The Wall Street Journal reports that
Small lenders are fighting efforts to scale back U.S. government support for the mortgage market, arguing that proposals to do so will allow the industry’s biggest players to increase their already dominant market share. . . .
Currently, nine in 10 U.S. mortgages are guaranteed by either federal agencies or government-controlled mortgage giants Fannie Mae and Freddie Mac, which buy up mortgages, package them into loans and sell them as securities. The two companies have needed about $134 billion in taxpayer aid since they nearly failed two and a half years ago. Both Democrats and Republicans have called for their elimination.
Small lenders, however, warn that getting rid of Fannie and Freddie will increase the power of the four largest U.S. mortgage lenders-Wells Fargo & Co., Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc. Those big banks have steadily increased their share of the home-loan market in the wake of the financial crisis, when they absorbed lenders Wachovia Corp., Countrywide Financial and Washington Mutual.
Oh, please. To have a better shot competing against the big banks in home lending, small banks want to keep around the twin cancers of American mortgage finance, Fannie Mae and Freddie Mac? That’s so wrongheaded that it’s almost shameful.
First off, mortgage lending aside, small banks have plenty of advantages over the big banks in other areas of banking. Gathering deposits, for instance. If you doubt it, ask Bank of America how its market share is holding up in places like Chicago. Meanwhile, a key reason the housing market blew up as spectacularly as it did is that the federal government had gotten way too involved in the mortgage lending business. Via Fannie and Freddie, it pushed homeownership policies that, we now know, were insanely risky. The most important thing Congress can do to prevent a rerun of what happened in 2008 and 2009 is to reduce the federal government’s role in mortgage lending to a last-resort minimum. Everyone else but the small-bank lobby seems to understand this. I’m shocked the small-bank lobby doesn’t.
Like it or not, mortgage lending, like other types of consumer lending, is a scale business. The Journal points out that even with the presence of Fannie and Freddie helping to level the playing field for the small banks, the four big mortgage lenders (Wells, BofA, Chase, and Citi) accounted for 60% of originations last year, up from 36% in 2007. So small banks will always have a tough time. Their lobbying for continued help from the feds isn’t just pointless-it’s dangerous, too.