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Tentative response to overhaul of financial regulations

Posted March 30, 2008 11:00 pm

Tim Landis

Springfield banker Henry Kirschner had barely started his career in 1933 when President Roosevelt acted to end a run on deposits and restore confidence by shutting down the nation's financial system for a four-day "bank holiday."

The credit crunch of 2008 is not 1933, but reforms are overdue, said Kirschner, 92.

"Some of this was brought on by the Federal Reserve. They begged people to borrow money with 'no-doc' (no documentation) loans. You didn't have to have an appraisal, you didn't have to have a credit report. You signed your name, and you were in business.

"It stimulated the economy, but look what it brought us," said Kirschner, who still works once or twice a week at Town and Country Bank in Springfield.

Reaction to the Bush administration's proposed overhaul of financial regulations - said to be the most sweeping since 1929 and the Great Depression - ranged Monday from wait-and-see among banking and mortgage groups to too little, too late from a central Illinois group that works with low-income homeowners.

"It does nothing to keep people in their homes. There's no interest-rate freeze, no moratorium on foreclosures. We're still getting calls every day," said Dawn Dannenbring of the Central Illinois Organizing Project.

The faith-based group, which has regional offices in Springfield and Bloomington, has backed a variety of reforms of Illinois predatory-lending laws.

Dannenbring said predatory lenders already are finding ways around the tougher Illinois laws, and she doubts reforms proposed Monday by the Bush administration will do much to end the practices.

"About 70 percent of the subprime loans were through the unregulated arms of big lending institutions," she said.

The president of the Illinois Association of Mortgage Professionals, which has about 800 company and individual members, said he generally favors national regulation of mortgage brokers and originators.

"What you have now is 50 states going in 50 different directions," said Paul Lueken.

After Illinois began requiring a licensing exam, background checks and fingerprinting of applicants four years ago, he said, the number of mortgage originators in the state, then estimated at 29,000, was cut by more than half.

"Many mortgage broker companies lost officers because they couldn't pass the test," he said. "We want (federal) standards for all originators, so the bad apples won't be able to hide."

Illinois Bankers Association president and CEO Linda Koch said in a statement traditional bank lending already is heavily regulated, but the association favors national regulation of mortgage brokers.

"The need for similar strict and uniform national standards for non-financial institutions now is self-evident," she said.

Fortunately for Kirschner, whose banking career did not bring him to Springfield until the 1950s, the Stockyard Bank of St. Joseph, Mo., where he started in the business, reopened in a matter of days in 1933. He also recalled creation of the Federal Deposit Insurance Corp. and $2,000 worth of insurance per account that same year as an example of what can be accomplished if elected officials are committed to reform.

"The FDIC was a big deal. People started putting their money back in the bank instead of putting it under their mattress," he said.

Tim Landis can be reached at (217) 788-1536.

Financial institutions in Illinois

-- 670 federally chartered banks with $395.9 billion in assets; 554 that state chartered with $179 billion in assets

-- 1,890 state-licensed mortgage brokers

-- 330 state-chartered credit unions

-- 32 state-chartered savings and loans

Sources: Federal Deposit Insurance Corp. and Illinois Department of Financial and Professional Regulation

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