Q&A with: Bankers Association President Jerry Little
Q. Considering the number of foreclosures, are banks getting back into the real estate business? A. First of all, our foreclosure rates are entirely normal in New Hampshire. To a great extent across the country, you’ll find that chartered financial institutions didn’t pursue (subprime lending). Because banks stuck to their underwriting, they don’t have an awful lot of foreclosures. You open up a mortgage company, you pay a couple hundred bucks to the Bank Department to get a license and off you go. You open up a bank, you’re putting up $30 million. You’re also anchored right here in the community. When the economy dips and goes into a soft spot, you’re still here. You don’t abandon that $30 million and walk away. So you’re going to be careful about what you do. You know you’ve got to be there for the long run. A great number of non-bank mortgage lenders are simply closing, packing up their tents and going away. Q. Was it because the way the housing market was going that the lenders responsible thought they could count on the appreciation of value? A. I think everybody was feeling as though home prices would just continue to climb. And the concept was that you could do a 95 to 98 to 100 percent loan-to-value note and the price appreciation would grow equity, and then you could come back and point to the interest and say, “I would like to refinance to a better note.” Certainly the creation and existence of the securitization vehicles gave people the capacity to make those types of loans. Q. What happens to the debt? A. Well, at that point they don’t have a lot. Because all they’ve been doing is originating loans and putting credits into the pipeline. But they don’t have any interest rate risk, they don’t have credit risks out there, because as soon as one of those loans is packaged, it’s gone and it’s put into a securitization vehicle, and then it’s off in the hands of investors in Florida and Norway and wherever else. Q. So from what you’re saying New Hampshire banks weren’t doing those “no doc” or no documentation loans. A. As far as I can tell, no. (They’re) also known as NINJA loans — No Income, No Job or Assets. You didn’t have to verify anything. Q. That sounds crazy. A. It is crazy. Obviously, it doesn’t work. Q. But that’s one thing that has changed for the banking industry over the years — you’re getting more competition from more quarters. A. Absolutely. There has been the creation of less regulated, more flexible competition. As a result, banks have been forced to change and evolve and move along. A lot of people are frustrated. They don’t like the service charges and fees, but that’s what the competition does. The competition doesn’t work the margin business. And so the rate in the margin means nothing to them. The consumer looks at the rate in the margin and they say, “I want the best deal I can get.” And they want to go there, so they want to pursue that product with the non-bank competition. But they want the banks to compete on that level of rate without implementing the service charges and fees that the non-bank competition always does, because that’s where their money is. Q. So what have banks been doing to try to hold on to their customer base with all of this competition out there? A. Service. Open and honest communication. Helping people out. In the mortgage situation, a lot of people are coming back to the banks and saying, “We shouldn’t have taken out the note we did, but now we need you to help us.” Unfortunately, in a great number of the cases, there’s nothing we can do. But I think a lot of people are realizing now — for some, too late — the value of using a local institution where you can go in, and if there’s a problem, sit down in front of somebody’s desk and say, “I’m not leaving until we get this matter solved.” It’s hard to do that when you went online to get your note and the investor is someplace, you know, out there in ether. Q. What are the biggest problems facing banks right now? A. Hyper-competition from non-bank entities on both the loan and the deposit side. At the same time, there is a constantly growing level of regulatory burden. At the federal level, if there’s a problem and there’s a way to require the banks to solve it, they’ll go after it. Even things like 9-11 resulted in Congress quickly passing the USA Patriot Act, which has in it a huge amount of new regulations. That came down on the banking industry in our role as economic hall monitors — an early warning system in money transactions. The Sarbanes-Oxley Act is another one that has to do with everything from approval of boards of directors, to oversight and approval of internal actions that have gone on to new auditing requirements that are extremely expensive. And these are all things in which there is no way to earn from the investment of resources to comply with those regulatory requirements. Q. I would guess the regulatory environment isn’t going to get any better in the years to come. A. I was holding out hope until recently and what we’ve seen coming out of Washington in this subprime mortgage crisis. I don’t know whether I feel good or more frustrated by the fact that those in power and positions to make decisions about our future say they recognize that we’re not responsible, but we’re going to have to pay a price. Q. Have the bankers and their various associations been talking to their congressmen about it? A. I think if you spoke to New Hampshire’s members of Congress, they’d all tell you that they think they hear from us more than enough, thank you very much. But our concerns have been raised to the level that last May we actually asked the question, do we believe that there is a long-term future for the banking industry? And we really couldn’t answer the question. We hope there is. We want to fight to make sure that there is, but we’re not positive. And that’s an important point to be at because I don’t think 10 years ago, we would have even asked the question. I think the state of New Hampshire needs to be concerned about the future of the banking industry. Because if those institutions go away, the question is, what’s left?