Why would the Fed loosen mortgage regulations?
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Why is the Fed considering loosening mortgage regulations?
When it comes to getting a mortgage, there are banks and non-banks that make loans. Does it matter? From American Public Media, this is Marketplace.
In Denver, I'm Amy Scott, in for Kai Risdahl. It's Tuesday, February 17th. Good to have you with us. We're going to start with a different kind of Fed story than usual. Typically, we talk about the central bank in terms of where interest rates might be headed.
How did the 2008 housing market crash affect mortgage lending?
But the Federal Reserve regulates banks, too. And in a speech yesterday, a top Fed official said the central bank is rethinking some regulations affecting mortgages. The changes would encourage banks to make more home loans. And as Marketplace's Sabree Beneshor reports, that could make it easier for the rest of us to get mortgages. After the 2008 crash, banks bolted out of the mortgage business.
Before the Great Recession, about 70 percent of loans were originated by banks. Now it's only about 30 percent.
Tomasz Piskorski is a professor of finance at Columbia Business School. One reason was they got burned so bad by the home loans they made. Another reason, according to Piskorski's research, was regulation drove them out.
It accounts for about 60% of that migration.
Specifically, new rules said banks had to set aside a bunch of money in reserve as a kind of safety cushion should things go bad. A lot of banks felt it was too much money, so they just didn't want to deal with it.
A lot of this activity has moved to the unregulated sector to the non-banks. Non-banks like fintech companies.
That's not necessarily a problem, he says, but it does mean banks aren't out there swimming in the sea of competition to give you a home loan. And proposed Biden-era rules would have tightened those regulations even more. Yesterday, the Fed said, let's maybe not. So here's what they want to do. One, a reduction in
and the amount of capital that banks will have to hold against loans that they hold on their portfolio.
Jim Parrott is a non-resident fellow at the Urban Institute and a former senior advisor in the Obama White House. Banks right now have to hold a certain size safety cushion of capital for all of their loans.
Which is sort of a silly way to determine capital, because it means you've got to hold the same amount of capital against a risky loan as you would against a not very risky loan.
So some flexibility there might encourage banks to offer more mortgages. The Fed may do a similar thing for mortgage servicing. That's like the day-to-day management of mortgages and payments. Sometimes banks will do that stuff on mortgages that were actually issued by someone else, but they still have to have a safety cushion for that, too. We are very optimistic. They are definitely moving in the right direction. Michael Frattantoni is chief economist at the Mortgage Bankers Association. You want both banks and non-banks to be active participants in this market. He says the more entities offering mortgages, the better. In New York, I'm Sabri Beneshour for Marketplace. On Wall Street, shaking off those AI jitters.
We'll have the details when we do the numbers.
Uncertainty is just a fact of life these days, right? And therefore of the economy. It's affecting consumers, business owners, investors and vaccine makers. They're investing less in research and development because the rules have been changing under Health and Human Services Secretary Robert F. Kennedy Jr. The federal government has rescinded funding for vaccine research, changed recommendations for who should get vaccines and when.
What are the proposed changes to capital reserves for banks?
And just last week, the FDA refused to review Moderna's new mRNA flu vaccine. And Marketplace's Samantha Fields reports the consequences could be long-lasting. Developing new vaccines is extremely expensive, and Amish Adalja at Johns Hopkins University says it takes years.
This is sometimes a decades-long process or even longer, and there are many failures. Even once a company does have success... Vaccines have never been a major moneymaker for pharmaceutical companies.
That's why investment and support from the federal government is so critical for vaccine research and development.
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Chapters
5 chapters
1
Why is the Fed considering loosening mortgage regulations?
0:02–0:36
2
How did the 2008 housing market crash affect mortgage lending?
0:36–4:02
3
What are the proposed changes to capital reserves for banks?
4:02–11:34
4
How might easing mortgage regulations impact homebuyers?
11:34–17:04
5
What challenges are vaccine makers facing due to funding cuts?
17:04–26:03