Government and Legislative Updates

As legislative chairman, I once again traveled to Washington DC for the NAMB Legislative Conference this month.  I got an opportunity to become more familiar with upcoming national issues and legislation and issues. 

On lobby day, I had an opportunity to meet with Representatives Blackburn and Cooper.  I also met with legislative aids for Representatives Duncan, Davis, Ford, Gordon, Jenkins and Tanner.  I also had a brief meeting with both Senators Frist and Alexander.

National Issues and Legislation

Key Legislative Positions

        NAMB supports initiatives that increase competition; foster consumer choice; help to make credit available and affordable to all sectors of our society; inform consumers of the mortgage process; and enhance product availability and diversity.

        NAMB opposes any attempt to create an unlevel playing field for originators, adversely impact small business or inhibit the ability of a small business to compete fairly in the marketplace.  We also oppose initiatives that limit product availability, choice and options for families seeking the goal of homeownership.   

RESPA Reform

        NAMB Supports efforts to simplify the mortgage settlement process and assist consumers in comparative shopping of mortgage products.  We believe a new disclosure replacing the good faint estimate will achieve this objective. 

        As a Federal Trade Commission study pointed out last year, emphasizing compensation disclosures rather than consumer costs confuses consumers and results in higher cost loans for consumers.  The findings of the FTC study suggested new disclosures are needed instead of the good faith estimate.  These disclosures should clearly spell out the following items for borrowers: their interest rate, the points they are being charged if any, the total amount of their closing costs, and their monthly payment amount. By disclosing this information, borrowers can truly compare the costs of each mortgage product available to them thereby increasing the likelihood that they will obtain the loan product that best serves their financial means.  Such changes will simplify the closing procedures by reducing confusion among consumers and increasing the number of homeowners in our country.

        In March of last year, HUD withdrew the proposed RESPA reform.  Afterwards, HUD Secretary Alphonso Jackson promised to first consult Congress and garner a 75 – 80% industry consensus on reform before re-proposing the rule.  In recent appearances, Jackson has communicated that HUD is committed to reforming mortgage settlement rules under RESPA this year, although no timetable has been set.  To this end, Jackson has stated that he will be meeting with Congressional representatives and plans to consult with industry groups in preparation for re-proposing the rule.  HUD officials have assured NAMB leadership opportunities to air our concerns with any proposed RESPA regulation.

RESPA – Affiliated Business Arrangements (ABAs)

        NAMB supports increased enforcement of current RESPA and other laws against illegal, abusive, and anti-competitive ABAs.

        NAMB has discussed the problems generated by abusive ABAs with HUD and Congressional officials.  Such business arrangements have been around for many years; however, recently such arrangements have been used, in the view of some, by homebuilders to lock-in consumers to borrow with lenders affiliated with the builder to obtain desirable home upgrades.  In the most egregious cases, homebuilders have outright refused to sell the property to the consumer unless the consumer used the builder’s mortgage and title companies.

        Some NAMB members believe these arrangements are a precursor to how unfair competition will develop under a guaranteed mortgage package environment such as the one currently under consideration by HUD.

        Other ABA’s are called “Sham” ABAs that fail to qualify for Section 8 exemptions.  In determining whether venture involving two existing providers is a bona fide arrangement rather than a sham arrangement used as a conduit for referral fee payments, HUD balances a number of considerations.  One consideration by itself does not make an ABA a sham ABA.  HUD examines the following considerations and weighs them in light of the specific facts to determine whether a venture:

a.    is realistically capitalized and has its own employees;
b.    manages its own affairs;
c.    has an office and pays market-based rent;
d.    provides “substantial services to a 3rd party or a venture;
e.    incurs the risks and receives the rewards of a comparable enterprise in the marketplace;
f.    contracts out substantial services to a 3rd party or venture;
g.    competes for business from sources other than a venture; and
h.    sends business exclusively to one venture.

HUD, as well as several state attorney generals, has stepped up enforcement actions against abusive and illegal ABAs.

GSE Reform (Freddie Mac and Fannie Mae)

        NAMB believes in a strong regulatory structure to protect the safety and soundness of the housing Government Sponsored Enterprises (GSEs), but is concerned that certain elements of reform legislation might unduly affect housing affordability, innovation and market perception.

        NAMB is adamantly opposed to the so-called “bright line” test being proposed in Congress.  On its face, this proposal would prevent Fannie Mae and Freddie Mac from participating in activities unless they are determined to be secondary market activity.  The “bright line” proposal would prevent a mortgage broker’s ability to directly access the GSE’s automated underwriting systems.  Prohibiting mortgage brokers and other small lenders from accessing the GSE’s automated underwriting systems will create an imbalance in the mortgage market that allows only a few large lenders with their own automated underwriting systems to dominate the lending industry.

        NAMB is particularly concerned that the increased regulatory reviews will inhibit innovation.  NAMB believes that innovation should not be held hostage to unrestrained regulatory reviews.  Fannie Mae and Freddie Mac should be able to bring innovative products to the market quickly to meet the ever-changing needs of mortgage borrowers.  Requiring a review of every new initiative or activity would unnecessarily delay innovation.

        NAMB believes GSE mortgage portfolios hold down mortgage costs and make the national mortgage market more liquid and stable.  Their issuance of debt securities gives them access to a wide range of investors.  Many investors, particularly those outside the US, prefer debt securities to MBS.  International investors are often less familiar with 30-year fixed-rate mortgages and they often do not want to assume the prepayment risk of a mortgage-backed security.

        Senator Chuck Hagel (R-NE) introduced legislation, S.190, to increase regulatory oversight of the GSEs.  It is anticipated that Senator Richard Shelby (R-AL), as well as Congressman Richard Baker (R-LA) and Michael Oxley (R-OH) will introduce GSE reform legislation this spring.

Abusive Lending Practices (Predatory Lending Bill)

        NAMB supports federal legislation that reduces the incidence of abusive lending practices and improves the overall competency of the mortgage origination industry.  NAMB applauds the bi-partisan effort of the new Responsible Lending Act of 2005 (H.R. 1295) introduced by Congressman Ney (R-OH) and Kanjorski (D-PA) as a step in the right direction.  NAMB supports measures that seek to protect consumers from abusive lending practices including formal licensing, pre-licensure education, and continuing education requirements, but believes that to be truly effective such measures should apply not just to mortgage brokers but all mortgage originators.  To this end, NAMB also supports a nationwide registry of all mortgage originators.

NAMB seeks to:
•    Prevent abusive lending tactics, regardless of distribution channel – broker, banker, lender - without passing legislation that unduly restricts access to affordable credit for borrowers.
•    Promote industry self-regulation and strengthen the professional standards of the mortgage industry as a whole and relieve the regulatory burden imposed by the current patchwork of state and local laws.
•    Provide and enhance consumer education because informed consumers are less likely to fall prey to abusive lending tactics.

        H.R. 1295 preserves consumer’s access to affordable credit because it realizes that yield spread premiums are already captured in the APR threshold and do not need to be included again in the points and fees threshold.  Unlike the Prohibit Predatory Lending Act (H.R. 1182) by Representatives Miller (D-NC) and Watt (D-NC), H.R. 1295 realizes that including YSPs in the points and fees threshold will artificially cause loans originated by mortgage brokers to be considered high-cost, while excluding other identical loans that cost consumers the same in terms of points and fees.  Moreover, including YSP in the points and fees threshold for mortgage broker originated loans only captures a subset of high-cost loans, thereby excluding lender and bank-originated loans.  H.R. 1295 recognizes that all distribution channels should be treated in a uniform manner.

        H.R. 1295 and H.R. 1182 have been introduced in the House.  Hearings on both bills are expected sometime this spring.  NAMB was successful in ensuring that YSPs and borrower credits were not counted in the points and fees trigger in H.R.1295.  Although silent on YSPs (i.e., no express exclusion), H.R.1295 eliminated the Federal Reserve Board’s discretion to include any other charges it deem appropriate by regulation.
           
Deductibility of Mortgage Insurance Payments

        NAMB supports the passage of legislation that permits borrowers to deduct the cost of their mortgage insurance payments for Federal tax purposes.

        The Mortgage Insurance Fairness Act (S.132) was introduced January 24, 2005 and referred to the Committee on Finance.  A version is expected to be introduced in the House soon.

Increase in FHA Loan Limits for High Cost Areas

        NAMB supports increasing FHA loan limits for high cost areas and the FHA guarantee authority to accommodate such areas.

        In the 108th Congress, H.R. 4110 was introduced increasing the FHA loan limits in high-cost areas.  NAMB believes a proposal similar to H.R. 4110 will be introduced in the 109th Congress.

FHA Bond Requirements

        Presently, FHA requires mortgage brokers to submit annual financial audits to directly participate in the FHA program.  NAMB believes annual bonding requirements offer HUD a better way to ensure the safety and soundness of the FHA program than requiring originators to submit audited financial statements to HUD.  NAMB advocates that FHA replace the annual audit for mortgage broker participation in the FHA program with a surety bond payable to FHA.  Nearly every state has implemented bonding rather than an audit for licensing.  They have found bonding to be the preferred method of protecting citizens and the lending industry.

        NAMB is working with HUD and the Surety Bond Association to craft surety bond guidelines acceptable to the FHA program that would substitute a surety bond for the annual audit provision.

Established Business Relationship – Fax Ban Issue

        NAMB supports passage of legislation that preserves the present established business relationship (EBR) rules for a company’s business communication with its customers.

        What the legislation will do.  This bipartisan bill will retain the status quo for faxes being sent by businesses to established customers.  This system has been in place for more than 10 years with virtually no complaints from established customers.  The legislation will maintain the ability of businesses to use faxes to keep in touch with their customers.

        What the legislation will not do.  The legislation does not change the law on junk faxes.  They are currently illegal, and will continue to be illegal and the bill gives consumers a new ability to opt-out faxes, even where they have an EBR.

        S.714 was introduced on April 6, 2005.  A similar House version will be introduced soon.  NAMB is a part of a “Fax Ban Coalition” that requested and received a six-month extension of the effective date of the FCC rules until June 30, 2005.  The group has requested an additional six-month stay.



Tennessee State Legislative Status:

State Loan Officer Registration:


        The Department of Financial Institutions (DFI), reports that they have registered over 10,000 originators by mid April.  

        Registration now enables the department to know where every loan officer in the state is working and prohibits loan officers from working through more than one lender or broker.  It also requires designation of a Managing Principle to assume overall responsibility for the Tennessee based operations and a Branch Manager with sufficient experience to be responsible for and to supervise the loan officers affiliated with that branch and to operate the business lawfully.  All loan officers will have to be affiliated with a company in order to register. 

        The legislation enables the commissioner to levy fines up to $10,000.00 against any lender or broker found in violation of the law.  The commissioner has expressed his belief that the industry needs to clean itself up by encouraging lenders and brokers to monitor their own employees through good hiring practices, which might include doing background checks.  He also believes that lenders and brokers should look to educating their loan officers and monitoring their activities to be sure that they are doing business in an ethical and legal way.

        The commissioner has indicated that they will be tightening the scrutiny of applications for lenders and brokers in the state with a particular emphasis on financial statement review. 

        The new law does not currently require continuing education, however, If you want to protect your business it would be prudent to be sure that those you employ know what they are doing.  It would also be prudent to know who is working for you and what their background and history is.  Then you must monitor them to be sure they do things correctly.  Hiring inexperienced people off the street and turning them loose with no training will be a recipe for disaster.  Hiring experienced people and not monitoring their work will be also.

        There is currently a constitutional challenge to this law and the Department has invoked a Public Necessity Rule for continuation of registration.