WASHINGTON — Congress moved last week to pass a variety of new standards aimed at reining in abuses in the subprime mortgage market-but the standards will, if enacted, affect all mortgage lenders, including credit unions.
The House Financial Services approved a bill that will create a national licensing system for all residential mortgage loan originators, similar to one now in existence for securities brokers. The bill would also establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan and attach a limited liability to all loans sold on the secondary market. The full House is expected to vote on the bill as early as this week.
At the same time, the House Judiciary Committee was poised to pass a bill that will allow bankruptcy court judges to rewrite the provisions of mortgages during the bankruptcy process. A vote on the bill was delayed amid strong lobbying by lenders who argued the measure will encourage more troubled borrowers — they estimated as many as 500,000 — to file for bankruptcy in order to ease the terms of their mortgages.
Yet a third bill was making its way through the Financial Services Committee that would set new standards for servicing mortgages, independence of real estate appraisals and managing escrow accounts.
The initiatives come as the mortgage crisis is expected to heighten in coming months, with an estimated two million ARMs scheduled to reset to higher rates over the next 18 months and as many as one million foreclosures expected to take place this year.
Credit union lobbyists are worried that credit unions are being drawn into solutions that are meant to curb abuses in the subprime mortgage market.
Ryan Donovan, a senior lobbyist for CUNA, said despite their concerns, it is inevitable that credit unions will be included in the various mortgage bills, but their hope is to limit some of the impact, especially where credit unions are already regulated. "We know we're going to be part of the debate because we do this type of activity," said Donovan. "We want to make sure they don't create new and duplicative regulations and are not overly burdensome."
NAFCU explained to lawmakers that credit union mortgage lending is already regulated by NCUA and specific practices that would be addressed under the bill, such as prepayment penalties, are already barred.
"We are concerned that in an effort to quickly address this issue in order to aid America's consumers, an undue regulatory burden could be placed on institutions such as credit unions that could ultimately have unintended adverse consequences," said NAFCU President Fred Becker, in a letter to lawmakers.
The bill passed by the Financial Services Committee, called the Mortgage Reform and Anti-Predatory Lending Act of 2007, will create a national licensing and registry system for all employees who originate mortgages. It will include fingerprints and personal history and experience, and meet minimum standards including pre-licensing education and written tests.
Federal regulators, including NCUA, would maintain a system for registering the employees of banks and their subsidiaries as registered loan originators.
While most lenders will be registered with the individual states, for those states that do not have a system of licensing, the Department of Housing and Urban Development would be granted enforcement authority.
Despite the movement in the House, Donovan cautioned that the various bills have a long way to go. "It's important to remember that this is only half the game," he said. "The Senate hasn't acted on any of these yet and they're going to have to take them up before they are passed."
(c) 2007
