Jun 28 2011

Shelby: We Need a Housing Finance System for All Banks, Big and Small

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on housing finance reform.


Committee on Banking, Housing and Urban Affairs

June 28, 2011

 “Thank you, Mr. Chairman.

“Small and community banks play a unique and vital role in our housing finance market.  Historically, small banks were the primary source of mortgage lending.  If you wanted to buy a home, you went to your local bank to get a mortgage.  Today, however, the financial landscape is quite different.

“First, the banking industry has witnessed substantial consolidation.  In 1984, there were 15,000 banking and thrift organizations.  Today, there is less than half that number. 

“In addition, mortgage lending is concentrated in just a few banks.  Last year, three banks originated 56 percent of all mortgages, while eight institutions serviced 63 percent of all outstanding mortgages.

“Another shift in the mortgage landscape is the dependence on capital markets to finance mortgage lending.  Before the advent of securitization, the vast majority of single-family residential mortgages were held by banks.  In 1970, banks held over 70 percent of single family residential mortgages, while 30 percent were held by the government and other investors.  By 2008, those numbers had flipped with banks holding less than 30 percent of mortgages.  The days when your local bank actually owned your mortgage have long past.

“Despite these significant changes, small banks have proven to be remarkably resilient and able to adapt to the new environment.  Because they are close to their communities, small banks are often able to find profitable lending opportunities overlooked by the big mortgage lenders.  Therefore, there is no economic reason why small institutions cannot compete with large ones.  We just have to make sure that we do not create regulatory barriers that place small banks at an unfair competitive disadvantage.

“Accordingly, as we consider how to reform our housing finance system, it is critical that we devise a system that works for all banks, not just large institutions.  Any reforms should recognize that small banks have very different business models.  Failing to account for the distinct needs of small banks could needlessly accelerate the consolidation of our banking industry to the detriment of consumers and taxpayers.

“For generations small banks have been the back-bone of communities throughout our nation.  As we undertake housing finance reform, we must ensure that they remain so for generations to come.

“Thank you Mr. Chairman.”