But of course they are against it….
by Tom on November 2, 2009
in Market Musings, banks
The MBA (mortgage people) are opposed to the legislation that is potentially moving through Congress. What legislation is that? The one that requires any institution that sells mortgages to retain 10% of the risk in them.
Let’s look at things in a rational manner for a minute:
- The goal, I’m supposing, behind the 10% risk retention rule is to make sure that lenders don’t sell “junk” and “fraudulent” loans that won’t get repaid.
- How are they proposing to do that? By requiring the lender to hold 10% of the risk on the loans they sell.
- Now, let’s take me for example, I’ve been in the business for 21 years. Let’s say that I’ve averaged, oh, $20 million per year in mortgage loans. (By the way, some years are WAY more, so I think that’s a decent number to use). That works out to $420,000,000 in loans.
- Assuming a 10% retention rate, that means that the lender I work for would have to have held back $42,000,000 in risk on those loans.
- That’s going to wipe out a LOT of the mom & pop lenders, some of the community banks and such.
I agree that we need to put some responsibility into the way loans are sold, but I’m not sure this is the route.
What do you think?
Tom Vanderwell
In a letter Monday signed by MBA president and CEO John Courson, the group urged House Financial Services Committee chairman Barney Frank (D-Mass.) and ranking member Spencer Bachus (R-Ala.) to ensure reforms aimed at the securitized credit markets are customized to avoid unintended consequences.In particular, the 10% credit risk retention requirement may be inappropriately applied to all loan sale transactions regardless of whether the loan purchaser intends to permanently hold the loan, according to Courson. Independent mortgage bankers may also be forced out of business by the retention requirements.
