Why oversight is needed to avoid unnecessary risk
Ever since Michelle Bowman, vice chair for supervision at the Federal Reserve, discussed changes in regulations to help banks return to take a larger share of the mortgage market, brokers have been wondering about how that might impact them.
A couple of weeks later, there are still more questions than answers regarding the potential plan. Things will likely continue to move forward, albeit slowly, toward getting banks back into mortgage lending more heavily.
Long-time brokers remember well when banks took their ball and went home, leaving major voids in the lending market. Non-banks, independent mortgage banks (IMBs), and private banks have filled most of that void in the meantime.
One long-time broker is willing to welcome banks back into the wholesale space if that re-entry is handled the right way.
Kimber White (pictured top), president of the National Association of Mortgage Brokers (NAMB), said care must be taken to make sure banks returning to mortgage lending don’t harm either side.
“You have to be careful and not force the banks into the mortgage industry,” White told Mortgage Professional America. “Because how does that hurt the banks' overall portfolios? In 2008, they had such a heavy presence in mortgages. And when mortgages started defaulting, it hurt them financially, and they had to be bailed out.
“Mortgages have never been a money maker for banks. Bringing them back in some capacity, I don't think it’s going to hurt them. I don't think it's going to have a large effect. I just think that we have to be cautious.”
Brokers stayed when banks bailed
Like so many long-time brokers, White remembers what happened when things got tough during the housing crisis of 2008 and 2009. Banks packed up and went home, while mortgage brokers stuck around and continued to help customers.
“Don't forget that the mortgage broker stayed there,” White said. “I think when the regulatory agencies and Congress look at this, they should remember that the mortgage brokers were there. The banks went away from the business because they chose to go away from the business. Even in the past five or six years, they totally went out: no jumbo financing, no alternate finance, no first-time homebuyer, private programs, no wholesale side at all, and they went totally retail.”
However, with the continued growth in the broker channel over the last few years, White believes the banks are having second thoughts about departing the wholesale space.
“I think they probably realized that that's a mistake, because the channel in the broker community has grown,” he said. “We're going to continue to grow without it, but I think it'd be better for them and our wholesale channel if we can do it together. I just think that has to be cautiously moved on, and I think it will. But overall, I think it opens up the channels for everyone, and the more people in the industry properly regulated, the better off we are.”
While there are many long-time brokers who would welcome banks back into the wholesale channel, it doesn’t mean they’re going to forget the impact when they left it.
“They did shrink in their market because the mortgage broker stepped in when no one else would,” White said. “We provided the people who needed the homes the most, their homes. We were there when it was hard. We were there trying to help people recover and getting them mortgages when the banks wouldn't give them a mortgage.
“There's a certain group that still only wants the cream of the crop. We've always had that issue. They do a certain amount because they were mandated to do community home programs or housing programs. We’ve always been there for everybody.”
Changes still a long way off
As others have speculated, Bowman’s comments are likely just the first part of a long process to make meaningful changes. White believes it may be next year before anything gets finalized.
“I don't think you’ll see the meaningful changes happen until probably the end of 2027,” he said. “I think that's going to take some time. She’s floated a concept, and now the Fed will have to look at it.”
The hope is that the return of banks into the wholesale space will bring more liquidity with it, which could mean better pricing for customers. White welcomes their involvement, as long as the move is handled carefully.
“I think in the end, there's a place for the banks,” White said. “I just want to make sure we do proper regulatory oversight. I don't think it's going to hurt the broker community. I think the broker will still be at a lower price point and offer a more personal touch than going to the bank. So welcome back, but make sure you come back and do it right.”
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