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This is absolutely priceless.  This story is the embodiment of virtually everything I rail against in the mortgage industry.  That being, when regulation and the government gets involved everything turns to shit.  It’s like what Regan said: what are the 9 scariest words in the English language, “I’m from the government and I’m here to help.” Think I’m wrong.  Let’s just look at the Dodd-Frank Act alone, then we’ll get on with the priceless story behind today’s show. 

Dodd-Frank objectives

  1. Promote financial stability.
  2. Improve accountability and transparency in the U.S. financial system.  Think fintech laws put forth by the CFPB that state explicitly, yes explicitly, that fintech companies only need to disclose what they’re doing if they want to.  That’s the opposite of the goal.  
  3. Too big to fail?  Banks are bigger now than ever, courtesy of regulation that became too expensive for smaller institutions, leading to no new bank formations and smaller banks getting absorbed by the bigger banks.  Not to mention, bailing out systemically important institutions, like big banks, is now actually the letter of the law.  So screwed that one up. 
  4. Improve accountability and transparency in the U.S. financial system.  Again, look at fintech, sandbox laws, and the legal shell game taking place with our administrators.  

Why do I bring this up?  Well, it’s the community reinvestment act!  Passed in 1977 The Community Reinvestment Act (CRA) was passed to fight explicitly racist redlining policies, and requires federal bank regulators—the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation—to evaluate the performance of banks and thrifts to determine how well each meets “the credit needs of its entire community, including low- and moderate-income neighborhoods.” Independent mortgage banks and credit unions, or non-banks, are not subject to the CRA.

OK so you, regional banks, brokers, credit unions, you know, pretty much every lender watching this video, yeah, you’re not governed by every regulatory body in the country, when it comes to CRA goals to help under-served and minority communities.  So how do you stack up in helping under-served and minority communities next to the big depositories that must follow the letter of the law set forth by the OCC, Fed Board, FDIC, and even the CFPB?  Remember, banks with government mandates and regulations via Community Reinvestment act, and you eh not so much.

Score card

When it comes to loans made to “predominantly neighborhoods of color” for low to moderate-income households.  Regulated banks came at 22.2% and unregulated lenders came at 26.4%, meaning unregulated did better.  When it comes to middle-income neighborhoods, regulated banks did 3.7% of their loans to neighborhoods of color and non-regulated lenders did 6.5%, so you beat them again.  When it comes to upper-income neighborhoods regulated banks did 1.9% you did 3.5%. When it comes to a combination of all neighborhoods. Regulated banks did 5.6% and you did 9% of all of your loans to neighborhoods of color.  In short, you the non-CRA lenders outside of the oversight of all these regulatory bodies wrote a larger percentage of your loans to neighborhoods of color even though you were not explicitly mandated to do so under the CRA Act.  Banks who have the mandate tripped and fell coming out of the blocks on this one.  

So the moral to the story is this if you want lenders to kick-ass and help everyone just get the hell out of their way and let them write loans.  See, lenders like everyone else are in part governed by self-interest.  It goes something like this, the more loans I write the more money I make.  Period.  Period.  Not to mention lenders and even realtors come in all shapes, sizes, colors, and creeds.  And, if we’re to split hairs, with lo comp laws, kinda hard to gouge right? 

So why do I bring this up? 

Because there is a groundswell, a big one, from the current administration to put credit unions non-bank and independent mortgage banks under the jurisdiction of all those agencies I just named and the community reinvestment act that governs depositories.  You know, the ones that aren’t doing as good with CRA goals as you are.  So what does that tell you?  Well here’s what it screams at me, the act of regulation itself is more important than the intended outcome.   That’s the government for you, isn’t it? 

Remember the scariest words ever, “I’m from the government and I’m here to help.”