MBA Releases New Policy Paper on Independent Mortgage Banks
Independent mortgage banks have existed in the U.S. since the 1870s. In a new policy paper, the Mortgage Bankers Association examines the important role IMBs play in today’s real estate finance market.
The paper (http://mba-pa.informz.net/mba-pa/data/images/IMB22219.pdf) examines recent developments driving the growth of the IMB segment and the enhanced regulatory climate in which they operate. It also suggests policy recommendations designed to make the origination and servicing of mortgages an attractive and stable market for any lender–bank or nonbank–that wants to devote investment capital to supporting sustainable homeownership.
“IMBs have always served the needs of a wide variety of consumers, particularly low- and moderate-income families and first-time homebuyers,” said MBA President and CEO Robert Broeksmit, CMB. “Their historic and current contribution to the mortgage market reinforces their importance to making the American dream of homeownership a reality.”
In 2017, Home Mortgage Disclosure Act data reported nearly 900 IMBs operating in all 50 states. While accounting for just 16 percent of all HMDA-reporting companies, IMBs nonetheless originated 54 percent of 1-4 family mortgages, up from 25 percent in 2008 at the depth of the Great Recession.
“Independent mortgage banks have played a vital role in both our past and present housing finance systems,” the paper says. “Over the past decade, IMBs have become the primary source of mortgage credit for the most critical sectors of the housing market–first-time buyers, working families and minority households. When measured against the bank market share of 2010–a cyclical peak–the growth in IMB share sparks alarm in some quarters, but a longer-term perspective demonstrates that these market share shifts are not uncommon and are driven by a number of complex factors.”
The paper notes while MBA recognizes the growth of the IMB market share raises policy questions, it believes those “should be measured and premised on a sound understanding of IMBs’ important function in our housing finance system.”
Importantly, the paper notes regulatory arbitrage is not a primary driver, as the post-crisis regulatory regime for IMBs has become “quite robust,” a process that began in the states even before the crisis in 2008.
To ensure a stable and liquid mortgage market for consumers that features robust competition among a wide variety of types of mortgage lenders, the white paper details a series of policy recommendations. They include:
–Ensuring that QM standards, as well as GSE and FHA/VA lending standards, remain focused on creditworthy borrowers and safe products.
–Enhancing IMB access to longer-term, stable sources of liquidity to supplement short-term warehouse funding.
–Providing the government housing finance programs (FHA, VA, USDA and Ginnie Mae) with the funding and resources needed to implement improved counterparty risk standards that are transparent and risk focused, as well as to identify and respond to emerging risks.
–Ensuring the mortgage servicing compensation regimes of the GSEs and Ginnie Mae preserve and support a deep and liquid market for mortgage servicing rights for servicers of all sizes and business models.
–Further improving the value and liquidity of Ginnie Mae MSRs by continuing to advance options discussed in the Ginnie Mae 2020 white paper (https://www.ginniemae.gov/newsroom/publications/Documents/ginniemae_2020.pdf), including improvements to their MSR financing agreements and allowing loan-level servicing transfers (i.e., “split pools”).
–Standardizing the servicing requirements at the government guarantors and clarifying the nature of the liability that participation in their programs entails.
–Making the mortgage market more attractive to banking institutions, including by addressing punitive capital requirements on mortgage servicing assets and reducing FHA False Claims Risk.
“As policymakers assess the state of the housing finance system, they should avoid steps designed to ‘force’ market share away from IMBs,” MBA said. “Instead, MBA urges a focus on measures that will make origination and servicing of mortgages an attractive and stable market for any lender–bank or nonbank–that wants to devote investment capital to supporting sustainable homeownership.”
“It is the responsibility of all stakeholders, including regulators, to protect consumers by supporting rules and regulations that support IMBs,” Broeksmit said. “MBA believes the recommendations put forth in this white paper will enhance market stability and strengthen the housing finance system to better serve consumers.”
