Lawyers for the Consumer Bankers Association pronounced the embattled Real Estate Settlement Procedures Act single-item analysis escrow method all but dead during the trade group's home equity lending conference in Washington Oct. 18.
HUD is reviewing several Respa provisions, and one HUD source indicated that a decision would be rendered in November. The provision, which the CBA predicts HUD will replace with the aggregate-analysis method, will count for first loans and exclude closed loans. Lenders that rely heavily on their servicing portfolios may find it costly.
Many mortgage lenders view the impending change with begrudging acceptance, but some are concerned about costs of new software programs and retraining staffs. Others viewed the issue with ambivalence.
Mortgage Marketplace asked three lenders their views on the changes:
Senior Vice President State National Mortgage Co. Baton Rouge, La. Annual Servicings: $100 million
Gerald Hughes has been in the mortgage business for 28 years, all of them with State National, and oversees its servicing portfolio. The company has four branches, one in Huntsville, Ala., and three others scattered throughout Louisiana.
Business has been good for State National. Last year it hit $100 million in loan servicings, and it seems on track to do at least that well this year.
But with a relatively large servicing portfolio for a comparatively small company, Hughes said, any impending HUD changes to the escrow rule might prove burdensome.
"For us it means completely revamping our analysis procedures," Hughes said. "It won't require a new [computer] system, but it will require a new program and additional time to train our people. We'd rather stick with the system we're using.
Hughes said that if implemented, the staff will follow the ruling, "but we hope it doesn't happen."
"It just seems like each year the servicer has to do more and more. and the servicing income is always the same--I don't think the [borrower] is penalized ... with the present procedure. If this becomes law, I don't see how they'll be any better served."
Loan Servicing Operations Manager Tidemark Bank for Savings Newport News, Va. Annual Servicings: $400 million
Because Virginia is a no-interest-on-escrow state, Betty Aldred believes that Tidemark's customers are already looking for things like over-escrowing and, therefore, regardless of what HUD does, the business will run as usual. That business, which is conducted from two retail branches and two mortgage lending branches located throughout the Tidewater area, generates about $400 million in annual servicings.
Aldred said Tidemark uses the single-item method but waves off the possibility of palpitations as the result an over-escrow. "We tell [the borrower] when [that has occurred] and give them an option of applying it to the principal of their loan or cutting them a cheek--whichever they choose. It's worked pretty well for us."
While her fear of repercussions from the current system seems almost nonexistent, Aldred agrees that changes will have some impact and will probably come in the form of new software programs, retraining and new methods in control charting.
Walter C. Klein Jr.
Chairman and CEO Sears Mortgage Corp. Vernon Hills, Ill. Annual Servicings: $28 billion
As one of the giants of the mortgage industry, Sears--$11.75 billion in funded residential mortgager, and a whopping $28 billion in annual loan servicing in 1992--would be the logical choice for a company that stands to lose a lot from a switch to the aggregate method. With a monolithic base in servicing, the switch would seem to mean a massive retraining regimen for the servicers in its 112 offices in 32 states. But everything may not be what it seems.
"We don't see it changing our escrow balances in any material way," Klein said of the switch to the aggregate method. "It just means changing our methodology. We haven't been an aggressive escrower."
Klein said the software change is "within Sears' resource capabilities and that the aggregate analysis method is easier to explain to the customer." While he believes the new method is doable, it doesn't mean he supports the decision completely.
"This has been an ongoing debate between bankers and HUD, and I don't think the proposed methodology is necessarily a bad decision." he said. "But if someone is changing the rules prospectively, we'd probably still prefer the status quo."