Robert Kelly, chief executive of BNY Mellon, questions the US government’s involvement in the mortgage industry and calls for an overhaul of the entire system as well as national mortgage underwriting standards.
Writing exclusively for The Banker’s annual book, How to run a bank, Mr Kelly said the reason so many mortgages were handed out to unsuitable candidates was because the US lacked any national mortgage underwriting standards.
The collapse of the US housing market and the realisation that many thousands of mortgages were issued to unsuitable candidates has been seen as the catalyst to the global economic downturn. Many of these mortgages were packaged into complex financial instruments and sold throughout the world as investments.
Mr Kelly said that in the US today, mortgage brokers were licensed by 50 different states with no uniform standards. “Mortgages are originated by banks and non-bank lenders which are supervised by a combination of states and four regulatory bodies with no common principles or uniform standards for guidance,” he said. According to Mr Kelly, the mortgage product in the US needs to become more attractive for banks and other investors to hold to maturity. “Today it is not,” he said. “That means we need to rethink whether our government needs or should be in the mortgage business at all. In most other major countries it is not.”
The US government established The Federal National Mortgage Association, otherwise known as Fannie Mae, in 1938 to purchase and securitise mortgages to ensure funds were available to institutions that lent money to home buyers. The Federal Home Loan Mortgage Corporation, or Freddie Mac, was set up in 1970 to expand the secondary market for mortgages in the US.
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