Major Mortgage Lender Calls It Quits – Mortgages Become A Losing Proposition For Banks

While the Federal Reserve and other government agencies urge banks to lower credit standards and increase lending, one major mortgage lender is calling it quits due to onerous regulatory burdens that increase lending risks and reduce profits.

MetLife, the country’s largest insurance company, is closing its $20 billion mortgage operations and firing 4,300 employees.  The mortgage division was closed after MetLife was unable to find a buyer for the business, according to Bloomberg.

MetLife Inc., the largest U.S. life insurer, said it will shut its home mortgage-origination operation, costing the company at least $90 million and most of the 4,300 employees at the unit their jobs.

MetLife said in October it was seeking a buyer for the mortgage unit after announcing plans to sell deposit-gathering operations to reduce federal oversight. The firm reached a deal last month to sell about $7.5 billion of bank deposits to General Electric Co. The Federal Reserve, which oversees MetLife because of its size and banking operations, rejected its plan last year to raise the dividend and resume share buybacks.

“It’s hard to sell a banking business right now, especially a mortgage business, given all of the potential pitfalls” tied to regulation, said Dan Theriault, an analyst at Portales Partners LLC who has a “hold” rating on the company. “They said they had two options, they could sell the bank or wind it down, and they’re doing a combination of the two.”

MetLife had unsuccessfully been seeking a buyer for its mortgage operations since last fall.  A spokesman for MetLife said at the time that “Today’s uncertain marketplace and regulatory environment requires a tremendous amount of resources.”  If financial giant MetLife perceives the mortgage business to have unfavorable risk/reward characteristics, what chance does a small or mid sized bank have of profitably writing mortgages?

The biggest nightmare in the minds of many bankers became a realty this week and many have been a deciding factor in MetLife’s decision to exit the mortgage business.  The new Consumer Financial Protection Bureau (CFPB) went into full operation with the controversial recess appointment of Richard Cordray to head the Bureau.

The CFPB operates without congressional oversight or budgetary approval.  Funding for the CFPB comes directly from the Federal Reserve.  Many banks are worried that aggressive implementation of a burdensome new regulatory apparatus for mortgage lending will result in higher costs and reduced profits.

While consumer advocates welcome the CFPB as a powerful protector of the public interest, critics of the new bureau worry about the scope of its powers.

Sen. Bob Corker, R (TN) said that “Instead of working in a productive way with Congress, the administration has chosen to undermine any attempt to bring accountability and balance to the bureau.”

Echoing Sen. Corker, Senate Richard Shelby of Alabama, said a recess appointment will produce an “unaccountable bureaucrat who will have immense power over the economy.”

While protecting the financial interests of the public is an important goal, the idea of an entrenched bureaucracy, accountable to no one, seems contrary to democratic principles.  Lord Acton, English historian and writer, summed it up best – “Power tends to corrupt, and absolute power corrupts absolutely.”