This Op-Ed appeared in HousingWire on August 9, 2018.
IMBs pose little systemic risk. Except for the half dozen or so largest firms, if one or even a number of IMBs went bust, it would cause barely a ripple.
Finally, the CHLA report includes a four-page detailed side-by-side chart comparing mortgage regulation of IMBs and banks. The chart shows what few realize – that IMBs are actually more regulated than banks when it comes to consumer protection.
IMBs must comply with all the same federal rules that banks and all other lenders must follow. But at the point of consumer contact, IMBs are much more stringently regulated. Mortgage loan originators at IMBs must:
1. Pass a SAFE Act test with real teeth and a 30% failure rate
2. Pass an independent background check
3. Complete eight hours of SAFE Act continuing education each year
In contrast, LOs at banks are exempt from all these important SAFE Act requirements. Similarly, 100% of IMBs are subject to Consumer Financial Protection Bureau supervision and enforcement – while 98% of banks are exempt from such oversight.
The same week that this report was issued, CHLA sponsored a roundtable on IMBs for congressional staff, federal agency staffers, and D.C.-based associations and think tanks. We convened representative IMBs, experts in the regulation or supervision of IMBs, and other housing experts. Panelists explained how IMBs do business, how they are extensively regulated, and what risks they pose.
Are IMBs risky? Of course, all firms have some degree of risk. But one thing that our roundtable demonstrated is that one should be skeptical of broad claims, undocumented by the facts, that clearly exaggerate those risks or ignore the many factors, regulations and regulators that constrain those risks.
Finally, let me respond to a perception held by some that because IMBs are not banks, they are not well regulated. I challenge anyone attending the second panel of our CHLA roundtable to make that claim. Our panel brought together experts on the major regulators and supervisors of IMBs – covering state regulation, FHA, Ginnie Mae, Fannie and Freddie.
These experts documented how IMBs are extensively regulated – including net worth requirements, financial penalties for failure to comply with underwriting standards, quality control requirements and oversight, default performance metrics with teeth and many more.
IMBs have a great story to tell. We encourage Washington to listen to that story.