In interviews with analysts, academics, regulators, bankers, and other industry representatives, there was widespread agreement that there is likely to be increased oversight of the mortgage market, including nonbank originators and brokers, in the near term. Looking further ahead, many saw growing momentum for an expansion of the Federal Reserve Board’s powers to handle systemic market risks, a drive to merge the bank and thrift charters, and some limited regulatory consolidation.
But few — other than Treasury officials — said there was much chance for more radical changes, including the creation of a single federal prudential regulator, the elimination of the federal credit union charter, and stripping direct bank supervision from the Federal Deposit Insurance Corp.
The Treasury’s plan, unveiled formally Monday after much of it leaked over the weekend, calls for short-term, intermediate, and long-term steps.
Not surprisingly, the short-term steps, including the creation of a federal mortgage commission to oversee origination standards across the industry and the expansion of the President’s Working Group on Financial Markets to include more bank regulators, appeared to be the easiest to accomplish, observers said.
“Certainly the streamlining and re-regulation of mortgage lenders” is likely to happen, said Chris Low, chief economist for First Horizon National Corp.’s FTN Financial Capital Markets. “That’s one that both parties can get behind.”
Stricter oversight of mortgage brokers is already included in reform legislation the House passed last year, as well as in a bill pending in the Senate. Senate Democratic leaders said Monday they were open to many of Treasury’s suggestions but said policymakers had to focus on stemming the housing crisis first.
Less clear — though still probable over the long term — was whether the bank and thrift charters should be merged, and whether the Office of Thrift Supervision should be folded into the Office of the Comptroller of the Currency.
Mr. Paulson called the thrift charter “obsolete” at a press conference.
The charter is “no longer necessary to ensure sufficient residential mortgage loan availability for U.S. consumers,” he said. “We have concluded that the thrift charter has run its course and should be phased out. With the elimination of the federal thrift charter, the OTS would be closed, and its operations would be assumed by the OCC.”
Merging the charters remains unpopular with banking industry representatives, who moved quickly to oppose it. Despite their opposition, the idea has gained momentum in recent years, particularly during the housing crisis. Supporters of a charter merger argue that the differences between banks and thrifts have become so narrow that it is no longer necessary for thrifts to have a separate charter and their own regulator.
Many also have noted that several of the top thrift companies in the country, including Washington Mutual Inc. and Countrywide Financial Corp., have struggled during the housing crisis. Countrywide ultimately agreed to sell itself to Bank of America Corp., and there are persistent rumors Wamu may be sold to a banking company soon. Their troubles raised concerns about the viability of the charter.
The number of thrifts has declined to 826, although assets have grown to $1.51 trillion.
Analysts said Monday that there would undoubtedly be a fight to preserve the thrift charter, led by the American Bankers Association and the Independent Community Bankers of America, but that it was only a matter of time before the charters and the agencies overseeing them were merged.
