It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory
In October an independent opinion poll was conducted by American Money Services of NY seeking public input on issues surrounding mortgage closings. The results were nothing less than fascinating, and should serve as a wake-up call for the settlement industry.
An overwhelming majority of respondents believe that only attorneys should be permitted to act as settlement agents. That the attorneys should be more carefully regulated, that providing for their independent certification based on criteria including experience, is essential to establishing public faith in the process. Furthermore, 79% indicated that they were unaware settlement agents are not all required to have E&O coverage when handling their real estate matters, 92% believe that settlement agents should meet minimum uniform standards or experience and skill besides being licensed, 93% believe that banks need programs to better identify people who may commit fraud in mortgage closing transactions, 97% believe banks need policies and procedures to ensure that whoever handles the closing funds and documents is trustworthy, 44% believe banks giving mortgage loans are doing enough to protect consumers from losses for fraud, while 56% say they are NOT doing enough.
Interestingly, in contrast to public positions taken by some agent groups, 93% of the public polled in the survey stated that they would feel more comfortable at a closing with someone who had an independent, vetted designation. Finally, 70% of those polled believe that with improvements such as additional protections from fraud at closing, lenders can rebuild the public’s trust in financial industry without government intervention.