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| WASHINGTON, D.C. — Mortgage brokers Tuesday told Congress improvements are needed for federally-insured loans, while mortgage bankers expressed a commitment to minimize foreclosures and consumer advocates called all subprime lending a mistake.It was the second time in a matter of days that Capitol Hill lawmakers held hearings on the subprime lending crisis. Last week, the U.S. Senate Committee on Banking, Housing and Urban Affairs also held a hearing on the same topic.
The latest testimony on “Subprime and Predatory Lending: New Regulatory Guidance, Current Market Conditions and Effects on Regulated Financial Institutions” was given to the U.S. House of Representatives’ Subcommittee on Financial Institutions and Consumer Credit. The Mortgage Bankers Association, admitting some bad loans have been made, pledged it would work with legislators to keep borrowers in their homes. The president of the National Association of Mortgage Brokers, Harry Dinham, suggested Congress make FHA loans a real alternative in the subprime market. He urged Congress to increase the number of origination sources responsible for delivering FHA loans to consumers, pointing out that brokers are discouraged from participating in the FHA program by unnecessary and burdensome financial requirements. Dinham predicted that removal of the requirements would increase mortgage broker participation in the FHA program from 18% to 85% and would, as a result, increase FHA’s loan origination volume and market share by nearly 40%. Presently FHA requires mortgage brokers to submit annual financial audits to participate in the FHA program. NAMB has suggested that FHA replace the annual audit for mortgage broker participation with a surety bond payable to FHA. MBA also supports FHA reform. In testimony offered earlier this month before the U.S. Senate Subcommittee on Transportation, Housing and Urban Development on FHA reform, John M. Robbins said Congress should allow FHA to increase loan amounts, provide downpayment flexibility, to invest in new technology and to be able offer new products. NAMB’s Dinham suggested the time is ripe for redefining who is operating as a mortgage broker and for improving professional standards for all mortgage originators. He said the association believes educational standards and criminal background checks for all mortgage originators will be effective in combating abusive lending tactics and in reducing foreclosures. He criticized the mortgage broker registry proposed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators because it is limited only to mortgage brokers. “At hearing after hearing these groups extol the benefits of this new registry. However, they do not let legislators know that thousands of loan originators at banks and other lending institutions will be exempted from the registry and left unaccountable to the consumers they serve,” Dinham said. The two state regulatory associations have said the registry would help fight mortgage fraud and predatory lending. Dinham said the goals are admirable but loan originators must be included for it to be effective and protect consumers. Dinham noted the largest and most recent predatory lending settlements have involved bankers and lenders that would not be included in the proposed national registry. MBA Chairman John M. Robbins also testified before the House yesterday. He said that while banks must ask what lessons can be learned from their mistakes, the lending institutions must also help homeowners to keep their homes. He said industry and policymakers need to partner to provide options to hard-pressed borrowers. Robbins said MBA “strongly” supports U.S. Sen. Christopher Dodd (D-Ct.), the chairman of the Senate Committee on Banking, Housing and Urban Affairs, call for a summit of all parties to address the subprime problem. But, while industry participants, either before the Senate or the House, have cautioned against curtailing credit, one organization said consumers easy access to home loans, especially to refinance, is the crux of the current problem. Equating subprime lending with “home losership” rather than “home ownership,” Michael Calhoun, the president of the Center for Responsible Lending, contended that only nine percent of all subprime loans have gone to first time homebuyers. He said consumer refinances utilizing “lax underwriting practices, dangerous loan products and disregard for whether or not a borrower can afford the loan” have set up many subprime borrowers to lose their homes. Calhoun said “reckless subprime lending” will hit African American and Latino families particularly hard as a disproportionate share of subprime mortgages are made in communities of color.” CRL has estimated that 15.6 percent of all subprime loans originated since 1998 either have ended or will end in foreclosure. CRL says subprime loans made during 1998 through 2006 have led or will lead to a net loss of homeownership rather than a gain for in every one of those years. Federal Deposit Insurance Corp. Chairman Sheila Bair suggested lawmakers adopt a national predatory lending standard. It should look beyond the borrower’s ability to make payments at the “artificially low” introductory interest rate and should prohibit confusing and misleading disclosures.
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Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record. e-mail Lisa at: burdenlisa@yahoo.com |
