anxious to securitize and sell product to any and all comers.
Community bankers know they aren’t to blame, but are frustrated because of the media hype over this past summer’s credit crisis and the unexplained differences between competitors in the financial services arena.
Washington to the Rescue – Maybe
A thoughtful review of the subprime crisis by Massachusetts Rep. Barney Frank, who is the House Financial Services Committee chairman, appeared in an op-ed article in the Boston Globe on Sept. 14. Rep. Frank offered some interesting analysis, stating “One aspect of the subprime mortgage crisis that deserves special attention is that it was in large part a natural experiment on the role of regulation. And the results are clear: Reasonable regulation of mortgages by the bank regulators allowed the market to function in an efficient and constructive way, while mortgages made and sold in the unregulated sector led the crisis. At every step in the process, from loan origination through the use of exotic unsuitable mortgages, to the sale of securities backed by those mortgages, the largely unregulated uninsured firms have created problems, while the regulated and FDIC-insured banks and savings institutions have not. To the extent that the system did work, it is because of prudential regulation and oversight. Where it was absent, the result was tragedy for hundreds of thousands of families who have lost, or soon will lose, their homes and for those who invested in shaky and untested, even though highly rated, securities, and have been forced to take large losses and, in many cases, shut their doors.”
The debate in Congress on how to fix the credit markets is currently under way with several pieces of major legislation pending, including foreclosure relief, national regulation of the mortgage industry, expansion of the mortgage portfolios at Fannie Mae and Freddie Mac and Sen. Christopher Dodd’s introduction of sweeping legislation to curb predatory lending and create safeguards for subprime mortgages.
Mortgage Industry Shakeup
Speaking of doors shutting, while Connecticut had one high-profile mortgage company fail in 2007, well over 100 mortgage companies across the country have ceased operations while others have significantly reduced operations and staff. This fallout, unfortunately, is likely to continue into 2008.
Earlier this year, Gov. M. Jodi Rell convened a task force of housing, banking, mortgage lending, and consumer experts to examine and make recommendations regarding the issue of subprime lending in the state. The Task Force has met several times and is expected to soon release its final report replete with its findings and recommendations.
Calling all CT Mortgage Consumers
Of late, community bankers across Connecticut are noting an uptick in their mortgage business as consumers react to the changes in the marketplace. Connecticut’s consumers need to know that the banking industry is ready, willing and very able to serve your residential mortgage needs. The goal: help consumers get into a home, a home they can afford and afford to keep.
Lindsey R. Pinkham is senior vice president and secretary of the Connecticut Bankers Association.