Stumpf: GSEs choking mortgage business


"We're just not going to make those loans and there's going to be a whole bunch of Americans that are underserved in the mortgage market," says Wells Fargo (WFC +0.2%) chief John Stumpf, warning (in an FT interview) the GSEs to stop being so quick to accuse banks of faulty underwriting and then forcing them to repurchase soured loans.

Fighting the last war, regulators are demanding more rigorous underwriting and tighter lending criteria, but evidence is beginning to grow (especially if you ask banks!) that the pendulum has swung too far.

Stumpf: "If somebody makes a payment for - let’s say - three years, the risk ought to transfer then to the insurance company ... If you’re going to pick through each one looking for a technical fault not to pay your insurance policy we’re not going to be in that business.”

Jamie Dimon (JPM +0.8%) last month: "We want to help consumers there, but we can’t do it at great risk to JPMorgan ... We’re going to be very very cautious in that line of business.”

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Comments (24)
  • Dirty Capitalist
    , contributor
    Comments (184) | Send Message
     
    Finally, two heads of major home loan banks saying out loud what has been obvious for far too long; over tightening of regulations and increased putback risks on small technical defaults will drive banks out of the home loan business.

     

    Just not enough income to account for the incredible risk they would be exposing their bank investors to to stay in this business unless the pendulum swings back.
    26 Aug 2014, 01:32 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (4801) | Send Message
     
    Incredible risk?
    Wells sells almost all their loans to GSE's.

     

    It's not like the GSE's are making them buy back a bunch of loans they originated over the past few years.
    Because they are all good quality.

     

    The refi market dried up as almost everyone has refied.
    The banks want new business which they can get if they loosen standards.
    So yes, they will complain of course.
    26 Aug 2014, 01:43 PM Reply Like
  • jj1937
    , contributor
    Comments (5195) | Send Message
     
    Get the real economy going. Make the banks lend to people. The recession ended 6 years ago!
    26 Aug 2014, 05:44 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (13372) | Send Message
     
    No loans should go from banks to taxpayers through Fannie and Freddie. This is not bank lending, its a racket loaning to people at irregularly low rates and dumping the future losses on taxpayers. Worse still is the lending to people who can't pay long term and handing them off to taxpayers.

     

    If you lend to them, take the risk of default yourself. Fannie and Freddie should only cover 50% or less of loans. That would make banks think properly about lending and end the absurd government racket of setting mortgage interest rates so low and lending to those at risk that they can't cover defaults. This is not capitalism, its a farce. The ingredients for the housing bubble are still in place and the bubble is even bigger than the last collapse.
    26 Aug 2014, 10:25 PM Reply Like
  • MEKhoury
    , contributor
    Comments (403) | Send Message
     
    Lather Rinse repeat

     

    Move along, nothing to see here
    26 Aug 2014, 01:33 PM Reply Like
  • gelstretch
    , contributor
    Comments (3505) | Send Message
     
    Profit is the reward for risk taking. If the risk is non quantifiable because of onerous governmental regulation, then the risks will have to be either avoided, or the profit will have to be adjusted upward, in order to actuarially match the risk.

     

    The bottom line is...... if we want mortgage availability at a reasonable cost, then change our "out of control" non-functional government. It seems those who are most in need of affordable mortgage loans are also those who vote for more government oversight. Try to figure out that one !!!!!
    26 Aug 2014, 01:45 PM Reply Like
  • Christopher Speetzen
    , contributor
    Comments (591) | Send Message
     
    Why do we even have GSE's? Don't complain about onerous government and then say GSE's (Read, American people) should really be on the hook for the risk. Either the Bank or the Government should be responsible, but the banks shouldn't profit off explicit government guarantees.

     

    The student loan market is going to find this out in the near future when it goes poof.
    26 Aug 2014, 02:34 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1571) | Send Message
     
    Those guys have a lot of chutzpah. Just couple of years after taking America to the edge of the abyss, they are trying to shove bad mortgages down the taxpayer's throat again.

     

    If those banks don't want to write more mortgages, someone else will. But they do not get off the hook for the mortgages they have written. If you have missed the underwriting standards or given fannie or freddie wrong info, yes you have to buy the mortgage back.
    26 Aug 2014, 01:53 PM Reply Like
  • mr subprime
    , contributor
    Comments (34) | Send Message
     
    right from the horses' mouth!
    Hey, John, are you still stuffing applications with fraudulent assets and job info?
    Are you selling those loans multiple times?
    Are you satisfied now that you have bankrupted the monoline insurers?
    Pompous, windbag criminal.
    26 Aug 2014, 02:08 PM Reply Like
  • june1234
    , contributor
    Comments (4350) | Send Message
     
    Bottom line is , with 18 million fewer people living in the US in 06 they averaged 2.2 Million starts a month that year, 2.3M in 1983, 2.5 million in 73 and 74. Today 1M a month is a "surge" http://bit.ly/1oNezWk
    26 Aug 2014, 03:29 PM Reply Like
  • Captain Pike
    , contributor
    Comments (890) | Send Message
     
    This IS the the way it should be. Mortgages should be very tough to get and rates should and will be very low. ONLY those who can afford a mortgage should get one, if anything the qualifications are not onerous enough. Banks/home builders will be a dull place to invest in.

     

    This is the way it was in the boom economic years of the 50's/60's, we don't need any housing bubbles, time to look at real sustainable industries, energy, manufacturing, and infrastructure.
    26 Aug 2014, 04:18 PM Reply Like
  • ote
    , contributor
    Comments (513) | Send Message
     
    Canada doesn't have GSE's. Seems they do ok with private market mortgages.

     

    Bankers heads on a pike, must be the only solution. Sorry I am a capitalist. Regulators will always fight the last war. The regulators / pols will be instrumental in next bad experience. If your afraid of too big to fail. Breakem up. Oops I almost forgot sarbanes oxy was for our protection on the last go round. Sarbanes caused my company to hire 300 accountants with no value added. Good knowledgable managers are the only real protection. If you are fradi-cats break-em up and require higher reserves. Oops, higher reserves, pols will then come up with bright idea that reserves should only be long treasuries. Hint hint, good way to finance 500 billion of national debt with a required buyer. Nothing beats good knowledgable mangers they know real liquidation enforces fiduciary responsibility. Good pols let the beauty of a market work.
    26 Aug 2014, 04:35 PM Reply Like
  • pouellet
    , contributor
    Comments (238) | Send Message
     
    The banks were guilty of some fraudulent activity but the government was also guilty in oversight of the major financial institutions. Congress push for easier mortgage regulations so everyone could finance a home. The government then exerted extreme pressure for the banks to absorb the failing institutions. Then after the takeovers the government then fined the solvent financial institutions for the misdeeds of the fail institutions. Now the US and our smart regulators/politicians wonder why credit is so tight and why the banks aren't lending. If the future holds failing institutions, the banks should not take over any institution unless they obtained complete immunity. The banks fiduciary duty to shareholders is primary over all other concerns.

     

    Student loans and all other 100% goverment guaranteed loans will make the government regulators look for loopholes to fine those making the loans. It is becoming part of their budgets process and a forum for the head honchos to run for political office.
    26 Aug 2014, 06:23 PM Reply Like
  • KMR holder
    , contributor
    Comments (762) | Send Message
     
    If you want to solve the mortgage problem, a few changes must be made to the government home ownership programs.

     

    Our current system has all the wrong incentives. It actually pushes the value of homes into an inflationary spiral. It is the opposite of a "Making homes affordable plan". If you want to make homes less expensive to buy, you can make them less expensive. All the government programs currently in effect, tend to make homes less affordable by subsidizing the buyer's expenses at the expense of the government's liabilities. It is a system for pushing people into homes they may not be able to support through their skills, income and assets. When you add the buyers cost and the nation's cost as a result of the liabilities assumed, None of the current programs even come close to making homes affordable. All they do is make it easier for a family to sign a purchase contract.

     

    These changes would begin to make things more rational.

     

    1- Require more up front payment by the home buyer. A minimum of 10% paid either by the buyer or someone else. Possibly a relative, or a business or even the seller.

     

    2- Replace tax deductibility of real estate taxes and mortgage interest with a partial tax credit for paying down the mortgage. This will really make the buyer benefit from building equity. For each $100 of principle reduction allow a $25 credit. Limit the credit to a fixed percentage of the remaining principle each year. Cap the total allowable credit at 25% of 70% of the original purchase price. Homes purchased above the regional average purchase price, will receive benefits capped at those of the average priced. This will make buyers of palaces pay more of their costs and provide a greater benefit to lower cost homes. The removal of real estate tax deductibility will also constrain municipal government budgets growth.
    You can phase out the deductibility of mortgage interest over 10 years for current mortgage holders.

     

    3 - Phase out all government guarantees on mortgages. This will reduce demand by probably raising rates, and cause many to buy less expensive homes to begin.

     

    4 - Require mortgage brokers to guarantee the mortgage interest payments for five years from the origination of the mortgage or from the last interest rate reset. This will incent more reasonable underwriting and help limit predatory lending.

     

    5 - Require buyers be qualified for the mortgage payments based on the highest possible interest rate they could have to pay under the mortgage terms. This should reduce the impact of teaser rates.

     

    6 - Home ownership should not be a national goal, encouraging thrift, and family economic security should be. Paying for a home you can't afford doesn't make one a better citizen. Building financial security does. The government should get out of the business of supporting the real estate and home building industry.
    27 Aug 2014, 06:36 AM Reply Like
  • Sunriser
    , contributor
    Comments (17) | Send Message
     
    Does any one in the world does GSE's like we do? I mean does any government guarantee the mortgages there by enabling risk transfer from bank to the Treasury? Just curious.. I am sure Chinese, Indians,Africans and Europeans who have longer history than us must have either thought about it or implemented this concept? If so had it worked out?
    26 Aug 2014, 07:48 PM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (350) | Send Message
     
    Singapore has a simple system. Married citizens are given cash to help buy a flat. When they sell the flat, the government takes back the grant. Over 90% of citizens over 35 own their own home.
    17 Oct 2014, 12:54 PM Reply Like
  • Danese
    , contributor
    Comments (70) | Send Message
     
    I can tell mr. Sunriser about Denmark. We have one of the largest mortgage markets in Europe, and compared to our tiny population, only 5,5 mio. people by far the largest. They have been no failure or real crisis of that system for about 200 years. The bonds are not bought by the state, but sold in huge series to private/institutional investors. The spread is incredible small, right now floating rates can be had for less that 1 percent for the private consumer=house owner. A 30 year loan is obtained by the historical low fix rate of aprox 2,8 pct. Mr. Soros is a great admirer of our system, and has advocated it to be the model in as adviser in some emerging countries, I believe Mexico is was. Greetings from Copenhagen
    27 Aug 2014, 03:28 AM Reply Like
  • KMR holder
    , contributor
    Comments (762) | Send Message
     
    Danese,

     

    Does the government provide any tax incentive to the borrower? A 2.8% fixed rate 30 year mortgage, doesn't seem to be possible unless there is a very high qualification requirement to receive the loan.
    Does the borrower have to make a large down payment on the purchase?
    Do you know if there is an income to loan requirement?
    Do you have mortgage protection if you lose your income or are disabled.
    The lack of any of these would seem to make the low fixed rate highly risky for the bond holders.
    27 Aug 2014, 06:56 AM Reply Like
  • Sunriser
    , contributor
    Comments (17) | Send Message
     
    Hello Danese,

     

    Thank you for your comments. I know its been working out for you. I don't think you can define banking without risk. I believe that these so called big banks of US should get back to banking the old way. Loan, Quality leading to profit. I am not worried about them losing the gains on the housing. But I am worried that we are teaching banks to be irresponsible by transferring the risk to the tax payer. we need lessons in that order accountability and responsibility not in the form of Economic Capital/Basel. Till then we will face some sort of crisis or the other.
    5 Sep 2014, 05:46 PM Reply Like
  • Danese
    , contributor
    Comments (70) | Send Message
     
    KMR Holder, the principle is that the security for the mortgage provider lies in the property, less on the private economy of the taker of the loan. The max. loan legal is 80 pct. of the estimated - after check of the house/appartment - value of the property. This means downpayment - or eg. bank finance - for the remaining 20 pct. of the purchase price. It must be said also, that apart from I believe is the case in the US, the borrower is p e r s o n a l l y with his/hers future income/fortune responsible for the loan. You cannot "walk away" from the loan, if you loose the etate due to failing payments of the mortgage. This personal commitment is probably responsible for the low loss rate, for the time being minimal due to rising prices of real estate. The personal responsibility for the mortgage is as I understand identical with Spain. Therefore also in Spain the losses during the last 5 years of deep real estate crisis has been much less devastating that predicted by doom-sayers, if a young coupe cannot pay due do unemployment, an uncle or parents will often help in the close family-nittet societe of Spain - and as a consequence eg Santander has done quite ok in the crisis even in Spain. Some of your other questions: no, there is no general income protection provided by the mortgage lender. But our social security is at an extreme high level (just like Norway and Sweeden), some people did well being even unemployed for 10-15 years. Now a small and needed correction is taking place, the system was too luxurious to spur people to active seek work. Best regards from Copenhagen, Mikael
    7 Sep 2014, 02:47 PM Reply Like
  • KMR holder
    , contributor
    Comments (762) | Send Message
     
    Thanks for the response, Danese. I think that the high level of personal responsibility for the loan is what makes the Danish system work. I assume the inspection of the property solves the problem of over-paying to a great extent as well. That was a problem here. Many valuations on property were excessive.
    The lack of recourse against borrowers and in some cases fraudulent valuations lead to severe liabilities assumed by the government guaranteed mortgage insurance plans.
    8 Sep 2014, 07:23 AM Reply Like
  • nomorehomes
    , contributor
    Comments (137) | Send Message
     
    The taxpayers who bail out GSEs should make banks own their debt. Let them eat cake. If you can pass off your risk you will make riskier loans. Government should not be involved because governments are irresponsible at everything they do. Politicians don't do things that make sense. They do what is politically expedient.
    27 Aug 2014, 06:42 AM Reply Like
  • nomorehomes
    , contributor
    Comments (137) | Send Message
     
    We are living in la la land. Just print more money. That is the answer to all of our problems ... so says Yellen and everyone in Washington, DC. If we just got rid of DC all of our lives would be better. DC is like a bunch of mobsters sitting around trying to figure out how to shake us all down. They don't ever do anything i think is worthy of their existence.
    27 Aug 2014, 06:50 AM Reply Like
  • Sunriser
    , contributor
    Comments (17) | Send Message
     
    Some once said to me -- D.C stands for District of Criminals Lol
    8 Sep 2014, 09:47 AM Reply Like
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