Opinion: Community Home Lenders Of America To Influence Mortgage Policies In Washington

Editor’s Note: This article was written by a contributor and contains the individual’s views, opinions, or personal experiences.

Last week, we announced the merger of the Community Mortgage Lenders of America and the
Community Home Lenders Association under a renamed Community Home Lenders of America (CHLA).

To date, both organizations have represented a similar profile of members and have historically taken similar policy positions. After extended discussion, we both concluded that combining CMLA and CHLA would mean more members, more financial resources, and more combined staff. This would enhance our ability to influence mortgage policies in Washington and explain the key role community lenders and in particular smaller independent mortgage banks (IMBs)—play in mortgage lending.

Policy fights in Washington are not a Sunday afternoon game of lawn bowling. Large mortgage lender/servicers – both bank and non-bank – have interests that diverge significantly from smaller, community-oriented lenders. These mega-lenders are not shy about spending large sums of money to hire high-priced D.C. lobbyists and make political contributions.

Smaller IMBs don’t have the resources to do this by themselves. They need a national association like CHLA to zealously advocate for them like a laser in Washington.

Despite the firepower mega-lenders have, CHLA and CMLA have, working separately, been remarkably effective in leveling the mortgage playing field. No issue exemplifies this better than the role of Fannie Mae and Freddie Mac. While Congress has failed to take Fannie Mae and Freddie Mac out of conservatorship, many GSE issues critically important to smaller community lenders (and the borrowers they serve) have been resolved  predominately in our favor over the last five years because of our combined efforts.

With the introduction of the Corker/Warner bill, Congress seemed determined to hand out new GSE charters to the large vertically integrated Wall Street Banks, which would have allowed them to use  taxpayer guarantee to serve only their customers and not the broader market. Both CHLA and CMLA made stopping it a top priority.

A July 2017 Senate Banking Committee small lender hearing where both organizations testified turned the tide. At least for now, we no longer hear calls for this very bad idea.

Both CHLA and CMLA opposed upfront risk sharing, which large Wall Street banks could potentially use to co-opt the GSE guarantee. That approach now seems to be dead. Both CHLA and CMLA opposed the Common Securitization Platform (CSP), also pushed by the Wall Street banks. FHFA recently shelved that idea.

Finally, and perhaps most importantly, both CHLA and CMLA spearheaded a sign-on letter in late 2020 asking FHFA to make G Fee parity permanent by including it in the PSPA agreement. In January 2021, that too became a reality.

For years, both CMLA and CHLA have also made it a priority to rebut the myths spread by some parties in Washington that IMBs represent the next great financial risk since the 2008 crisis. The reality is that smaller IMBs—like smaller banks—represent zero systemic risk and virtually no taxpayer financial risk.

On some issues, CHLA and CMLA actually worked jointly, such as opposing regulation by enforcement and offering proposals to ensure adherence to the Dodd-Frank statutory requirement that CFPB regulation of IMBs is tailored by the size and volume of the entities and the relative risk posed to consumers.

So, if having separate organizations worked well, why combine them? This last week provides a clue to the answer, as Ginnie Mae and FHFA both rolled out increased financial requirements for issuers and seller-servicers.

Both CHLA and CMLA independently had made strong arguments against certain components of earlier proposals, such as the GSE 2% liquidity hedging requirement and the Ginnie Mae risk-based capital requirement. CHLA also advocated for appropriate differences between requirements for smaller IMBs and the larger ones that represent most or all of our systemic and counterparty risk.

We appreciate that the final requirements included substantive changes that took these concerns to heart.

But the new requirements will still materially affect IMBs, and as a combined organization, we plan to monitor their impact on our members and make suggestions for further modifications as appropriate.

The reality is that even within the category of smaller IMBs, there are many different types of entities.

Smaller IMBs range from startups and small correspondent lenders that sell to aggregators, to IMBs that start selling through the cash window to Fannie and Freddie, to IMBs that become Ginnie Mae issuers, and to IMBs with significant servicing portfolios. All those types of IMBs will be affected by the changes just announced and each in somewhat different ways.

By combining forces, CHLA now represents a broad range of lenders in each of those categories. As a result, we will be even more effective in representing all of them while still keeping our targeted focus on smaller community mortgage lender/servicers.

The current market environment includes rising mortgage rates, shrinking loan volume, and pressure on profitability. Now, more than ever, smaller IMBs and other community mortgage lenders need a strong voice against regulatory over-reaction and against the Washington reflex of wrongly assuming larger lenders are “safer.”

Now, more than ever, smaller IMBs and community lenders need a strong voice to continue to point out that it is IMBs – community lenders – that consistently lead the market in mortgage loans to minorities and other underserved borrowers and that federal policies should reflect that fact.

With this merger, we are sending an unmistakable message that our commitment to being that effective voice for community lenders is stronger than ever.

Scott Olson is the Executive Director of the Community Home Lenders Association in Arlington, VA.

Do you have an opinion you would like to share? Email Editor Kimberley Haas at [email protected].