MBA Responds To Yellen’s Non-Bank Lender Concerns
The Mortgage Bankers Association responded to comments by U.S. Treasury Secretary Janet Yellen who said that independent mortgage banks require regulatory oversight as they navigate commercial real estate debt.
In a hearing for the Senate Banking Committee, Yellen said the Financial Stability Oversight Council is focusing on nonbank mortgage companies because they “lack access to deposits, which banks have.”
She suggested that financial stress from commercial real estate weakness and low residential refinancing activity could lead to some IMBs failing.
“[Non-bank lenders are] reliant on short-term financing that may be a lot less stable than deposits, and in stressful times, their credit lines can be pulled,” Yellen said. “There is concern that in stressful market conditions we could see the failure of one of these.”
Commercial real estate hasn’t recovered from the major shift to remote work following the pandemic. Offices across America are sitting empty, and high vacancy rates have already caused commercial property prices to decline.
“Banks are sitting on a bunch of unrealized losses. If that slow leak gets exposed, it could get released very quickly,” Lonnie Hendry, chief product officer at Trepp, told the New York Times.
More than $2 trillion in debt is maturing before 2028, which will need to be refinanced at higher interest rates.
Yellen’s comments come on the heels of New York Community Bancorp experiencing a stock sell-off after suffering sizeable CRE losses.
The FSOC announced plans for putting non-bank lenders under Federal Reserve oversight, requiring greater regulatory obligations. That process has yet to be put in motion and could take more than a year once begun.
MBA President and CEO Bob Broeksmit bristled at Yellen’s assessment that this issue may be too big for IMBs to handle.
“IMBs already face requirements related to capital, net worth, and liquidity that have increased sharply over the past 15 years,” Broeksmit said in a statement.
“If regulators are concerned about the market share and stability of IMBs, they ought to go back to the drawing board on the Basel III endgame proposal, which would drive banks even further out of the mortgage business and make it more difficult for them to serve consumers directly and provide the vital financing that sustains IMBs.”
Basel III is a proposed capital rule that would increase obligations for all banks with assets of at least $100 billion. Detractors say the rule would force financial institutions to lend less.
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