Banking Law

Paul Muolo of National Mortgage News is not the kind of columnist who pulls his punches. Saturday's headline, "President Obama to the Housing and Mortgage Industries: Drop Dead!", told you all you needed to know about where Paul was heading with his reaction to Friday's announcement that the Treasury Department  planned to poison Fannie Mae and Freddie Mac, killing them softly over a span of less than a decade rather than handing them a blindfold and a last cigarette and then blasting them with rifle fire. You should read the column for yourself, although I will say that I agree with his lists of winners and losers. Unfortunately for those of us who represent community banks, as far as the commercial banking industry is concerned Paul lists "megabanks" in the winners column. The TBTF get richer and the poor remain too-small-to-give-a-fig-about.

According to a story at this morning's Housing Wire online, the ICBA thinks that the Obama administration's plan is bad for community banks.

Community banks say the Treasury's proposed housing market reforms will privatize the secondary mortgage market to the detriment of community banks that use GSE loan products to fund loans to consumers in small towns and rural areas.

"A reliable secondary market is essential so that the nation's Main Street community banks can continue to offer residential mortgages to their customers," said Jim MacPhee, ICBA chairman and CEO of Kalamazoo County State Bank in Schoolcraft, Mich. "While reform should focus on preventing future crises in the housing market and embracing the common-sense underwriting standards long practiced by community banks, it should not eliminate all government involvement in the secondary market while turning it over to Wall Street."

MacPhee said the Treasury's plan as it stands would simply transfer power to large banks insured by the Federal Deposit Insurance Corp., while removing some of the government mortgage products that community banks and their customers rely upon.

"Its future structure should not foster further consolidation in the mortgage market, which would only result in higher mortgage costs and fewer consumer options," MacPhee added.

"Consolidation." Get used to word, folks, even if it makes you slightly nauseous.

The Great Recession, the other after-effects of the popping of the mortgage and real estate "bubbles," The Glory of Dodd-Frank, the FDIC's failed bank resolution policies (and de novo bank, bank merger, and "distressed" bank enforcement policies), and now the plan to eliminate the walking dead men named Fannie and Freddie, all fuel the consolidation train. It's pulling out of the station and starting to gather some steam. If you're a community bank, you have to think about the relative risks of hopping aboard or being run over.

Then again, you could stick your head in the sand and pray for a miracle.