Group touts role played by independent mortgage banks

The Community Home Lenders of America (CHLA) this week published its annual independent mortgage bank (IMB) report which aims to educate the public about the key role played by the banking segment.

The report, covering last year, recommends to members of the US Congress actions designed to foster a healthy mortgage landscape in 2024. Among its suggestions:

• The Fed and the GSEs should buy mortgage loans to restore historical rate spreads versus Treasuries.
• Consumers benefit from a broad range of IMB lenders, which increases competition and consumer choice.
• IMBs – particularly smaller IMBs – pose virtually no taxpayer or systemic risk.
• Congress and/or federal policymakers should adopt CHLA’s Consumer Bill of Mortgage Rights.
• Duplicative, unnecessary regulation undermines smaller IMBs’ ability to serve homebuyers.
• IMBs continue to face financial headwinds - but are downsizing to adapt to market forces.

The role played by independent mortgage banks

CHLA’s executive director, Scott Olson (pictured), showcased the role played by IMBs across the mortgage landscape: “Since the 2008 financial crisis, IMBs have emerged as an essential channel in housing accessibility and have decisively outperformed banks originating and servicing mortgage loans to first-time homebuyers, minorities and other underserved borrowers,” he said.

Olson noted the report is meant to better inform policymakers and members of the public on the benefits of IMBs. He added that support of the IMB industry ultimately benefits millions of Americans.

Olson ticked off a number of advocacy successes that transpired last year, including:

• FHA cutting the annual FHA premium by 30 basis points.
• Freddie Mac announcing a fee-based repurchase pilot that offers indemnifications in lieu of repurchases.
• Congress ending the overcharging of VA mortgage loan fees.
• Divestitures following the FTC challenge to ICE’s purchase of Black Knight.
• FHFA terminating the DTI component to LLPA pricing.

Those accomplishments represent priority issues for CHLA and its members, Olson said.

IMBs’ growing role since the Great Recession

According to the report, IMBs since the 2008 housing crisis have become an increasingly dominant force in the origination and servicing of mortgage loans. “IMBs decisively outperform banks in originating and servicing mortgage loans to first-time homebuyers, minorities, and other underserved borrowers,” the report reads.

In terms of suggesting the Fed and GSEs buy mortgage loans, the CHLA suggested the move to restore rate spreads. After the Fed stopped buying loans, the report noted, mortgage rates soared to 125 basis points over historical spreads. Mortgage rates fell at the end of last year, but spreads over Treasuries remain “unreasonably wide,” officials wrote. “Reducing mortgage rates is critical to restoring homeownership affordability for families.”

Purchasing mortgage loans now is much safer financially than when the Fed bought at 3% levels, the report concludes.

The report also lays out how consumers benefit from a broad range of IMB lenders given the increase in competition and consumer choice. CHLA members have long contended that IMBs “decisively outperform” banks in mortgage loans to first-time, minority and underserved borrowers.

The group believes Ginnie Mae and GSE financial requirements, policies and supervision “…should place a high priority” on maintaining a broad base of qualified IMB leaders/servicers – including small IMBs.

The report also touts the lack of consumer risk for the industry. “IMBs particularly smaller IMBs – pose virtually no taxpayer or systemic risk,” according to the report. “The main IMB business model is to originate federally backed mortgages (FHA/VA/RHS/GSE) and sell the mortgages to third party aggregators or securitize them (with or without retaining servicing),” the CHLA wrote.

That model, officials contend, insulates IMBs from financial risks stemming from losses or declining values of mortgage loans. “Thus, the only impact from an IMB lender going out of business is they can no longer originate loans.”

The report calls for Congress and/or federal agencies to adopt CHLA’s Consumer Bill of Mortgage Rights. The group also joined others in mitigating the use of triggers leads from the credit rating agencies.

The CHLA last year took an active role in warning of the aftermath litigation targeting real estate agent commissions might have on the industry – chiefly a potential detrimental impact on mortgage lending to underserved borrowers. The letter focused on Sitzer/Burnett v. NAR – one of several lawsuits challenging the long-held practice of commission-sharing by National Association of Realtors members.

To read the complete report by the CHLA, click here.

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