ABA Banking Journal
By Frank Keating
Nearly two-thirds of Americans own their own homes, and more would like to join them. According to new research from the Federal Reserve, 81 percent of renters would prefer to buy if they could afford it. But half of renters say they cannot afford a down payment, and three in ten say they don’t believe they could get approved for a mortgage.America’s hometown banks would like to help these customers. June is American Housing Month, a time for celebrating housing choices and spotlighting opportunities to help Americans achieve their dream homes, whether they buy or rent.
Unfortunately, I hear too often from bankers across the country that well-intended regulations are standing in the way of customers who dream of homeownership. One banker in my home state of Oklahoma had a customer—a well-qualified physician—who wanted to buy a home. But he had recently purchased a private medical practice and was thus self-employed. To fit the narrow box of the mortgage rules, the banker had to deny the loan to this creditworthy business owner serving his community’s health needs.
Another told me about an upstanding young customer in Montana. This young father had just gotten a well-paying new job, but he hadn’t been on the job long enough to document his income in the way the Consumer Financial Protection Bureau’s rules call for. The banker had to turn down a $16,000 loan for the young family to purchase a manufactured home—delaying their dreams of economic mobility through homeownership.
One way bankers can make these loans is by holding them in their own portfolios instead of selling them on the secondary market. When a bank holds loans on its own balance sheet, it also holds the risk. As a result, these loans are properly underwritten and closely scrutinized by regulators to make sure they’re safe.
One reasonable reform that would help customers get a step up in housing would be to provide portfolio mortgages with the legal protections of “Qualified Mortgage” status. Banks are willing to take on the credit risks of these loans—but the legal risks imposed by excessive regulation and penalties for lending outside of the QM box are what prevent bankers them from making them.
Portfolio lending provides bankers flexibility to make loans to creditworthy customers who might not otherwise qualify if their numbers had been plugged into a computer program. For example, providing QM status for these portfolio loans would have helped both of the above-mentioned Oklahoma and Montana bankers serve their customers.
I’m pleased to report that this pro-consumer reform is included in bipartisan bills introduced in both houses of Congress. It’s also part of Sen. Richard Shelby’s (R-Ala.) comprehensive financial reform bill, which passed the Senate Banking Committee in May. Expanding portfolio lending is just one piece—albeit an important one—of a much-needed regulatory streamlining that will ultimately help banks serve their customers.
As senators continue to debate the Shelby bill, I hope they will spend June—American Housing Month—focusing on passing a bipartisan bill that will help Americans with their dreams of homeownership.
This op-ed originally appeared in The Hill.
