FHA Mortgage Guide

On the mortgage reform front, Rep. Bradley Miller (D-NC) has introduced H.R. 3915.

This is a bill which would — oh my — actually make lenders responsible to borrowers for the loans they sell. Indeed, a lender could get sued for providing a mortgage that’s not in the best interest of the borrower, a revolutionary concept in lending.

For those who do not know, predatory lending is NOT a federal crime. There is no law or requirement which prevents a lender from over-charging a borrower. The Miller bill would effectively change that.

As you might imagine, the lending community is not thrilled with the House proposal, one supported by Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee.

Below is the October 24th oral statement of Kurt Pfotenhauer, Senior Vice President of Government Affairs and Public Policy for the Mortgage Bankers Association (MBA). I have made bold the part opposing the best-possible loans for consumers.

As to uniform national rules for lenders, why not adopt the rules used in North Carolina — or is the idea to replace them with something weaker?

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“Mr. Chairman, Ranking Member Bachus, it has been a long day for all of us, so I will be brief.

I’d like to start where credit is due. Mr. Chairman, as per your word, the process that has brought us to the introduction of your bill has been deliberative and open.

As markets have become more and more volatile, you, your colleagues and your staff have stayed focused. You’ve placed making policy ahead of scoring political points. Your staff are knowledgeable and professional. Thank you. Your approach is refreshing and it keeps us focused on policy rather than personality and politics.

I’d like to add one other thing in the general category of compliment. This bill is well thought out, and if enacted, it will be extraordinarily consequential. That comment does not, of course, signal agreement, but is intended to recognize the thought and the effort that went into this ambitious proposal and to concede upfront that your hard work justifiably gives you some insulation from the common industry charge that your bill is fraught with the danger of unintended consequence. Indeed, I rather suspect that you intend much of the consequence that would result from this bill. Which begs the question, is your approach, the right approach?

Members of the committee, if they don’t understand, should understand that if H.R. 3915 becomes law, some people will be locked out of the mortgage market, many of whom would have been successful homeowners. Lowering the HOEPA triggers, establishing the ability to repay and net tangible benefits tests and eliminating some products from the market will have this effect. The question for this committee is whether the protections that this bill provides are worth that price.

85% of subprime borrowers are paying their mortgages on time. It’s an open question, how many would even qualify for a loan under the proposed regulatory construct. The alternative to eliminating borrowers from the market is to prepare them for the market. In that respect, we urge the Chairman to tackle the lack of transparency in the origination space. Streamlining the mortgage process and improving disclosures are essential to helping borrowers help themselves.

In my remaining time, I’d like to flag two areas of significant concern.

First, there is what I’d call a “soft suitability” standard in evidence in several sections of the bill. For example, Section 103, dealing with steering, asks the regulators to “promote the interest of the consumer in obtaining the best terms” for a mortgage. While this is guidance to the regulators and not a direct requirement for lenders, we believe that the regulators will take this guidance and either attempt to define the “best” product for a borrower or force lenders to do so. We understand that your goal is to assist consumers in identifying the best loan product for themselves. With your permission we will work with your staff to re-phrase these areas of concern in a way that preserves your intent while stopping short of encouraging a suitability standard by regulation.

Finally, let me state clearly that the Mortgage Bankers Association supports legislation to establish a consumer protection standard in the mortgage market for any number of reasons, one of which is because the patchwork quilt of state and local predatory lending laws is an impediment to the smooth and efficient operation of a national mortgage market. We believe that any bill must include broad pre-emptions that give borrowers a single consumer protection standard, and give lenders the certainty of a single standard to live up to.

This bill as currently drafted is not pre-emptive. As the Committee already knows, this prevents MBA from offering our support.

Despite our lack of support, we would like to continue to work with you in a constructive way to improve this bill. My written testimony suggests a number of fixes that will make the bill a better product. Some of them merely clarify what is in HR 3915. Others are alternative approaches to the same goal. Still others are areas where we may have to agree to disagree. I do not think there should be any surprise here today that the Mortgage Bankers Association is going to oppose some elements of this bill. But I hope that there is likewise no surprise that the Mortgage Bankers Association will continue to work with you in a spirit of constructive good will, to make this bill better.”

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This entry was posted on Friday, October 26th, 2007 at 5:59 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.