Risk Retention May Shutter Mortgage Bankers: CMBP, CMLA
Draft language of the Financial Stability Improvement Act has community banking advocates concerned about the legislation’s impact on small banks’ ability to originate mortgages at a time when liquidity is already strained. As HousingWire previously reported, the Community Mortgage Banking Project (CMBP) and the Community Mortgage Lenders of America (CMLA), two recently formed community bank lobbying groups, issued a joint statement claiming the “broad risk retention provisions in the draft” could jeopardize affordable mortgages for consumers because the provisions would hamper community-based lenders’ abilities to tap the secondary mortgage market for funding. The legislation, released by the House Financial Services Committee, aims to address systemic risks and “too big to fail” concerns with lenders. But it requires all lenders to retain up to 10% of the credit risk on any loan sold into the secondary market, which would cause smaller lenders to reduce lending or go out of business. “Independent mortgage bankers would be forced out of business, while community banks would face liquidity and balance sheet constraints that would sharply limit their lending activities,” the statement said. “Even the largest institutions would be constrained in their ability to effectively utilize the attributes of the secondary mortgage market in delivering mortgage funds efficiently.” According to the groups, community lenders account for more than 40% of all home mortgage originations, and more than 50% of Federal Housing Administration (FHA) loans. To promote safe community lending, the groups called for legislation that would allow “qualified mortgage” products to be exempt from the risk retention requirements. Former executives from PMI Group, Fannie Mae and Countrywide started up the CMBP in September to represent the interests of independent mortgage banking companies. Led by former PMI Group executive Glen Corso, the group as of late September was already half-way past its initial goal of recruiting 50 member institutions. Then CMLA started up as a lobbying, advocacy and regulatory counseling organization for independent, community, mortgage bankers, both banks and non-banks. The group is led by Scott Stern, CEO of the Lenders One mortgage cooperative of independent mortgage lenders. Both Stern and Corso told HousingWire in October the two groups would not compete with each other but instead shared similar goals and concepts. Write to Austin Kilgore.