| The End of Wild West Mortgage Lending in the USA? - The American Congress discusses a bill to set national standards for subprime mortgages comparable to federal banking agency standards, and provide enhanced regulation for all mortgage brokers |
LENDING WITHOUT BANK SUPERVISION LEADS TO USURY
The American Congress draws the first conclusions from the mortgage and banking crisis. Unlike many in Europe who still publish the tale that consumers irresponsibly borrowing more money than they could afford creating the present crisis the American Congress seems to follow the thesis that irresponsible lending practices skyrocket the cost of credit for poor people through refinancing, adjustable rates, brokers fees and the sale of overpriced real estate.
As in the United States unlike most European states on the continent (with the important exception of the UK) lending does not require a bank licence and is thus not supervised by the bank authorities according to the rules of safe and sound banking the mortgage crisis is especially the fruit of usurious practices of non- banks and finance companies. As the banks often own such institutions, even create them to escape supervision and as they at least profit by refinancing such mortgages seemingly decent banks did not intervene.
Not the American congress wants to apply bank legislation to these lending institutions while in Europe still DG Market favours a liberalised market where lending does no longer require a bank licence. The first step into this direction has been taken by the Payment Directive where consumer credit channelled via credit cards was partly exempted - a move which due to the additional restrictions inserted by the European Parliament and the Council did not go very far.
COMPTROLLER OF THE CURRENCY TESTIFIES IN CONGRESS
The American bank authorities welcomed this move of the Congress which would ask for more control, transparency and minimum standards in bank finance. But the comptroller also repeats the standard arguments of market deregulation in credit when he points to the possible restriction such regulation could have on the availability of credit to subprime borrowers. But unlike statements which are acquainted to those who listen to the English bank authorities he adds that
"On the plus side, that would ensure that borrowers who get loans could afford to repay them."
We could add that access to credit has always been much higher in countries who have solid usury standards and supervision just because such markets create more trust, moral hazard and cooperation between lenders and borrowers with less exploitation of critical situations in human life.
ECRC partner DOOD has recently published its experience with overindebted customers and asked for similar restrictions in the UK lending business.
STATEMENT OF THE COMPROLLER OF THE CURRENCY
Comptroller Testifies on House Subprime Lending Bill
WASHINGTON — Comptroller of the Currency John C. Dugan today expressed support for provisions in a House bill that would set national standards for subprime mortgages comparable to federal banking agency standards, and provide enhanced regulation for all mortgage brokers, but expressed concern about some parts of the proposed legislation.
“The OCC supports the establishment of national standards for subprime mortgages, which have been the source of so many recent problems in credit markets,” Comptroller Dugan said in testimony before the House Committee on Financial Services. “We also support the bill’s goal of enhanced regulation of all mortgage brokers, whether used by banks or nonbanks.”
The Comptroller noted that the federal banking regulators, reacting to pervasive problems in the subprime market, tightened mortgage standards by issuing guidance on both subprime and nontraditional mortgages.
“But these standards only apply to federally regulated institutions,” he said. “They do not address similar practices at state-regulated institutions that are not banks, even though, by nearly all accounts, such institutions engaged in some of the most aggressive mortgage practices.”
To be effective, these standards must extend to non-federally regulated institutions to create truly national standards. That could be accomplished through state action, a rulemaking by the Federal Reserve Board or through legislation such as the bill that was the subject of the hearing.
While supporting the goals of national standards, Comptroller Dugan stated his concern over certain provisions of the proposed legislation being considered by the committee that go beyond subprime mortgages.
“In particular, we question whether the burden of licensing and registration requirements for all bank employees involved in any type of mortgage origination is, given existing bank regulation, worth the marginal benefit, especially for community banks,” he said. Additionally the Comptroller cautioned that anti-steering provisions in the proposed legislation – which include highly subjective requirements that mortgages be “‘appropriate’ and ‘in the consumer’s interest’ – will be difficult to enforce, and could significantly increase the litigation exposure for all banks.”
“In addition,” Comptroller Dugan said, “the more stringent underwriting standards for subprime mortgages would by definition restrict the availability of credit to subprime borrowers.” On the plus side, that would ensure that borrowers who get loans could afford to repay them. On the negative side, some creditworthy borrowers would be prevented from getting loans.
The Comptroller also said changes are needed to the bill’s enforcement standards to ensure that the proposed standards “are as effectively implemented and enforced at nonbank lenders and brokers as they would be at banks.” |
| ID: |
40405 |
| Author(s): |
UR |
| Publication date: |
26/10/07 |
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Created: 26/10/07. Last changed: 14/05/08.
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