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Looking after the best interests of consumers, the Federal Deposit Insurance Corporation is planning to take steps to give small community banks a bigger role in the residential mortgage market, Mark Pearce, the agency’s director of depositor and consumer protection, told an overflow audience on April 13 in Washington, D.C.
In a keynote address at a spring symposium by Washington, D.C.'s Women in Housing and Finance on “The Future of Financial Services,” Pearce discussed how the FDIC’s role in consumer protection will change when the new Consumer Financial Protection Bureau (CFPB) is up and running on July 21.
“The FDIC will remain the primary federal regulator for most of the nation’s community, state and non-member banks with assets less than $10 million,” Pearce said.
That will leave the CFPB with “primary responsibility for consumer protection and supervision of larger banks and for non-bank finance service providers, such as mortgage bankers,” he said.
Builders, developers, banks and other financial entities have all been looking for clues as to what’s coming next, with the arrival of the CFPB and the ongoing reorganization of existing finance-related agencies.
Pearce said that the supervision of the Real Estate Settlement Procedures Act (RESPA) — which governs consumer protections on closing costs and the settlement process — will migrate to the new bureau.
However, CFPB will be working with the FDIC to simplify and revise mortgage disclosure forms specifically, and the application process as a whole.
Both agencies will also be working to encourage small community banks — those with less than $1 million in assets — to step up their mortgage lending.
“Small banks are not risk-takers,” he said, adding that “the delinquency rates of community banks is one-fourth that of the larger banks” with $10 billion or more in assets.
Pearce also said that the FDIC and the CFPB will be looking at the incentives that have promoted so much consolidation among financial institutions, noting that the nation’s five biggest banks now account for more than 50% of all mortgage originations and control more than 60% of the market as a whole.
Because federal policies encourage the creation of banks that are perceived as too big to fail, small and mid-size lenders have trouble competing, he said.
It is important to “rebalance the mortgage sector to include lenders of various sizes, for a healthier market,” Pearce added, and that rebalancing effort falls under the FDIC’s mandate to ensure “safety and soundness” for financial institutions.
Mentioning other problem areas, Pearce cited a delinquency rate of 70% or higher among low- and moderate-income home buyers.
There is agreement that this needs to be prevented in the future, he said, and the FDIC is continuing to work on policies that will discourage lenders from offering inappropriately risky loans.
But “as we rebuild the mortgage market, we must pay careful attention to the impact of regulatory changes on the ability of our low- to-moderate-income families to obtain mortgages,” Pearce said.
The NAHB Spring Construction Forecast Webinar will provide attendees with up-to-the-minute analysis of the latest housing numbers and market trends right to their desktop. The webinar will be held from 2:00-4:00 p.m. EDT on Wednesday, April 27.
Speakers David Crowe, NAHB chief economist; Mark Zandi, chief economist with Moody's Analytics; and Robert Denk, NAHB’s assistant vice president for forecasting and analysis, will address issues affecting the housing industry and the economy — including competition from short sales and foreclosures, consumers' inability to sell their existing homes, appraisals coming in below construction costs, and restrictive lending conditions for buyers and builders — and how builder confidence and the market may evolve as those factors change.
The fee is $29.95 for NAHB members and home builders associations and $49.95 for non-members.
For more information and to register, visit www.nahb.org/cfw.