Regulations Pose “Continued Operational Problems”

Speaking at the fifth annual Five Star Government Forum on Tuesday, Christopher Whalen presented on the topic, "Government's Role in Restoring a Healthy Mortgage Market." Whalen's presentation focused on the effects of government regulations on the housing industry.

The presentation commented that government agencies "illustrate excessive regulation in the coercive post-Dodd Frank environment," and pose "continued operational problems at big banks."

Whalen specifically cited actions against Ocwen Financial Corporation and Nationstar, both recently in the news for their explosive growth—and specifically in Ocwen's case, hefty consumer payouts for violations of mortgage servicing laws.

Citing CoreLogic statistics, the presentation commented that home prices are up 12 percent nationally (approximately to the same levels seen in 2004) after rising for 23 consecutive months. However, 20 to 30 percent of all U.S. homes remain "under water," with supply constraints pushing prices higher in the most attractive markets.

The presentation concluded that mortgage lending volumes and loan applications are "severely depressed" due to new Consumer Financial Protection Bureau (CFPB) regulations.

"New regulations promulgated by the CFPB are discouraging lending by banks and non-banks alike, causing loan portfolios and loan securitization volumes to decline steadily," the presentation said.

Whalen suggested that so-called "consumer protection" laws in states such as California and Massachusetts are actually slowing the resolution of non-performing loans (NPLs), with timelines as long as three years in some northeastern states and Florida.

Home Equity Line of Credit (HELOC) loans, according to the presentation, are a blind spot for the industry, as the interest-only period for most HELOCs sold during 2004 to 2007 is ending. Citing a statistic from the Office of the Comptroller of the Currency (OCC), Whalen commented, "Balances due to reset will rise to an estimated $52 billion in 2015, $62 billion in 2016, and $68 billion in 2017."

The presentation cited commentary from Moody's that estimates the spike in monthly payments will be "credit negative" for U.S. banks.

Whalen concluded that the U.S. housing sector is not repaired; rather, the increase in home prices is largely a function of a limited supply and high demand, pushing prices higher. Additionally, distressed mortgage assets will continue to weigh on the U.S. economy and bank earnings, while big opportunities still remain in distressed homes for special servicers and institutional investors.

Disclosure: The Five Star Institute is the parent company of DS News and DSNews.com.