Mortgage lending ‘regulatory burden’ forcing smaller banks to cut back, governor asserts

As regulatory burdens have risen, community banks have scaled back their mortgage lending, a governor of the Federal Reserve asserted Thursday, calling that a challenge to the overall housing sector.

In a speech, Fed Gov. Michelle (“Miki”) Bowman said mortgage lending has traditionally been a “significant business” of smaller banks. She said the decline of the business threatens a part of the banking industry that plays a crucial role in communities.

“Bankers who are present and active in their communities know and understand their customers and the local market better than lenders outside the area,” she said. “Because of their local knowledge and customer relationships, they are often more willing to help troubled borrowers work their way through difficult times.”

Bowman was speaking to the Home Builders Association of Greater Kansas City (Mo.). Her overall remarks were focused on the outlook for housing across the country (and her comments about the community banks and their response to rising “regulatory burden” in mortgage lending was a relatively small part of her speech).

In other comments, Bowman said she is optimistic about the outlook for housing. She said she expects construction to “continue advancing to meet the underlying expansion in housing demand from population growth and the strong economy.”

She also said that low interest rates will continue to be a key factor supporting growth in housing activity. “As reported in the latest Summary of Economic Projections, released in December, most FOMC (Federal Open Market Committee) participants see the current target range for the federal funds rate as likely to remain appropriate this year as long as incoming information remains broadly consistent” with the economic outlook, she said.

FRB Gov. Michelle W. Bowman: The Outlook for Housing