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Congress must create mechanisms to dampen the volatility of housing finance, writes James Lockhart, the former regulator for Fannie and Freddie, on the fifth anniversary of their takeover by the government.
September 9 -
The risk retention requirement was supposed to ensure lenders had "skin in the game" when making mortgages. Instead, regulators appear to have abandoned that concept by crafting an exception so large that most single-family mortgages will be exempted.
September 3 -
Community banks are looking at ways to keep making mortgages despite added regulation, rising rates and a shrinking refinance market.
August 19
RALEIGH, N.C. Bankers at the American Mortgage Conference this year are seeking answers about how to handle renewed volatility in the market.
Attendees appeared a bit shell-shocked, rattled by the sudden spike upward in long-term interest rates this summer.
They also came looking for reassurances from policymakers about their regulatory worries such as the cost of compliance with the pending "qualified residential mortgage" rule. Richard Cordray, the director of the Consumer Financial Protection Bureau, was scheduled to speak Wednesday at the conference hosted by the North Carolina Bankers Association.
Yet several bankers said they are starting to cope, whether it's by developing customized products to suit new borrowers, dusting off old-fashioned selling techniques or learning how to run larger portfolios. Here are edited excerpts of interviews with bankers about their concerns.
How have you been handling the transition from refinancing to a purchase market, particularly in light of the recent rate increase?
Kenneth Sykes, president, North State Bank Mortgage, Raleigh: Obviously the transition happened a lot faster than we thought it would. We were preparing for a transition, but we weren't quite prepared for it to happen that suddenly. We were planning on going up a mountain, but it turned out to be Mount Everest.
I'm from a purchase background, so for the last three years I've been living in a market where there were no commitments and loyalties [from borrowers]. Even though volume is down, I'm probably more comfortable in a purchase market. We think you can be more profitable in a purchase market because buyers have specific loan amounts, and they close on a specific date. They can't move around [as much].
Reid Pollard, chief lending officer, Ozarks Federal Savings and Loan in Farmington, Mo.: The transition [to purchase mortgages] so far is going reasonably well. We're making an effort to reach more customers, real estate agents and others.
Roger Dick, president and chief executive, Uwharrie Capital in Albemarle, N.C.: Previously, we didn't have to worry about going after anything because we were basically refinancing our own customers. So we're shifting back to normal times.
The transition has given us an opportunity to slow down and look at making our mortgage operations more efficient. We're also working on adding some more mortgage products to go back to some more traditional sorts of things. We're not compromising. We're in a time where risk assessment and pricing is the new norm. I think it will be another 50 years before we forget the recent history that we have just gone through. We're just trying to underwrite good credits.
Dennis Hamrick, senior lender, Morganton Savings Bank, Morganton, N.C.: We have a very high unemployment rate in western North Carolina. We are a portfolio lender, so we didn't have the big refi [business]. We are seeing more purchases, but we're a very small fish in the sea.
Ken Irvin, mortgage department manager, Bank of Tennessee, Kingsport: We are doing a lot of training for our officers, sitting down and talking through how to become salesmen again. We lost the part about really going out and making sales calls. So we're out there talking about first-time-homebuyer assistance again and how do we become connected with the real estate community.
What types of mortgages do you book?
Pollard: We hold and sell mortgages. We very much want to grow our portfolio. Our typical fixed mortgage is 15- to 30-year in the $100,000-to-$150,000-type loan. And we also do one- to five-year adjustables.
Dick: Our typical mortgage is a 15- to 30-year. We are doing a one-year [adjustable-rate mortgage] but there are no teaser rates. We price it based on our true operating cost. We'll do some five-year balloon with 15-, 20- or 30-year amortization. We originate Fannie Mae loans and retain the servicing.
Hamrick: We do [loans] mostly outside the norm for people who don't qualify for a typical mortgage. They may have had a problem in their marriage or have another explanation for why their score is so low. It could be the loan-to-value or something like that. Sometimes we can make those loans. We don't have traditionally subprime loans, but they would still be considered subprime loans.
What is your biggest challenge right now?
Sykes: There is no question that our challenge is regulatory. We can feel the pressure of the pending changes, and I use pending in a very cautious manner because we don't know what to expect.
We tend to be adding more compliance and quality-control people than retail mortgage lending officers. It is an almost 2-to-1 [ratio].
We also have to get consumers engaged again in homeownership. We need to get them believing that homeownership and affordability are good. We need to engage the marketplace.
Pollard: Everything is changing from a regulatory standpoint. We're most concerned about all the new classifications and the sheer amount of new regulation. And the amount of regulation coming out of the CFPB is really frightening.
Dick: Our biggest concern involves scale issues. As a small lender, there is a concern about the ability to have a place to deliver a fixed-rate product that gives us liquidity and lets us be competitive. We're finding more and more that, to be competitive, you have to be on a larger scale. For community institutions that aren't mass producing, it is a threat.
I'm not afraid of the consumer protection stuff. It is going to be expensive for all of us. That tide is going to affect all boats.
Irvin: We're really looking at third-party software vendors to close that [regulatory] gap. For a small bank of our size, it is very hard to have the compliance personnel on staff to keep up with all the regulations. Then again regulators are absolutely looking at vendors, too.
