Volume 6, Issue 2
Page 7
DAY WITH THE COMMISSIONER
State Bank Department
LOW
eral challenges to recov-
Continued from Page 6
ery. He pointed out that
the back of consumers who
the pullback in consumer
still don’t really have access
gressive lending. spending during this re-
to credit,” he said. “And
Borrowers took on cession is much more
that has never happened
more debt than they could severe than during the
since World War II. We’ve
manage, Low noted. last recession in 2001.
never had a recovery with-
“Increasingly, the indi- “And, no wonder,”
out growth in consumer
vidual lending decisions Low said. “People were
credit.
were not made by the severely overextended. In
“So it is the ultimate chal-
lenders. They were made many cases, they’re being
lenge to you as you try to
by the borrowers,” Low cut off from the debt that
make decisions about lend-
said. “And as the crisis
Chris Low
they used to finance their
ing and about your invest-
blossomed, it wasn’t until spending. And, then, in
ment portfolio, because we
it was out of control that “Mortgage lenders went other cases, maybe they’re
will have a recovery but it
lenders began to realize from making loans to doing just fine but be-
could all die as we turn into
the trouble they were in.” people who we knew cause they’re so worried
2010.”
Low traces the origin of were going to pay us about the future, they’re
Adds Low: “Boy, the next
the credit “bubble” to the back, because they had not spending.”
recession is going to be a
emergence of the non- the income and the abil- Low forecasts low to
heck of a challenge because
bank mortgage lender in ity, to making loans to moderate positive eco-
government is going to have
the 1980s. The non-bank anybody who asked,” nomic growth, as meas-
unprecedented levels of debt
lender, Low said, chal- Low said. “The thinking ured by Gross Domestic
at that point.”
lenged what had been the was, ‘If we can’t get the Product, in the final two
In addition, Low told at-
standard terms for a mort- money back from the quarters of 2009.
tendees at Day With The
gage loan since the 1960s: customer, we’ll take the He credits the Obama
Commissioner:
a 30-year fixed rate with a house and it’s going to be administration’s eco-
 Interest rates will level
20 percent down payment. appreciating [annually] at nomic stimulus package
off or slightly increase in
These lenders, Low ex- 10 to 15 percent.’ and aggressive action
2009 – not decrease, as Low
plained, “looked at bank “Frankly, if you wanted taken by the U.S. Treas-
forecast last December. At
balance sheets and realized to be a mortgage lender ury Department and Fed-
that time, he expected the
that losses on mortgages as a bank, you had to eral Reserve Board.
rate on the 10-year note to
during recessions were compete on their terms “I don’t think there’s
fall to 1.50 percent this year.
extraordinarily small rela- or get out. And I know any doubt it would be a
“That’s gone,” Low said,
tive to profits that were an awful lot of commu- long, drawn-out multiyear
attributing his forecast revi-
being made in mortgage nity bankers we talked to recession, depression –
sion to the large federal
lending. Their conclusion opted for the second whatever you want to call
stimulus and budget.
was [that] we’re not taking course,” Low continued. it – with deflation built in
“There is no fiscal discipline
enough risk.” “They just stopped mak- and everything else,” Low
in Washington. That’s pri-
What followed was a ing mortgage loans except said. “But the fact is that
marily why rates can’t come
loosening of underwriting conforming, which they the government has
down.”
standards, including lower could pass on to Fannie pulled out all the stops.  A countercyclical policy
down payments. or Freddie.” And with the stimulus hopefully will evolve to re-
“It wasn’t until the late In the 1980s, Low said, that we have in the econ- plenish the FDIC deposit
1990s that mortgage debt the share of the residen- omy right now, it is much insurance fund and allow
absolutely exploded,” Low tial mortgage market held more likely to be a recov- banks to build up loan-loss
said. by commercial banks ery. Now, it may be one reserves when the condition
The “bubble” was being dropped from 80 percent with a lot of false starts.” of the industry is strong.
inflated by rising home to 50 percent. Low is quick to qualify “Those changes are very
prices in a residential Despite positive eco- his forecast for recovery. likely to take place and that
mortgage market fueled by nomic indicators in recent “Unfortunately, it’s a could certainly make us
low interest rates. months, Low listed sev- recovery that’s built on stronger.”
June 30, 2009
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