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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 26 May 2023 C O V E R F E A T U R E CRACKS IN THE FOUNDATION? MortgagePoint examines the impact of the recent bank failures on the mortgage space with a cross-section of experts imparting their perspectives on how to avoid similar issues in the future. B y E R I C C . P E C K E arlier this year, Silicon Valley Bank (SVB) customers pulled $42 billion out of its institution—fueled by venture capitalists and their social media accounts—creating one of the largest and fastest bank runs in history. Closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, SVB had 17 branches in California and Massachusetts. As of December 31, 2022, SVB reportedly had approximately $209 billion in total assets and nearly $175.4 billion in total deposits. Just days later, Signature Bank was closed by the New York State Department of Finan- cial Services, which also appointed the FDIC as receiver. To protect depositors, the FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, NA, a full-service bank operated by the FDIC as it marketed the institution to potential bidders. At the time of its closing, Signature Bank had 40 branches across the country in New York, California, Connecticut, North Carolina, and Nevada and reported total assets of $110.4 billion and total deposits of $88.6 billion as of December 31, 2022. For those who lived through the time of the financial crisis of 2007-2008, the vibe in early March of 2023 couldn't help but evoke a dark chapter in the mortgage industry: memories of a time when the headlines were filled with the names of now-defunct bad actors such as Ameriquest, New Century, and Countrywide. Lessons learned from that era were carried throughout the next decade-plus, as tighter underwriting standards and greater banking oversight became the new norm, with the microscope laser-focused on the banking space to prevent history from repeat- ing itself. "Silicon Valley Bank almost quadrupled in size over three years, and Signature Bank more than doubled in that time," said Sen. Sherrod Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, during a recent Committee Hearing titled Recent Bank Failures and the Federal Regu- latory Response. "The principles here are not complicated," Brown continued. "Banks should be prudently managed and be mindful of the full scope of risks they face and should diversify across cus- tomers and products. We must consider how these banks exploded in size, in a way that was clearly unsustainable. Some explanations will focus on complicated-sounding concepts like balance sheet risk, moral hazard, stress tests, [and] liquidity ratios." As far as the mortgage space is concerned, would the ripples created by these bank failures impact the mortgage finance space as well? Stanley C. Middleman, President and CEO of Freedom Mortgage Corporation, notes, "A bank failure resulting in missed payments to mortgage securities investors through Fannie Mae, Freddie Mac, or Ginnie Mae could un- dermine the entire U.S. home finance system. This would change the lives of many and impact homeownership across the country. Countless other outcomes of a similar impact on individual lives and businesses could throw regions of the U.S. into chaotic turmoil." And as Lawrence Yun, Chief Economist of the National Association of Realtors (NAR), points out, positives for the housing market in the form of a decline in mortgage rates resulted from the fall of these institutions. "The Silicon Valley Bank failure, along with a few other banks, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates," said Yun in a NAR press release. "Therefore, mortgage rates will decline." And decline they did. E R I C C . P E C K has 20-plus years' experience covering the mortgage industry, he most recently served as Editor-in- Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in communication arts/media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for entrepreneur.com..