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May
2002
Speakers at NAMB Legislative and
Regulatory Conference Discuss Predatory Lending and RESPA Reform
NAMB's Legislative and Regulatory Conference
this week was a great success, with more than 300 attendees. Sheila Bair,
Assistant Secretary of the Treasury for financial institutions, spoke
about her "best practices" initiative. Bair has been exploring
the possibility of the Treasury Department, in concert with other federal
regulators, establishing best practices guidelines for "subprime" lending that would be enforced by
banking regulators and the FTC. Bair also stressed that best practices
must include investors and securitizers, in
addition to lenders and mortgage brokers. Bair urged the industry to look
for ways to keep unethical brokers out of the business. She said more
consistent licensing at the state level could help, and urged industry to
support that goal.
"It
is clearly in the interest of this organization to work toward
eliminating the irresponsible brokers that detract from the positive role
played by mortgage brokers," Bair said. "I would urge your
organization to play a pro-active role in improving the licensing
requirements at the state level as a way toward eliminating irresponsible
brokers."
Ivy
Jackson, the chief official at HUD responsible for enforcement of RESPA,
told NAMB that HUD is bringing on additional staff as well as contract
investigators to significantly increase enforcement of RESPA. Jackson told attendees
that HUD Secretary Mel Martinez places a high priority on enforcement of
RESPA. She said that HUD has allocated $1.5 million in fiscal 2002 for
contract RESPA investigations. Jackson also said HUD is
working with other federal agencies on RESPA investigations, including
the IRS and U.S. Attorneys, as well as with state Attorneys General in
several states.
HUD
Assistant Secretary for Housing John Weicher
said that increasing homeownership is a major policy goal of President
Bush and HUD Secretary Martinez. He said that simplifying the homebuying process is a key to increasing the
homeownership rate, especially among minorities, and that HUD sees reform
of RESPA as essential to simplifying the process. Weicher
said that HUD has not engaged in a major RESPA rulemaking in eight years,
despite significant changes in the market during that time. He said he
could not discuss the details of a proposed rule, but did say that
Secretary Martinez is committed to reforming RESPA.
Iowa
Attorney General Tom Miller and AARP Executive Director William Novelli appeared on a panel discussing state
"predatory lending" initiatives. Novelli
discussed AARP's Model Home Loan Protection Act (HLPA), parts of which
have been included in many state bills this year. Miller discussed his
work with other state Attorneys General and his own concerns about
abusive lending practices. Miller said he finds the practice of lenders
paying yield spread premiums to brokers "troublesome," and
suggested that brokers should "rethink" the practice because it
violates what he believes is the broker's duty to find the
"best" loan for the customer.
Novelli reviewed AARP's model bill, as well as a
major public education campaign AARP began in 2001 to help seniors avoid
abusive and unaffordable loans. Novelli
committed to meet with NAMB and review the HLPA, which was drafted
without any input from lenders or mortgage brokers.
House
Financial Services Committee Chairman Michael Oxley (R-OH) told the
conference that after the committee completes its work on deposit
insurance reform and Enron-related legislation, he plans to focus on
overhauling RESPA and other housing issues. This is the most definitive
statement yet from Chairman Oxley on RESPA reform. He said he is planning
hearings on RESPA, but has not determined what, if any, legislation he
may introduce. He said any such bill would track regulatory changes HUD
plans to make this year. He said he supports HUD Secretary Martinez's
efforts for regulatory reform, and commended Martinez for taking on such
a formidable task.
Congressman LaFalce Warns HUD on
Rulemaking
Rep. John LaFalce (D-NY), Ranking Member of the House Financial Services
Committee, wrote a letter to HUD Secretary Mel Martinez March 26, warning
him not to grant a Section 8 exemption to lenders offering guaranteed
closing cost programs, and endorsing a new "fee agreement"
between mortgage brokers and borrowers as the best solution to prevent
abusive use of yield spread premiums (YSPs).
In the
letter, Rep. LaFalce urges HUD to adopt "a rule that ensures that
yield spread premiums be utilized for the benefit of the consumer, rather
than for the benefit of the mortgage broker." He further suggests
that this be accomplished by requiring mortgage brokers to enter into a
binding "fee agreement" with the borrower, in which the
borrower would agree to the broker's total compensation and decide how it
would be paid - directly by the borrower, by the lender through a YSP, or
both. This agreement would be required before any payment is made by the
borrower.
LaFalce
says that this approach would "clearly ensure that yield spread
premiums are used as virtually everyone, including the mortgage brokerage
industry, says they should: to offer the consumer the choice of higher
up-front fees and a lower rate, or lower (or no) up-front fees and a
higher rate. Equally important, it would eliminate the anti-competitive,
anti-consumer incentive that currently exists for a broker to secure a
loan with a higher interest rate than is available for that
borrower."
Finally,
LaFalce recommends that current law and regulation be improved by
simplifying and improving existing disclosures; requiring the delivery of
the HUD-1 settlement statement prior to closing; establishing a time
frame for return of escrow funds after loan payoff; and establishing more
authority for HUD to enforce the provisions of RESPA. LaFalce suggests
that he may introduce legislation to advance these objectives. For a copy
of the letter, go to http://www.lotsteinbuckman.com/library/letter.htm
NAMB Opposes New Proposed Bill That
Would Require SEC Registration for Fannie and Freddie
NAMB is opposing legislation that would require Fannie Mae and Freddie
Mac to register their securities with the Securities and Exchange
Commission (SEC.) The bill, HR 4071, was recently introduced by Rep.
Christopher Shays (R-CT). Fannie Mae and Freddie Mac, as Government
Sponsored Enterprises (GSEs), are currently
exempt from SEC registration, although both companies disclose financial
and securities information to investors in a manner similar to that
required by the SEC for registrants. SEC registration would add costs and
delays to the issuance of securities by the GSEs.
NAMB is concerned that this could cause mortgage brokers to be unable to
offer 30-60 day interest rate locks to consumers, an important and
desirable feature of today's mortgage market. NAMB is writing to House
Financial Services Chairman Michael Oxley (R-OH) and Ranking Member John
LaFalce (D-NY), expressing opposition to the legislation.
Freddie Mac Changing Policy on Prepay
Penalties
Starting Oct. 1, Freddie Mac will no longer
purchase subprime loans with prepayment
penalties that are enforceable for more than three years. Prepayment
penalties are standard in the subprime market
and are not inherently predatory, according to Faith Schwartz, Freddie
Mac's director of sales and national lending. "But we felt that it
could be more predatory as the duration got longer," she said.
Freddie Mac currently has a five-year limit on prepayment penalties.
Schwartz pointed out that Freddie Mac was the first major investor to
stop purchasing loans with single-premium credit insurance, and she said
Freddie Mac is taking a leadership position on prepayment penalties. The
new policy goes into effect Oct. 1, the same date as the recently
approved changes to the Federal Reserve Board's HOEPA regulations. As
part of their anti-predatory-lending policies, Freddie Mac and Fannie Mae
do not purchase HOEPA loans. http://www.freddiemac.com.
New Bill Would Require Regulation of
Brokers Who Originate Subprime Loans
A new bill has been introduced in the U.S. House of Representatives that
would require federal regulation of mortgage brokers who originate subprime loans. HR 3807 has been introduced by Rep.
Tubbs Jones (D-OH). The bill would create a new system of federal
certification for subprime mortgage originators
and prohibit any non-certified person from providing mortgage brokering
or lending services in connection with any federally-related subprime mortgage loan. It would require HUD to
establish a definition of a "subprime"
loan. It would also require lenders making loans subject to HOEPA to
establish "best practices", and would establish a federal
unfair and deceptive acts and practices standard for subprime
lending. Unlike most "predatory lending" bills, it does not
change the HOEPA interest rate or points and fees trigger, nor does it
add significantly to the prohibited or restricted loans terms under
HOEPA. Instead, it seeks to establish more uniform federal standards for subprime lending and federal regulation of subprime originators. Rep. Jones is a member of the
Financial Services Committee.
Eighth Circuit Upholds HUD Policy
Statements, Rejects Culpepper
On March 21, in Glover v. Standard Federal Bank, the Eighth Circuit
reversed the lower court's certification of a national class in a case
alleging that yield spread premiums paid to brokers were illegal referral
payments under RESPA. The decision marks the first ruling from a federal
Appellate Court since the 11th Circuit confirmed the certification of an
YSP class in Culpepper and HUD issued Policy Statement 2001-1 rejecting
Culpepper's analysis.
http://www.ca8.uscourts.gov/opndir/02/03/003611P.pdf.
Word on HMDA Delay Coming Soon
Mortgage lenders should get an answer soon on whether the Federal Reserve
Board is going to postpone the effective date of its new HMDA rules for
12 months. In January, the Fed approved major changes to its HMDA
regulation that will require the reporting of HOEPA loans and "pre-approvals"
for the first time and expands the reporting requirements for refinancings and home improvement loans. The Fed also
decided to require pricing information on subprime
loans. But the board asked for additional comments (due April 12) on the
appropriate threshold, or spread. The HMDA changes are due to take effect
in nine months. Trade groups have asked the Fed to delay the effective
date until Jan. 1, 2004.
NAMB submitted comments strongly urging the Board to
abandon the idea of collecting pricing-spread data on any loans.
Reporting pricing spreads is useless and risks unfair accusations against
industry without also capturing credit risk factors. Capturing credit
risk factors adequately is impossible. Collecting only lien status is
woefully inadequate and only a crude proxy for the numerous and varying
legitimate credit risk factors actually considered by creditors and
investors. Accordingly, NAMB recommends abandoning altogether the idea of
requiring the reporting of pricing spreads, to eliminate the unnecessary
burden and the accompanying adverse impact on retail pricing to
consumers. In the alternative, if the board must go ahead with the
proposal, NAMB asks that it set the thresholds very high, to minimize the
harm done.
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