What IMB advocates want in the year ahead

As 2023 ended, independent mortgage banks could be forgiven for saying "good riddance."  Last year accelerated a trend of skyrocketing mortgage rates, making it harder for families to buy a home and collapsing the market for refinances.

But there was also reason for optimism heading into 2024. A year-end bond rally brought mortgage rates down from 8% to 7%.  And most IMBs have now downsized expenses to fit reduced loan and revenue volumes caused by the collapse of the refi market.

This recap of 2023 is just one of the subjects addressed in the "CHLA 2023 IMB Report," just released by the Community Home Lenders of America (CHLA).  As the only national association that exclusively represents IMBs, CHLA has for almost a decade released this report annually, with a primary goal of educating Congress and federal officials about the critical role IMBs play in ensuring access to mortgage credit for first-time, minority, and other underserved homebuyers.

This year's report leads off with key takeaways for federal mortgage policy makers. Number one on the list is CHLA's call for the Federal Reserve (and the GSEs) to buy mortgages, to reduce historically excessive spreads between mortgage rates and 10-year Treasuries — a key to homeownership affordability.
 
Another takeaway is CHLA's request for action on our "Consumer Mortgage Bill of Rights."  Consumers should be protected from the abusive practice of trigger leads, where a consumer is bombarded with texts, phone calls, and emails just because they are initiating a mortgage application.  Consumers should be served only by mortgage loan originators that are fully licensed and qualified.  And quasi-monopolistic pricing should be scrutinized – like FICO credit scores, whose costs have increased by 500% in just 13 months.

Another key takeaway is just how important IMBs have become for the mortgage and home buying process since the 2008 housing crisis.  In fact, IMBs now originate 81% of all new mortgages.  And IMBs dominate the most critical programs for first-time, minority, and underserved borrowers - originating 90% of FHA and VA loans.

CHLA's IMB Report cites a myriad of statistics and reports confirming that IMBs outperform banks in lending to minority and underserved borrowers.  For example, a 2022 Urban Institute report concluded that "banks substantially underperformed nonbanks in serving borrowers and neighborhoods of color."

Fortunately, when it comes to mortgage policies that help IMBs and the consumers they serve 2023 was a good year.  The year started with an FHA premium cut, and with excessive VA loan fees expiring. The year ended with Fannie and Freddie starting to replace loan repurchase demands, which hurt both lenders and borrowers, with an indemnification option. 

Going into 2024, our IMB Report lays out a detailed policy agenda that prioritizes access to mortgage credit to address significant affordability challenges for borrowers facing high mortgage rates.

The final objective of CHLA's report is to rebut false, but persistent, myths about IMBs. Many people would be surprised to learn that mortgage borrowers have substantially more consumer protections when they get a mortgage loan through an IMB than when they get a mortgage loan through a bank.

Every IMB is subject to supervision from the Consumer Financial Protection Bureau (CFPB) – while 97% of banks are exempt from CFPB supervision.  Every mortgage loan originator that works for an IMB is licensed (SAFE Act test, independent background check, and continuing education) - while bank loan originators are exempt from all these requirements.

The other pervasive – but completely false - myth is that IMBs are risky.  This canard is pulled out whenever there is a crisis - like COVID or the Silicon Valley Bank demise last March.  But these prophesies of doom are always proved wrong, as they ignore the realities of the IMB business model.

As this year's IMB Report explains, IMBs overwhelmingly originate federal agency mortgage loans, then sell them to diversified investors through securitization or sell them to aggregators.  As a result, even if there are mortgage loan losses or declining mortgage asset values, IMBs are very much insulated. 

The simple truth is that if an IMB loan originator goes out of business – which some did last year – the only real impact is that the lender is no longer around to originate new loans. And, for IMB mortgage servicers, there is virtually no taxpayer or systemic risk, except for a handful of mega-servicers.