4 Reasons Why Michigan vs. Wachovia Bank Should Matter to Everyday Mortgage Lenders
Perhaps you have heard about Watters v. Wachovia, the suit going before the Supreme Court next week. You may have just rushed by the headlines, thinking this is just another case of a state trying to impose predatory lending laws on a financial institution. Let me give you 4 reasons why you should pay attention to this case and why you should care about the outcome:
BACKGROUND
On Wednesday, the High Court will hear arguments in Watters v. Wachovia, a case that pits Michigan’s Office of Financial and Insurance Services against Wachovia Mortgage, a subsidiary of Wachovia Bank. In 2003, state regulators banned Wachovia from lending in Michigan. This was due, in part, to Wachovia Mortgage becoming an operating subsidiary of Wachovia Bank. Wachovia claims that as a federally insured bank they are overseen by the Office of the Comptroller of the Currency (OCC) and that applies to all subsidiaries. In response to being banned by Michigan, Wachovia sued the state.
REASONS TO CARE:
1) If you work for a mortgage bank which is a subsidiary of a federally insured depository institution, a ruling by the supreme court in favor of the State of Michigan could have drastic consequences in the short-term on your job. By granting states latitude over subsidiary companies would almost certainly cause a contraction of business in some states and at worst suspension of lending operations in others.
2) Even if you don’t work for a mortgage bank, if the ruling goes in favor of Michigan there could be a vast amount of predatory lending legislation introduced at the state level all over the country. Essentially, a ruling in favor of Michigan gives each state the precedence to establish their own predatory lending, mortgage practices, etc. restricting the business originated in their state. For a company who lends only in Texas, that’s a fairly easy adjustment to one state’s regulatory changes. But what if you lend in all 50 states and they all adopt different legislation?
3) If #2 comes true, then expect to see federal predatory lending legislation back on the front-burner. Any time the federal government seeks to impose consumer protections across an industry it backfires.
4) In general, the biggest issue before the court is whether federal agencies have the right and/or authority over national companies and institutions or do states have the power to impose state-based legislation that supercedes federal guidelines. For commerce to be conducted freely across state lines it is economically imperative for companies to have national standards instead of a “patchwork-quilt” of state standards and guidelines. Any change to the current policy would have an effect way beyond just mortgage lending.