The Presidential race of 2016 is off and running and while home financing does not have the same impact that it had in the two previous campaigns, there is still some focus on the underlying cause of the crisis and what government should be doing to prevent another one. And while there is not much overtly said about creating more opportunities for homeownership, there are directives and actions taking place that indicate that government policy is still thinking in that direction.
Of course we know that any politician worth their salt will have something to say on everything and while the focus has been on foreign policy and immigration, the candidates have been fairly vocal when it comes to monetary policy, government oversight and assigning blame for the financial crises. Yet in their effort to win votes and influence people they sometimes say the most outlandish and inaccurate things. Here are just some examples from both the Republican and Democratic candidates.
Marco Rubio: On January 10th Mr. Rubio declared that “…banks and other firms crave being declared too big to fail.” He went on to say that “We have created a category of systemically important institutions and these banks go around bragging about it.” The reality is that no one is bragging and in fact regional and mid-size banks are pressing Congress to actually raise the threshold currently considered as the entryway for a “too big to fail” classification.
Jeb Bush: In the same debate Mr. Bush claimed that the Dodd-Frank Act had lowered capital requirements on the big banks. He stated that “What we ought to do is raise the capital requirements so banks aren’t too big to fail. Dodd-Frank has actually done the opposite, where banks now have higher concentrations of risk in assets and the capital requirements aren’t high enough.” Unfortunately for Mr. Bush he was just plain wrong. As every banker knows the Basel III Accord requires all banks to have higher capital requirements and the Federal Reserve Board added a capital surcharge between 1% and 2.5% to the most complex banks.
Ted Cruz: The senator from Texas went further when he claimed that the Feds monetary policies and actions in the 2000s directly caused the crisis. According to the FCIC report the causes of the crisis were determined to be a breakdown in corporate governance, firms willingly taking on too much risk and a mix of excessive borrowing by households and investors. Unfortunately, Mr. Cruz obviously failed to read the report himself.
Bernie Sanders: In numerous statements made by Mr. Sanders the weakening of the Glass-Stegall Act was the true cause of the crisis. According to him the diluting of this act allowed shadow banks (such as Lehman and AIG) to gamble recklessly with the money that came from the federally insured commercial banks. However, two Yale professors quoted in American Banker stated. “…Bear Sterns…and Lehman…and Merrill Lynch and…Morgan Stanley all managed to get enough funding to be systemically dangerous without the deposit bases, in ways that would have been consistent with Glass-Stegall.”
Hillary Clinton: Of course Mrs. Clinton cannot be left out of this listing of misstatements. In October of 2015 when she announced her plan to “rein in Wall Street” she accused President Bush’s administration of basically ignoring the accumulation of risk and pointed a finger at regulators in Washington who “would not or could not” keep up. Her point of reference was a picture taken of regulators taking a chainsaw to banking regulations. Unfortunately, she failed to acknowledge that this picture was actually part of an initiative by regulators to ease outdated regulations for Community Banks.
There are of course other housing policy issues that do not make the regular debate circles but are still active in government circles. One of these of course is Fair Housing and expanding homeownership. Despite the failure to be part of an active candidate dialogue these issues are still a focus within the government housing community. For example, the FHFA recently announced that they have directed Fannie Mae and Freddie Mac to evaluate why some consumers are unable to obtain a mortgage and to make changes where required to ensure the availability of mortgage financing. The CFPB, while currently focusing on LO compensation is still working or changes to the HMDA data to be collected and how the resulting information will be used to address Fair Lending problems. From my perspective it would be beneficial if these same issues and related regulation would be something that the candidates discussed before November rolls around.
About The Author
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.