We'll Be Watching You

Over the next week or so, banks will be innundated by the analyses of law firms and other banking consultants as to the implications of the Interagency Guidelines on Nontraditional Mortgage Product Risks that were issued by the federal banking regulators last week. There will much yipping and yapping about "what it all means." Just like the talking heads on the Sunday morning network television news shows, the few will be telling the majority what they should think about it all, with the unspoken undercurrent of all this jabber being "pay us vast sums, because we know more than the other guys, and certainly way more than you, you stupid banker."

At Bank Lawyer's Blog, we pride ourselves on our utter lack of worthwhile comment, as well as on our ability to wander down rabbit trails that lead only to an abrupt end when, like a rabbit, we're snatched up by a hawk or an owl (depending on the time of day) and devoured. We should post a warning at the top of this blog that reads: "Move Along. Nothing To See Here."

But we don't. And some of you still read this blog. The world is a mysterious place.

In that spirit, we'd like to focus on one "issue" we've gleaned from the Guidelines that we find pithy and important, but is likely to be missed by those with larger cerebrums and more time to spend "parsing the nuances." There's nothing more refreshing to the uncluttered mind than belaboring the obvious, and no minds are more uncluttered than those which inhabit this rodent hole in cyberspace.

In the "Overview of Public Comments" subsection of the "Supplementary Material" section of the Guidelines, the federal regulators discuss a problem raised by "many commenters." We assume that those "many commenters" were federal financial insitutions, their hired guns, and trade groups that cater to them. If we had actually read the comment letters, we would have known for certain who these commenters were, but that would have diverted our attention from the latest episodes of Dancing with the Stars, and with Emmitt Smith "in the running" for the title of Captain Twinkle Toes, we must set our priorities and stick to them.

At any rate, the "concern" raised is "that the guidance will not apply to all lenders, and thus federally regulated financial institutions will be at a competitive disadvantage." If there's one thing that a federally regulated financial institution hates worse than government regulation, it's government regulation that doesn't apply to a state supervised competitor. Federal preemption of state law is, of course, in full accordance with the laws of nature and God's plan for mankind, but "guidelines" that "guide" only the federally regulated are "an abomination in the eyes of the Lord and a perversion of all that is right and good." 3 J. Williams 43

The federal regulators responded to this concern by noting that both the Conference of State Bank Supervisors and the State Financial Regulators Roundtable "committed to working with state regulatory agencies to distribute guidance that is similar in nature and scope to the financial service providers under their jurisdictions. These commenters noted their interest in addressing the potential for inconsistent regulatory treatment of lenders based on whether or not they are supervised solely by state agencies. Subsequently, the CSBS, along with a national organization representing state residential mortgage regulators, issued a press release confirming their intent to offer guidance to state regulators to apply to their licensed residential mortgage brokers and lenders."

While such public sentiments are all well and good, those of us who toil at Bank Lawyer's Blog are generally the paid minions of federal financial institutions and fully support their need, and their federal regulators' need, for lebensraum. Any competitive disadvantage that would impede the dialectical unfolding of the ultimate triumph of federal oversight of all banking (and "bank-like") institutions everywhere in the world (and, eventually, beyond) is bound to cause a rip in the fabric of the time-space continuum, which, in turn, could possibly result in such bizarre consequences as the restoration of the 10th Amendment to the U.S. Constitution to a place in our legal system above that of an amusing historical anachronism and OCC hood ornament. Such a horror is so far beyond the pale that even contemplating its possibility causes us to break out with a severe rash.

The dust hasn't settled and already the mouthpieces for state-regulated mortgage brokers are whining about trying to apply the federal guidelines to them. From yesterday's American Banker (paid subscription required), we heard this blubbering:

...the Mortgage Bankers Association objected, arguing that the agencies came up with a "one-size-fits-all" approach to underwriting that ultimately will hurt industry innovation.

"The guidance overreaches," said Kurt Pfotenhauer, the MBA's senior vice president of government affairs. "The foreclosure and delinquency rates are well within historic norms. We think this level of regulatory guidance is therefore not warranted."

Quite cryin' Kurt and take it like a man. No lender thinks any of this is "warranted." The Bush Administration is still fuming over giving Gitmo detainees a fair trial, but life is not always fair, except for jihadists. The federally regulated banks have this advice for you: "Butch it up!"

So, Mr. and Ms. "CSBS" (and we include you, General Counsel "Buzz" Gorman) and "SFRR" (which sounds like the start of a profoundly complicated syllable in Norwegian), and you, too, Mr. and Ms. "state regulatory agency," as well as the other members of your Politburo, you had better get crackin' with making sure that all regulated financial institutions and mortgage lenders and brokers everywhere, federal and state, suffer and suffer alike. We've noted your public promises and we'll darn well hold you to them.

Just like Madonna's good pal Sting, we'll be watchin' you.

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