September 4, 2008
Filed under: Mortgage Industry Legislation, Subprime Crash — admin @ 2:01 pm
Ruth Lee
Regulators and legislators are scrambling to prove their value in an election year. Following the federal response with the Housing and Economic Recovery Act of 2008, state legislatures are clamoring to offer their own resolution to the local crisis. With most information coming from consumer groups and the media, the initial proposal to “cure” subprime is often diluted in the reality of the mortgage market.
Can you legislate subprime away?
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July 23, 2008
Filed under: Housing Reform, Mortgage Industry Legislation — admin @ 1:45 pm
Ruth Lee
In the eternal death march of progress on capital hill, the housing reform and rescue bill is once again set for a vote on Wednesday. However, negotiations have again stalled as the White House threatens to veto the bill over an allocation of $4b to allow state and local governments purchase foreclosed properties for resale. This is despite an inclusion of the changes to the legislation that Treasury Secretary Henry Paulson sought on the Hill last week, allowing increased authority for the Treasury to purchase unlimited amounts of debt and equity from the GSEs and offer the Fed a role in GSE regulatory authority. Despite opposition from the Administration, most insiders expect President Bush to sign the bill.
The bill is still in negotiation to settle the differences between the House and Senate packages, but political pressure seems to be enhancing a “spirit of compromise.”
July 2, 2008
Filed under: Foreclosure, Mortgage Industry Legislation — admin @ 12:58 pm
Ruth Lee
With the impending election, Congress left for its July 4th recess unable to face constituents with any real headway on foreclosure legislation. Having started and stopped the discussion of The Foreclosure Prevention Act of 2008 several times, it is disappointing to see that Congress is faithfully endeavoring to do as little as possible even when they have a consensus. Conventional wisdom projected that Congress would be able to finalize the bill prior to the recess, following a test vote of 83 in agreement. But procedural hurdles reared, the final passage undone by a dispute over an unrelated issue for tax breaks on renewable energy, an issue also supported by 88 Senators. (By way of explanation, HR 3221 was initially an energy bill that was gutted and renamed TFPA of 2008)
Essentially, what was once a “gentleman’s” game based on philosophical and political differences is now a cutthroat gauntlet of gaming the system. While one can debate the merits and expense of what many view as a bailout bill, on some level, one would expect some kind of response after months of debate, negotiation and compromise to produce a bipartisan bill. But the fact is, it is an election year. With both sides of the aisle maneuvering for political currency, they are using the procedural rules of the Senate to gain advantage, with the ancillary disadvantage of causing any progress to grind to a halt.
HR 3221 was introduced July 30th, 2007 to the House. It passed the House August 4th, 2007. It passed the Senate April 10, 2008. The Senate bill still has to be resolved with the House version. It is now July again… and still nothing. Other bills like HR 3915 and S 2452 which address predatory lending, have been mostly tabled for partisan concerns, most likely to be revisited post-election. The problem is… we have a consensus, the bill has been voted on and ready to go, so what is the holdup?
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May 9, 2008
Filed under: HR 3221, HR 5830, Mortgage Industry Legislation — admin @ 11:00 am
Ruth Lee
As I said yesterday, the Bush Administration has indicated that they understand that HR 3221 will be amended on the Senate floor to include some text from S 2636 and it is the White House’s position to oppose and veto such legislation if passed.
The White House has indicated they will veto legislation with the following provisions:
- From S 2636, provision funding $4b in assistance to state and local governments for the redevelopment of abandoned and foreclosed properties.
o Seen as too exepensive, a bailout to investors and speculators, may cause the market to take longer to recover.
- From S 2636, provision tripling the funding of Neighborhood Reinvestment Coalition NRC
o Seen as unnecessary and taxing the ability of the NRC to administer services.
- From S 2636, provision modifying bankruptcy code to allow judges to modify loan terms
o Seen as undermining existing contracts
o Seen as possibly leading to the contraction of mortgage credit availability and affordability.
In my opinion, the provision to really look at is the modification to the bankruptcy code. Unfortunately, the previous modifications to the bankruptcy code sought to allow consumer credit to have par relevance and priority as mortgage debt. The exception was removed in 2005; but it had been in place since the last major bankruptcy overhaul in 1978. That exception made home loan lenders a favored class of creditors and originally was intended to encourage mortgage lending. Provisions allowing judges to modify terms will not only make them an unfavored class; but have a potentially chilling effect on mortgage investment.
May 8, 2008
Filed under: HR 3221, HR 5830, Mortgage Industry Legislation — admin @ 11:04 am
Ruth Lee
The two most relevant pieces of mortgage reform legislation to date are: FHA Housing Stabilization and Homeownership Retention Act of 2008 (H.R. 5830) and The Foreclosure Prevention Act of 2008 (H.R. 3221). It is understood that HR 3221 will be amended on the Senate floor to include some controversial provisions from S 2636 put forth by Majority Leader Reid.
The Administration has indicated what they will and will not support. Text of the White House response on mortgage reform legislation from 02/28/08 is here.
The Bush Administration has indicated that they understand that HR 3221 will be amended on the Senate floor to include some text from S 2636 and it is the White House’s position to oppose and veto such legislation if passed.
The White House is in favor of the following:
- Modernizing FHA: FHA SECURE
- Hope Now Alliance whose Mission Statement is to “Maximize the preservation of homeownership while minimizing foreclosures. Assist borrowers who have the willingness and wherewithal to remain in their homes, but need some help to do it. Our goal is to keep people in their homes and when that is not possible, prevent foreclosure.”
- Reformation of regulatory oversight of GSE’s
- Increased funding for housing counseling
- RESPA reform – no details, just RESPA reform
- Authorizing the FRB to implement their Blueprint to improve mortgage disclosure requirements
- Developing of new standards for deceptive and unfair trade practices under HOEPA authority
- The FRB developing regulations to manage underwriting standards and criteria
To be continued…
February 8, 2008
Filed under: HR 5140, Mortgage Industry Legislation — admin @ 6:43 pm
Ruth Lee
Here is a brief synopsis of HR 514o - a bill designed to inject money into the economy through individual tax rebates, business tax incentives and increasing the number of loans the FHA and GSEs are allowed to buy up or insure - as it applies to the mortgage industry:
Title II - Housing GSE and FHA Loan Limits
Section 201 -
- Raises the statutory ceiling on the maximum original principal obligation of a mortgage originated between July 1, 2007, and December 31, 2008, that may be purchased by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Disregards mortgages purchased with the increased ceiling amount for purposes of meeting certain housing goals established under the Housing and Community Development Act of 1992.
- Expresses the sense of Congress that Fannie Mae and Freddie Mac should securitize mortgages acquired pursuant to the increased conforming loan limits of this Act if the manner of securitization does not: (1) impose additional costs for mortgages originated, purchased, or securitized under existing limits; or (2) interfere with the goal of adding liquidity to the market.
Section 202 -
- Establishes a temporary loan limit increase for FHA-insured mortgages in specified high-cost areas for which a borrower received credit approval by December 31, 2008.
- Grants the Secretary of Housing and Urban Development (HUD) discretionary authority to increase loan limits in 2008 based upon the size and location of residences in particular areas.
- Directs the Secretary to publish the median house prices and mortgage principal obligation limits as revised by this Act not later than 30 days after its enactment.
To read more about this bill, click here.
January 30, 2008
Filed under: HR 3915, Mortgage Industry Legislation, S.2452 — admin @ 6:30 am
Ruth Lee
Fiduciary and Agent Status:
Both of these standards of care have been roundly opposed by mortgage originators. Some of the arguments against specifically reference the inability of the originator to determine all factors considering that ECOA proscribes certain questions or their consideration in making the loan.
fiduciary
- 1) n. from the Latin fiducia, meaning “trust,” a person (or a business like a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty.The most common is a trustee of a trust, but fiduciaries can include business advisers, attorneys, guardians, administrators of estates, real estate agents, bankers, stockbrokers, title companies or anyone who undertakes to assist someone who places complete confidence and trust in that person or company.Characteristically, the fiduciary has greater knowledge and expertise about the matters being handled. A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. He/she/it must avoid “self-dealing” or “conflicts of interests” in which the potential benefit to the fiduciary is in conflict with what is best for the person who trusts him/her/it.For example, a stockbroker must consider the best investment for the client and not buy or sell on the basis of what brings him/her the highest commission. While a fiduciary and the beneficiary may join together in a business venture or a purchase of property, the best interest of the beneficiary must be primary, and absolute candor is required of the fiduciary.
- 2) adj. defining a situation or relationship in which a person is acting as a fiduciary for another.
fiduciary relationship
- n. where one person places complete confidence in another in regard to a particular transaction or one’s general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling.
agent
- n. a person who is authorized to act for another (the agent’s principal) through employment, by contract or apparent authority. The importance is that the agent can bind the principal by contract or create liability if he/she causes injury while in the scope of the agency. Who is an agent and what is his/her authority are often difficult and crucial factual issues.
Filed under: HR 3915, Mortgage Industry Legislation, S.2452 — admin @ 12:26 am
For many years now, there have been quakes and tremors in the mortgage industry over the words “duty of care,” “fiduciary” and “agent” as they relate to legislative and regulatory language. Why do the matter? Specifically, they matter because they define the context of the relationship between the originator and the borrower. This context establishes the legal recourse that the borrower has against the originator, as defined by the nature of their relationship.
There are three standards at issue, with the least restrictive being:
- HR 3915: Federal Duty of Care: The originator maintains a federal “duty of care.” This means that both the “duty of care” standard under legal precedent must be met, as well as the conditions laid out within HR 3915. Under the lesser standard of a federal duty of care, the originator is expected to take all reasonable precautions to not be negligent in their dealings with the consumer. Under HR 3915, the federal duty of care specifically excludes the terms “agent” and “fiduciary” from the definition of the relationship.
duty of care
- n. a requirement that a person act toward others and the public with the watchfulness, attention, caution and prudence that a reasonable person in the circumstances would use. If a person’s actions do not meet this standard of care, then the acts are considered negligent, and any damages resulting may be claimed in a lawsuit for negligence.
Requirements to satisfy “Federal Duty of Care” under HR 3915
1. Licensing and registration for all originators, as applicable under State or Federal law, referencing new standards and definitions under Subtitle A.
Notable clauses:
- a. National Mortgage Licensing System: The Nationwide Mortgage Licensing System will streamline the licensing process for both regulatory agencies and the mortgage industry by providing a centralized and standardized system for mortgage licensing. The NMLS initiative was begun by state mortgage regulators in 2004 in response to the increased volume and variety of residential mortgage originators and the need to address these changes with modern tools and authorities. The NMLS was created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). It is owned and operated by the State Regulatory Registry LLC (SRR), a wholly owned subsidiary of CSBS. The system has been built and maintained by the Financial Industry Regulatory Authority (FINRA), who operates similar systems in the securities industry.
- b. Requirement that all originators and loan documentation are must demonstrate the originator’s original and unique identifier number.
- c. Clarification of Supervised and Independent processors and underwriters: whereby only Independent processors and underwriters are required to obtain licensing and registration
2. Suitability – a concept borrowed from the securities industry which demands the broker have a reasonable expectation that the recommendation of an investment is suitable to the client. In making the assessment for securities, the broker must consider risk tolerance, other holdings, objectives, financial needs etc… Under this legislation, the suitability is tailored to address three areas:
- a. Net tangible benefit
- b. Ability to repay
- c. No predatory characteristics outlined within
3. Compliance
- a. Full, timely and accurate compliance with all disclosure requirements
- b. Certifying lender’s compliance to mortgage origination requirements
Next installment: Fiduciary vs. Agent
January 24, 2008
Filed under: HR 3915, Mortgage Industry Legislation, S.2452 — admin @ 6:58 pm
Ruth Lee
As I mentioned in my previous post, there are two bills in Congress today that could have a major impact on the way that mortgage loans are originated and sold across our market.
The first bill, HR 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007 was passed through the House on Nov 15, 2007 by a roll call vote of 291 Ayes, 127 Nays, 14 Present/Not Voting. The bill is sponsored by Rep Bradley Miller and co-sponsored by 27 others, including Rep Barney Frank.
Following introduction of the bill to the Senate on Dec 3 2007, Senator Chris Dodd introduced his own brand of mortgage reform legislation, The Homeownership Preservation and Protection act of 2007. On Dec 12, 2007, this bill was referred to the Committee on Banking, Housing, and Urban Affairs.
Both bills address many facets of the industry, to include compensation, licensing, regulatory governance, predatory lending and HOEPA triggers, appraisals and general due diligence. In reviewing each of the bills, I will explore some of the high points and comparisons between the two. Stay tuned - more to follow…
Filed under: HR 3915, Mortgage Industry Legislation, Quality in Lending, S.2452 — admin @ 2:54 pm
Ruth Lee
I spend a lot of time attempting to maintain a solid, working knowledge of the events, milestones and issues facing the mortgage world. However, yesterday, I was humbled when a client asked me about the new legislation being proposed. His specific question was about the difference between the House Resolution 3915 and the new Senate version S. 2452. At that moment, I realized that although I have read about and spoken about both of these bills, other than big-hand, little map analysis, a la’ primetime news… I really just had rumor, innuendo and “sound bytes” to offer.
The real question is: how will the most substantive legislative reform EVER proposed impact our industry? Which one offers what, and how does that impact our ability to execute our work as mortgage originators?
Unfortunately, upon going back to do a little research, I came away with many more questions than answers… As such, I would like to explore some of these topics… lay out a little bit of fact, dig into the meaning behind cleverly worded language.
Some of the most interesting topics of our day are addressed in the legislation, and I would like to address them here: is YSP finished? Are mortgage brokers going to survive? What regulatory agencies will be affected, empowered or denuded? What cottage industries will arise to support the new legislation? What industries will be shut down in the wake of the legislation?
More to come over the next several weeks!
