The death of mortgage lending | Bedford Real Estate
Over the past couple of weeks, you may have been given the false impression that Richard Cordray and his colleagues at the Consumer Financial Protection Bureau are working to destroy the US mortgage market. Likewise, you may have the false impression that various consumer groups and advocates are making mortgage lending unattractive as a business for banks and non-banks alike.
But the truth of the matter is that even if Richard Cordray was back in Ohio, where he formally served as Attorney General — a reality where the CFPB and said housing groups didn't exist — the US mortgage market would still be in trouble.
Were there no CFPB or Dodd-Frank Wall Street Reform and Consumer Protection Act, banks and non-banks alike would be backing away from the mortgage business. The significant withdrawal of players such as Nationstar and Bank of America from retail lending, and the collapse of the mortgage wholesale and correspondent markets, is just the start of a more generalized retreat of capital from residential mortgage lending that has its origins long before 2010, before Dodd-Frank passed and the CFPB was created.
The simple reason for this statement is that the mortgage business, as it stands today, is not particularly profitable, in a nominal sense.
If you actually take the time to look at mortgage lending based on a risk-adjusted return on capital, it quickly becomes clear that no rational investor would want to put capital behind a standalone lending operation.
Let’s start with the basic economics of the mortgage lending business, ignoring the additional costs attributable to CFPB regulation, the mortgage settlement, Basel III and the various other laws and regulations that have been put into place since 2010. We’ll also ignore the extraordinary gain on sale opportunity that was available to mortgage lenders before the 2007-2009 crisis and then through 2012 thanks to the zero interest rate policy put in place by the Federal Open Market Committee.
http://www.housingwire.com/blogs/1-rewired/post/29650-christopher-whalen-the-death-of-mortgage-lending
But the truth of the matter is that even if Richard Cordray was back in Ohio, where he formally served as Attorney General — a reality where the CFPB and said housing groups didn't exist — the US mortgage market would still be in trouble.
Were there no CFPB or Dodd-Frank Wall Street Reform and Consumer Protection Act, banks and non-banks alike would be backing away from the mortgage business. The significant withdrawal of players such as Nationstar and Bank of America from retail lending, and the collapse of the mortgage wholesale and correspondent markets, is just the start of a more generalized retreat of capital from residential mortgage lending that has its origins long before 2010, before Dodd-Frank passed and the CFPB was created.
The simple reason for this statement is that the mortgage business, as it stands today, is not particularly profitable, in a nominal sense.
If you actually take the time to look at mortgage lending based on a risk-adjusted return on capital, it quickly becomes clear that no rational investor would want to put capital behind a standalone lending operation.
Let’s start with the basic economics of the mortgage lending business, ignoring the additional costs attributable to CFPB regulation, the mortgage settlement, Basel III and the various other laws and regulations that have been put into place since 2010. We’ll also ignore the extraordinary gain on sale opportunity that was available to mortgage lenders before the 2007-2009 crisis and then through 2012 thanks to the zero interest rate policy put in place by the Federal Open Market Committee.
http://www.housingwire.com/blogs/1-rewired/post/29650-christopher-whalen-the-death-of-mortgage-lending
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