The nation felt relief when talk of falling off the “fiscal cliff” was left behind in 2012. But the recession and slow economic recovery still torments a nation striving for financial health.
Talk of managing the debt ceiling has once again demanded the attention of Washington, D.C. lawmakers. It has also impacted a banking industry that suffered tremendous losses during the economic downturn.
Michael Smith, president and CEO of the New York Bankers Association, said the industry is looking forward to more assurance from the government. “We strongly support initiatives and policies that would give certainty and move away as much as possible from temporary fixes,” said Smith.
Businesses, especially those in New York that help generate a sizable amount of revenue, have to be able to plan, Smith pointed out. But planning has become more of a challenge because of a Congress that struggles to find common ground.
“We all know the political situation in Washington,” he said. “But for the sake of our state, our region and our own constituency, which is banking, we would like the moves made to be permanent not only on the revenue side but on the spending side.”
Despite the ripple effects of Washington’s noted struggles, the banking industry has cause to be somewhat optimistic. New laws and regulations are set up to offer more stability. To start the new year, the Consumer Financial Protection Bureau (CFPB) released revised rules for qualified mortgages that would presumably strengthen consumer protections for high-cost mortgages, as well as better prepare consumers for homeownership through counseling.
Among the new rules, the CFPB opted to ban most balloon payments and ban the penalties for paying a mortgage off early. The rules also restrict fees for modifying mortgage loans and they put a cap on late fees for past-due mortgage payments so they don’t exceed 4 percent. The bureau will no longer allow most closing costs to be rolled into the loan amount, and they placed restrictions on the fees associated with a consumer’s request for a payoff statement.
Additionally, the CFPB prohibits controversial practices like encouraging consumers to default on an existing loan so they could be refinanced by a high-cost mortgage. The bureau also released new rules that directly impact the Dodd-Frank Wall Street Reform and Consumer Protection Act. Lenders will be required to provide a list of homeownership counseling organizations to their consumers shortly after they apply for a mortgage. This provision would aid the requirement of providing counseling to would-be homebuyers, to ensure that consumers know where to get help when deciding what loan is best suited for them.
Smith welcomes the new the new guidelines and said they “will bring stability to the marketplace in terms of what a lender can use as guidelines, guideposts, and that’s good.”
The U.S. Department of the Treasury also recently announced that New York financial institutions would receive a $300 million boost through the Small Business Lending Fund (SBLF). The Treasury Department released a report showing that SBLF participants have increased lending to small businesses since its inception in 2010 by $7.4 billion overall. The Treasury has invested more than $4 billion in 332 financial institutions through SBLF. The SBLF is a part the Obama’s small business initiatives aimed to help small businesses access the capital they require to invest and hire. It also is a part of the plan to help spur a still slumping economy.
“We believe the economy is poised to move forward in a positive way and there should be a new level of confidence so lenders are willing and able to lend,” said Smith. That sets a tone the banking community can positively respond to, he said. “So, on the regulatory side and the public policy side we’re beginning to see some definition, some certainty, and hopefully we get through the next couple of months past this debt ceiling at the federal level, and we should be in a good situation in 2013.”