Affordable housing groups teaming up with the 'evil mortgage banksters' to oppose higher Capital Ratios for the TBTF banks? Sherrod is NOT pleased!
Todays WP: "Borrowing costs for mortgages have more than doubled over the past two years as the Federal Reserve has battled inflation by hiking interest rates, which hit a 22-year high earlier this year. That has compelled homeowners to hold off from selling and instead stay put until rates cool - choking off supply and locking in prices that rocketed during a pandemic-fueled buying spree.
Out of reach
Higher financing costs already have put homeownership out of reach for most of these borrowers who qualified just two years ago: Before the Fed started raising interest rates, 3.4 million Black Americans were deemed "mortgage ready" based on their credit history and income, according to research by Freddie Mac. Thanks to the higher cost of financing, that number stands at less than 1 million now, the National Fair Housing Alliance found in a follow-up analysis based on traditional underwriting standards.
Meanwhile, Black home loan applicants in the 50 largest U.S. metropolitan markets are 1.6 times more likely to be denied than the overall population, a recent study by LendingTree found.
"That just shows you what happens with this wealth divide," National Fair Housing Alliance CEO Lisa Rice said. "When you don't have family members that you can lean on because they weren't able to build wealth to help with a down payment, these higher interest rates have a devastating impact."
These concerns prompted regulators and industry executives a few years ago to make home-buying easier for underserved borrowers. After George Floyd's murder ignited nationwide protests in the summer of 2020, corporations across the economy committed to projects aimed at battling systemic racism. Mortgage lenders pledged to work with financial regulators to provide credit to more minority borrowers.
Yet only a handful of companies followed through. While a number of mortgage lenders have launched pilot programs over the past year that collectively pledge to initiate tens of thousands of home loans, those efforts will barely make a dent in the racial homeownership gap at their current scale: Closing it would require 4.5 million more Black Americans buying homes, according to the Urban Institute.
More broadly, big financial institutions have retreated from lending to economically disadvantaged mortgage borrowers. Three of the largest banks for mortgage lending - Bank of America, JPMorgan and Wells Fargo - cut the share of home loans they issued to lower-income borrowers by more than half in the six years following the Great Recession, a 2017 Federal Reserve study found.
The new rules put forth by banking regulators could drive banks to accelerate that trend, critics say. The proposal, unveiled in July by the Federal Reserve and two other agencies, would not only harmonize U.S. regulations with international rules on capital requirements but also would go beyond foreign standards regarding extra capital for larger banks. Advocates of the change say it's an attempt to ensure the banking system remains sound in the event of another crisis like the one that shook the industry this spring.
Odd bedfellows
The banking industry has launched an unusually aggressive lobbying blitz against the proposal with help from some unlikely allies: Traditionally progressive groups focused on promoting homeownership are also rallying against it.
The Financial Services Forum, representing eight of the biggest U.S. banks, said it is spending a seven-figure sum on television advertising blasting the proposal as an added fee on Americans already burdened by inflation. Another group, called Center Forward, is airing ads with a similar message on national broadcasts, including during National Football League games. And big bank CEOs raised the issue in testimony before the Senate Banking Committee on Dec. 6.
Meanwhile, the NAACP, the National Urban League and the Urban Institute have lodged their own critiques. An Urban Institute study of the proposal's impact on lower-income minorities concluded it is "particularly perverse in the face of efforts by the bank regulators and other government agencies to encourage banks to increase their lending to precisely these borrowers and communities."
Not all progressive groups oppose the proposed rule. Alexa Philo, a former Federal Reserve Bank examiner who now works as a senior policy analyst at Americans for Financial Reform, said the proposal has sparked heated opposition from the industry because it could dent executives' pay.
"When banks have to raise more equity capital, it can depress the share prices that are linked to banker bonuses," she said in an email. "That's why the bank lobby fights greater capital requirements with everything it has. The rest, particularly about alleged harms to economic growth, is largely nonsense."
Sen. Sherrod Brown (D-Ohio), who chairs the Senate Banking Committee, struck an incredulous tone over the industry's lobbying push as the bank CEOs testified before the panel last week.
"Wall Street banks are actually saying that cracking down on them will, quote, 'hurt working families.' Really?" he asked. "You're going to claim that?"
