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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 28 May 2023 C O V E R F E A T U R E Just days after the fall of SVB, the 30-year fixed-rate mortgage began a steady decline. Edging toward the 7% mark in early March, mortgage rates fell over the next month, dip- ping close to the 6% mark and thus benefit- ing prospective buyers as the spring home- buying season kicked off. However, the dip in rates did not result in a spike in sales, as NAR reported the market was still hamstrung by inventory concerns. Total housing inventory registered at the end of March 2023 was 980,000 units according to NAR, which was up 1% from February and 5.4% from just one year ago (930,000). Unsold inventory stood at a 2.6-month supply at the current sales pace, unchanged from February but up from 2.0 months recorded by NAR in March 2022. And while the mortgage space received a jolt in the form of lower rates, the overall perception of the collapse of Signature Bank and SVB was drastically different. "These events are a wake-up call," said Congresswoman Maxine Waters at a recent House Financial Services Committee hearing titled The Federal Regulators' Response to Recent Bank Failures. "We must uncover how manage- ment, regulatory, and supervisory failures contributed to these events and explore solu- tions to strengthen the safety and soundness of our banks. Small business owners should not be expected to serve as a financial regulator when paying their employees, and community banks and minority depository institutions should not have to pay for the failures of bank mismanagement at SVB or Signature Bank." As FDIC Chairman Martin Gruenberg said in his testimony during the Recent Bank Failures and the Federal Regulatory Response hearing, "It is worth noting that these two in- stitutions were allowed to fail. Shareholders lost their investments. Unsecured creditors took losses. The boards and the most senior executives were removed. The FDIC has the authority to investigate and hold accountable the directors, officers, professional service providers, and other institution-affiliated parties of the banks for the losses they caused to the banks and for their misconduct in the management of the banks. The FDIC has already commenced these investigations." The question remains: what can be done yet again to prevent a repeat of the previous financial crisis—or more likely, a wholly new crisis that the industry could nevertheless anticipate and work to avoid? MortgagePoint was able to speak to an array of experts in the field to gauge their re- sponses to these recent bank failures. Among those sharing their commentary include: » Jacob Channel, Senior Economist, LendingTree » Stanley C. Middleman, President and CEO, Freedom Mortgage Corporation » Peter Muoio, Ph.D., Head of SitusAMC Insights » Matthew Preuss, President of NCCI » Jeroen Van Doorsselaere, VP of Global Product & Platform Manage- ment for Wolters Kluwer » John Vella, Chief Revenue Officer (CRO) at Selene Finance LP Q: What lessons learned from the financial crisis of 2008 can be applied to the recent bank failures? Channel: The biggest lesson that should be taken away from the 2008 financial crisis is just how important regulation in the banking sector is. In the same way, the Great Recession probably could have been avoided had there been better regulation of the banking sector in the early 2000s, had regulators been more involved in Silicon Valley Bank and Signature Bank, and, among other things, compelled both banks to practice better risk management, then these banks could still be standing. Middleman: These are two entirely different events. The cause for each is different, but the crisis is the same. A run on a bank puts the system at risk. With the recent bank failures, the banks' customers—the depositors—felt uneasy with the strength of the bank, so they withdrew their money. The reasons these depositors removed their money are totally different from the subprime crisis, which involved bad credit assets—banks making bad lend- ing decisions and poor management policy around credit. What happened with the recent bank failures had to do with mismatching invest- "These events are a wake-up call. We must uncover how management, regulatory, and supervisory failures contributed to these events and explore solutions to strengthen the safety and soundness of our banks." —Congresswoman Maxine Waters

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