Costs & Consequences. Dulles Area Association of Realtors Economic Seminar

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1 Dodd-Frank Costs & Consequences Dulles Area Association of Realtors Economic Seminar September 21, 2011

2 Leading up to Dodd-Frank "Th f th b k d l k th f th "The further backward you look, the farther forward you are likely to see. Mark Twain

3 Number of US Institutions Decreasing 18,000 16,000 14,000 12,000 10, ,000 Savings Institutions Commercial Insitutions 6,000 4,000 2,000 0 Source: FDIC

4 Number of VA Institutions Decreasing VIRGINIA BANKS & SAVINGS BANKS Source: FDIC

5 Changes in the Number of Institutions Source: FDIC

6 The Good News The Vast Majority of the banks in this country are safe & sound The banking industry has more than $1 Trillion in capital Banks are driving economic recovery through lending The Banking industry continues to Reinvest in our Communities

7 FDIC Institutions are Safe & Sound Still Not one penny of insured savings has ever been lost by a customer of a federally insured bank!

8 HOUSING MARKET TRENDS

9 Credit Profile Weakening Nonperforming Assets as a % of Total Assets Median U.S. Bank & Thrift Data 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2006Y 2007Y 2008Y 2009Y 6/30/2010 >$5 Bil. 0.37% 0.61% 1.27% 2.38% 2.63% $1 - $5 Bil. 0.31% 0.57% 1.30% 2.61% 2.83% <$1 Bil. 0.38% 0.54% 1.04% 1.66% 1.85% Note: (Loan 90+ Days Past Due and Still Accruing +Nonaccrual Loans+Restructured Loans+OREO+Other Nonaccrual Assets)/ Total Assets Data based on Institutions with assets reported at 06/30/10 (Active and defunct) Source: Austin Associates

10 Consumers Reduce Borrowing Revolving Credit (left axis) Recession* Year-Over-Y Year Percen nt Change Unemployment Rate (right axis) Source: Federal Reserve

11 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Housing Collapse Mortgage Payments Past Due Days Mortgage Payments Past Due 90+ Days Mortgage ForeclosuresStarted Mortgage Foreclosure Inventory Source: National Association of Realtors Thousands 2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3 2007/Q4 2008/Q1 2008/Q2 2008/Q3 2008/Q4 2009/Q1 2009/Q2 2009/Q3 2009/Q4

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15 MORTGAGE INDUSTRY TRENDS

16 Mortgage Origination Forecast $1995 $Billions$ Projections $2,000 $1,800 $1,600 $1505 $1,400 $1,295 $1,200 $1,000 $800 $1,032 $966 $976 $236 $352 Refinance Purchase $600 $400 $200 $700 $473 $614 $740 $- Notes: Housing starts and home sales are seasonally adjusted at annual rate. Total existing home sales include condos and co ops. ops Total 1 to 4 famil originations and refinance share are MBA estimates. These exclude second mortgages and home equity loans. The FHFA US House Price Index is the forecasted year over year percent change of the FHFA All Transactions House Price Index. Refinance share is percent of total dollar volume of closed loans. Copyright 2011 Mortgage Bankers Association. All rights reserved. THE HISTORICAL DATA AND PROJECTIONS ARE PROVIDED "AS IS" WITH NO WARRANTIES OF ANY KIND Actual 2010 Forecast 2011 Forecast 2012 Forecast

17 Mix of Business Refinance vs. Purchase 2009 Actual $Billions $ 2011 Budget $Billions $ $700 $352 $1,295 $614 Purchase Refinance Purchase Refinance Notes: Housing starts and home sales are seasonally adjusted at annual rate. Total existing home sales include condos and co ops. Total l1 to 4 famil originations ii and refinance share are MBA estimates. t These exclude second mortgages and home equity loans. The FHFA US House Price Index is the forecasted year over year percent change of the FHFA All Transactions House Price Index. Refinance share is percent of total dollar volume of closed loans. Copyright 2011 Mortgage Bankers Association. All rights reserved. THE HISTORICAL DATA AND PROJECTIONS ARE PROVIDED "AS IS" WITH NO WARRANTIES OF ANY KIND.

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20 The Scope of Regulatory Reform Number of Pages of Major Financial Legislation Dodd-Frank Act (2010): 2,319 pages Gramm-Leach-Bliley Act (1999): 145 pages Sarbanes-Oxley Act (2002): 61 pages Riegle- Neal Interstate Banking Act (1994): 61 pages The Glass-Steagall Act (1933): 37 pages Federal Reserve Act (1913): 31 pages

21 Regulatory Environment Pressure from Washington More Regulatory Oversight Higher Capital Standards Increased Focus on Asset Quality & Portfolio Management Enterprise Risk Management never more critical Uncertainty / Role Clarity

22 Dodd Frank Act of 2010

23 Consequences Climate is what we expect. Weather is what we get. -Mark Twain

24 The Forecast?

25 Who is Impacted? Taxpayers Banks Consumers

26 Why Dodd-Frank Impacts Consumers

27 Examples: Unintended costs Consumer Financial Protection Bureau Debit Interchange Fees Mortgage Lending Provisions

28 The CFPB

29 Mortgage Compliance Issues RESPA/ TILA Combined Disclosure Ability to Repay Risk Retention ti /QRM Safe Act Fair Credit Reporting Act Changes

30 Ability to Repay (QM) QM Underwrite on Ability to Repay No negative Amortization Limit of 3% points & fees

31 What is QRM? Qualified Residential Mortgage Down payment of 20%, 25%, or 30% DTI of 28% / 36% No 60 day late in last 24 No consideration for MI

32 Why is ORM important? Risk Retention (5%) Safe Harbor for QRM loans Potentially dramatic impact on secondary market Could result in very limited financing options for consumers Timing: i GSE Resolution / Economy

33 What impact will these burdens have?