Last week, the Community Mortgage Lenders of America joined with several civil rights organizations, affordable housing groups and business organizations in urging Congress not to slip policy changes affecting Fannie Mae and Freddie Mac into catch-all spending bills that must be enacted by the end of the year.
The letter cautioned Congress specifically against legislative riders dealing with the Common Securitization Platform (CSP) and credit risk sharing, pointing out that the Federal Housing Finance Agency is currently addressing both issues in a detailed manner and seeking public input.
“…arbitrary Congressional changes in these two areas,” the letter said, “could negatively affect borrowers and other stakeholders by interfering with affordable housing objectives and with fair secondary market access by small and mid-sized mortgage loan originators.”
Had the letter been drafted a few days after it was, it might have included a reference to the scandal at Wells Fargo. As we have noted, both risk sharing and the CSP are of, by, and for the nation’s big banks. Scrutiny of the industry in the wake of the Wells Fargo scam is all the more reason to avoid rushing into codifying so-called reforms. There is ample time to learn more about risk sharing, the CSP, and the implications of both changes for borrowers and taxpayers.
The culture that pressured bank employees to put profits ahead of people is by no means confined to Wells Fargo. CNN Money recently reported that employees at well-known large banks such as Bank of America, Citizens Bank, PNC, SunTrust, and Fifth Third spoke of “sales obsession” that pervades their banks as well. Comptroller of the Currency Michael Curry told the Senate Banking Committee the OCC is looking into whether other banks have employed high-pressure sales tactics like those that gave rise to 5,300 Wells Fargo employees creating sham accounts.
In addition, the Consumer Financial Protection Bureau logged over 31,000 customer complaints under the category of opening, closing and management of bank and credit cards and in June, the National Employment Law Project, an advocacy group for low-wage workers, reported on the threat of the banks’ aggressive sales metrics for “unwitting customers.”
The British newspaper, The Guardian, took stock of this unfolding mess and Wells Fargo CEO John Stumpf’s wince-worthy appearance before the Senate Banking Committee and created a list of eight deadly sins of the banking industry: Stupidity, Self-deception, Obliviousness, hubris, scapegoating, greed, doublespeak, and cowardice.
“A lot of us are worried that there’s similar doings going on in other banks,” Senate Banking Chairman Richard Shelby, (R-AL) was quoted as saying.
That being the case, lawmakers should avoid giving their approval to codifying risk sharing and the CSP. Another Congress, along with a two-term presidency, is coming to an end without needed reform of Fannie and Freddie. Given the years of inaction, there is no reason to toss so-called reforms into huge spending bills on the way out the door. Instead, Congress should step back, take a careful look at the financial services landscape and rethink the wisdom of handing over Fannie and Freddie’s portfolios to banks. If Wells Fargo and other banks are as concerned about the long-term liquidity and stability of the mortgage market as they have been about their integrity in serving customers, then Shelby and his colleagues should all be worried and move with informed caution.