November 05, 2013


WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing on housing finance reform held to examine small lender access to the secondary market:
"Thank you, Mr. Chairman.
"Today, the Committee will hear about how we can protect small lenders’ access to the secondary mortgage market. 
"It is my understanding that key issues for small lenders in a reformed housing finance system are whether they will have adequate secondary market access, and if so, how that access will be structured and at what cost. 
"We have a broad panel of witnesses today and I thank you all for coming to testify on this critical issue.
"This is a critical issue since small lenders represents the life blood of many communities across America, and especially rural communities in Idaho and elsewhere.
"Lending used to be a community-based enterprise, relying on local knowledge and expertise to extend credit.
"Many community banks, credit unions and small lenders continue to operate that way even today, despite increased regulatory burdens that threaten this traditional model.
"I mention regulatory burden on small lenders for a distinct reason: small entities are already disadvantaged in the existing system.  
"A recent Federal Reserve Bank of Dallas paper found that small banks are spending 10-15 percent of their net income on compliance costs.
"That same paper noted that a bank with less than $300 million in assets has to hire a full-time compliance officer because outsourcing compliance has become too expensive.
"These troublesome regulatory cost estimates clearly indicate that a streamlining of regulatory requirements is needed to ensure small lenders remain competitive.
"One of the ways to do so is to enable them to access the secondary market in an efficient manner.
"The secondary market allows lenders to make new loans by buying or pooling closed loans, thus enabling even small companies to originate relatively large volumes of loans. 
"Some small lenders prefer to sell loans and retain servicing rights in order to generate on-going income and foster client relationships.
"Others prefer to sell loans to aggregators who treat them fairly.
"Yet, not every small lender has the financial capacity or expertise to directly manage the complexities of the secondary market.
"The legislation introduced by my colleagues, S. 1217, goes a long way to address these issues and provide affordable secondary market access for small lenders.
"It does so by providing two access points for small lenders: one through a cooperative—the so-called Mutual—and another one by allowing Federal Home Loan Banks to securitize loans originated by their members.
"The Federal Home Loans Banks know their customers well and are deeply involved in the local communities they serve.
"The Mutual would also be structured to serve the needs of its members—credit unions, community and mid-size banks and non-depository mortgage originators—who know their customers through direct relationships.
"This approach has received positive reaction from small lenders.
"One of the goals of the housing finance reform should be to ensure that this new entity, the Mutual, can serve the needs of small lenders without exposing taxpayers to unnecessary liability.
"This can be done only if the Mutual enables its members to access the secondary market without encouraging or requiring actions that would distort the market in any way.
"We need to think about how to structure the Mutual so that its activities—and the activities of its members—result in strong underwriting standards that will essentially protect the Mutual, its members, the communities they serve and the taxpayers. 
"In order to accomplish that, we must reach consensus on: how to structure the Mutual from an operational side; how best to fund it; what criteria for membership are appropriate so that the Mutual is adequately capitalized; and what safeguards are appropriate to ensure effective risk management.
"Today’s hearing is a good platform for that discussion and I believe we can get on the same page regarding how best to address these issues.
"Thank you, Mr. Chairman."