By Jeff Kearns | Bloomberg.com
“Federal Reserve Governor Elizabeth Duke said pending bank regulations may “seriously” impair mortgage lending by community banks, which play a “significant” role in the market for home loans.
Duke, a former community bank executive, said she and other Fed governors, including Chairman Ben S. Bernanke, are concerned about the potential harm from several rules mandated in the Basel III agreement and Dodd-Frank Act. If rules cause small banks to believe they shouldn’t sell mortgages, “it should raise red flags,” and policy makers should weigh whether the benefits of regulation outweigh the costs of reduced lending, Duke said today in a speech in Chicago.
“The totality of new mortgage lending regulations might still seriously impair the ability of community banks to continue to offer their traditional mortgage products,” Duke told community bankers today at an event sponsored by the Chicago Fed, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
Housing industry groups, including the Mortgage Bankers Association and the National Association of Realtors, have been warning that the Basel capital standards and the Dodd-Frank regulations will have a chilling effect on mortgage credit as they go into effect at the same time next year.
Risky Mortgages
Regulators are preparing to release the language of two rules taking effect in January to set standards for non-abusive lending and require banks to hold a slice of risky mortgages on their books.”