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Lending

CHLA challenges FHFA IG report on risk from smaller nonbank lenders

Report lacks evidence to support claims, ignores other key factors

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The Community Home Lenders Association is challenging the Federal Housing Finance Agency IG report issued last week which had raised concerns about risks to the GSEs from increased loan purchases from smaller nonbank mortgage lenders.

By implication, the IG report seems to be pushing for more loans to be done at the big TBTF banks by stating the small nonbank lenders are riskier for the enterprises and with little or no evidence to support the claim," said Bill Giambrone, president of CHLA. "Our concern is the FHFA will now pull back on the re-localization initiatives which are truly better for housing and the consumer."

The CHLA acknowledged that it is appropriate for the FHFA to focus on issues such as counterparty risk, and agreed with the IG’s conclusions that the trend has been for the GSEs to buy more loans from small, nonbank lenders, and that there is some benefit from a risk diversification point of view. 

However, the CHLA pointed out that the IG report seems to have started out with a pre-conceived conclusion that it is riskier to deal with smaller lenders — and failed to provide real evidence to back up this conclusion, ignoring many other important factors, the organization charges.

The CHLA charges that the IG report:

  • Ignores the massive mortgage failures of large “Too Big To Fail” institutions
  • Ignores the negative consumer impact of market concentration of TBTF institutions
  • Offers no real evidence of reputational risk of dealing with smaller lenders
  • Offers no tangible evidence or analysis of increased small lender counterparty risk
  • Ignores a broad range of recent rules and supervision over small nonbank lenders

“There is a growing consensus that consumers face access and affordability challenges in getting a mortgage loan as a result of new federal regulations and restrictive credit policies by the Enterprises in response to the housing crisis” said Don Calcaterra, Jr. with Towne Mortgage of Troy, Michigan. “Unfortunately, this Report perpetuates the pre-housing crisis reflexive bias that ‘bigger is better,’ a strategy that has hurt consumers and increased Enterprises’ counterparty concentration risk.”

A copy of the letter can be viewed here.

Click below to read the text of the allegations and details in the CHLA letter to the FHFA.

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