WASHINGTON — While the financial services industry scrambles to come up with data to prove subprime loans in danger of default are being modified to stave off foreclosures, state and federal lawmakers are considering whether to compel such reporting.
In California, Assemblyman Ted Lieu, the chairman of the Banking and Finance Committee, is preparing to fast-track a bill that would require state-licensed lenders to file comprehensive monthly reports to state regulators on their loan-loss-mitigation efforts and would make the information publicly available.
At the federal level, regulators have so far avoided forcing lenders to formally provide such information, but Senate Banking Committee Chairman Chris Dodd included a requirement in a mortgage reform bill he introduced last month to require that servicers report their loan-loss-mitigation efforts to the Federal Reserve Board.
In an interview, Assemblyman Lieu said that, if voluntary loan modification plans advocated by Gov. Arnold Schwarzenegger and Treasury Secretary Henry Paulson late last year are to be trusted, lenders must be forced to demonstrate that workouts are occurring.
"If you are going to secure an agreement then you ought to secure the verification of that agreement," he said. "Otherwise it's awfully suspicious to say you have this grand plan and no one has to put anything out in writing as to what they are actually doing."
Assemblyman Lieu said he would not be surprised to see other states with high foreclosures, such as Ohio and Florida, follow suit, but such a standard should apply to federally chartered lenders, too, he said.
He intends to add a provision that would let federal lenders voluntarily report their progress to California regulators. "We'll let federal lenders report voluntarily, if they so choose, to the state regulators … . This way, you can tell the ones that chose not to," he said.
The bill, which is scheduled for a committee vote Monday, would still have to clear the Assembly and the state Senate before going to the governor's desk, but Assemblyman Lieu said he is optimistic about quick enactment.
"I think he would support it," he said of the governor.
Though the top Republicans on the banking committees in both the Assembly and Senate said they oppose the bill and hope the governor would, too, they acknowledged that the appetite of lawmakers to legislate on the issue could be hard to thwart.
"I feel that if banks want to work with borrowers, then that is their decision and that government shouldn't be manipulating the process … . I don't think we as legislators should be dictating or adding … regulation to the banking industry in a period where there is turmoil," said Assemblyman Ted Gaines, the top Republican on the Assembly's banking panel. "I would hope that the governor would be on my side on this issue."
Federal Deposit Insurance Corp. Chairman Sheila Bair, who helped push for the Schwarzenegger and Paulson plans, said that, though she sees a need for a national reporting template, codifying requirements in legislation is "not necessary."
"The industry is there, and they are willing to file these reports voluntarily, and almost all the major players are in the alliance so I think we can do it through Hope Now," the alliance of lenders and servicers that agreed to the Paulson plan, she said.
Banking groups are wary of a new reporting requirement and hope that lawmakers and others seeking information will wait for the Hope Now data to be released.
"At first glance this would seem way burdensome and we're not really sure … as to what all this information if provided to the state regulator would allow the state regulator to do," said Paul Richman, vice president for state legislative affairs at the Mortgage Bankers Association.
Under the Lieu bill, state-regulated lenders would have to provide data on the amount of loans past due, all modifications in the preceding two months, the type of modification, and the number of loans in the foreclosure process.
Consumer groups are pushing for the bill to include making public specific information on individual lenders' workout and modification efforts. "It would be substantially strengthened by the individual lender data," said Paul Leonard, the California director of the Center for Responsible Lending.
