Regulation Scares Loans
Barbour’s complaints about the regulators have some merit, said Tony Plath, a finance professor at UNC Charlotte. here is probably a balance we must achieve, The balance would be more regulation than what we saw [before the recession], and probably a little less regulation than what we see today. Supervisors “are very strict this year,” and “Part of that is because the banks were a little late to the party in terms of writing off bad loans.” At the same time regulators are active in the face of a steady stream of bank failures since the recession – a stream that does not show signs of fading anytime soon. Last year alone, 157 banks – the highest number since the savings and loan crisis of 1992.
Barbour cited as an example of regulatory overreaching a borrower who has never missed a payment on a mortgage, even though personal income has fallen to the point that he no longer earns enough to make the payments. Concurrently, the appraised value of the property have fallen below the amount owed. Barbour also said, if a bank is working with a borrower who can not make repayments, but is making a partial interest as a sign of good faith, which is automatically classified as a nonperforming loan. This has a negative effect on the balance sheet of the bank included.