Friday, November 14, 2014

Loosen lending?

Reuters reports BOA won’t take the bait from government policy makers to loosen credit
Here’s the rub.  While government leaders bemoan the real estate market lackluster recovery and go on Sunday morning talk shows ginning up need for looser mortgage underwriting credit --  one wonders if they are surprised that banks are not only ignoring their cries, but are openly saying “no”.
First, the government called for more home ownership in the 1990’s and pushed for greater capacity by increasing the amount of one’s income used for housing expenses (higher DTI).  Then, the government enticed that by tying the higher DTI to handing out candy to banks via CRA credits.  Without those CRA credits, banks could not operate fully.  So, out came “Low to Moderate Income” loans (“LMI”) and the slippery slide to no income verification loans and the sub prime was greased all the way to 2008 when it crashed.  
During the crash the government sold banks on acquiring the now defunct banks.  The Banks followed through.  BOA took over Countrywide.  Wells took over Wachovia.  You remember the famous picture of the banks lined up alphabetically in a room with government regulators looking for bail outs for failing banks?
Fast forward from 2008 to 2013 and 2014 and the regulators created by the government went on a PR campaign to blame banks and then fine banks – billions of dollars – for the acts that the government asked them to do.
Politicians felt pretty good.  They had banks save the failing banks (and they lent a large sum of money to failing banks themselves) and the went on a new PR campaign blaming banks (not themselves) for the reckless lending, tying it to high profits over sound lending.
So, lending got tight.  Now the economy is not recovering as quickly as they would like. So, now they want the banks to loosen up again.
So – after creating the mess, blaming it on the banks, lending untold billions to bail everyone out, failing to tell anyone they got their money back with interest, now the government wants banks to loosen lending?
JP Morgan Chase already said they are re-evaluating FHA mortgages and may exit from it.  HSBC pretty much has throttled back.  Mortgage brokers are for the most part, extint.  Small mortgage bankers are closed.  Mid sized mortgage bankers are seeking out marriage partners to survive.  Big banks won’t loosen lending.  Bank of America said “
In October, the top regulator for the U.S. housing market announced plans to allow many more Americans to buy homes by making a down payment of as little as 3 percent of the purchase price.
But Bank of America CEO Brian Moynihan said at an investor conference his bank hosted on Wednesday that it will require borrowers to make larger down payments "to make sure that can withstand the bumps in the road" of homeownership, such as "unemployment, divorce or sickness."
"I don't think there's a big incentive for us to start to try to create more mortgage availability where the customers are susceptible to default," Moynihan said.
"I know that that doesn't sound good for an instant housing recovery and faster housing markets but it's actually good because in the long term it keeps the housing more fundamentally based," Moynihan added.
Now, is that not what the regulators and government screamed on top of Mount Rushmore about?  Isn’t Moynihan giving them what they demanded?  As one said, be careful of what you ask for – you may get it.
Harsh?  Perhaps.  The losers?  Sound borrowers with credit scores in the low to mid 600’s who had an issue that they got past and want to buy into a home – who just a few years ago a good underwriter would have worked hard to get them approved for their mortgage.  Today – no way without a large down payment and higher credit score. 
Why after paying billions of dollars, facing exuberant regulators who do not know the 5-C’s of underwriting but are quick to judge a file’s compliance to underwriting.  Years of regulators issuing out “Sanctions” that lenders have to sign or face more severe penalties.  Years of dealing with regulators like the North Carolina Commissioner of Banks who simply make decisions and issue out findings without rationale or the New York State Financial Services Department who literally employs individuals who not only have no clue about lending; but can not speak English.   Yet, these people can and will close down a company or fine another or issue out edicts.  And, that’s the state level.  Try facing the feds.
Why would anyone lend a penny more that could default or comes within 10 feet of what was “wrong” two-years ago?
That is like you being told by a policeman that you went 35 miles an hour three years ago when the speed limit was 35 mph, so now you face a 10,000 dollar fine and they release your mug shot.   Then, the mayor complains that people are literally doing 30 miles an hour and encourages people to take it up to 35 MPH, the posted speed limit.
I’d be the first to keep it at 30MPH, below the posted high speed limit and above the minimum – just in case someone gets in an accident at 35mph and the police go backwards in time to issue out more tickets again……
Silly?  That’s what happened.  And, now we must live with that irrationality.

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