March 2, 2024 / VOLUME NO. 303

Mortgage Squeeze

Normally, community groups such as the NAACP and the National Urban League don’t fight banking regulations. But they are now. 

A coalition of community groups, real estate agents, banking and state housing organizations have banded together under the auspices of the National Housing Conference to make the case that beefing up capital requirements for banks above $100 billion in assets would harm underserved communities. “With interest rates as high as they are, we need all the lending to first-time homebuyers that we can get,” says David Dworkin, CEO of the National Housing Conference. 

Last summer’s notice of proposed rulemaking from the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. contains 166 references to “mortgage.” It includes provisions that would dramatically increase risk weights for mortgages with high loan-to-value ratios and certain other mortgages on bank balance sheets. The housing conference said in a letter to the agencies that the provisions would discourage lending to first-time homebuyers and low- and moderate-income borrowers. The proposal also would impose a 10% cap on the mortgage servicing assets that very large banks could count toward tier one common equity, down from the 25% currently. If the very large banks pull back on buying mortgage servicing assets, that could impact the rest of the market, the group argues. 

The agencies, however, said the rule would improve transparency and reduce variability in risk weighting across banking organizations. Plus, they specifically said that they don’t intend to force higher risk weights on loans with high loan-to-value ratios that have private mortgage insurance.  

Still, it’s startling to see so many provisions related to mortgages in the capital rule. Many banks across the country have pulled out of mortgage lending altogether since the passage of the Dodd-Frank Act of 2010, which made mortgages safer for borrowers, but more costly for banks. The housing conference notes that banks account for 28% of all home purchase mortgage originations, down from about 70% pre-Dodd-Frank. Nonbanks account for the rest. 

Advocates for the underserved and industry groups can agree on one thing: The country needs greater access to affordable mortgages, not less. 

• Naomi Snyder, editor-in-chief for Bank Director

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