Buoyed by a major legislative victory that will mean higher limits for Federal Housing Administration-insured loans (see Mortgage Market Ledger, page 10), the Mortgage Bankers Association is hopeful it will prevail on a regulations project that will set standards for lenders who participate in the insurance programs of the Department of Housing and Urban Development.
"They assure us our concerns have been addressed," said Brian Chappelle, staff vice president for residential finance and loan administration at the MBA.
The regulations have been at the Office of Management and Budget for more than a month awaiting final approval which could come any day.
MBA's principal interest was protecting small lenders from proposed net-worth changes the trade group viewed as too onerous. The MBA proposed a tiered formula that would range from a net-worth requirement of $250,000 for lenders with originations totaling $50 million or less annually to $1 million for lenders who originate $250 million or more. The proposed regulations called for lenders who originate or service more than $25 million or less to have a net worth of $250,000 and lenders who did business valued at $100 million or more to have a net worth of $1 million.
The MBA also was concerned that any sanctions should be directed at the part of a lender's business that produced an unacceptable default/claim rate. Thus, the MBA argued, if the problems were caused by loan production, sanctions should not affect a lender's servicing operation.
The proposed regulation would terminate lenders with default rates in excess of 200% of the local average. MBA asserted that in a low default area, a lender could exceed that limit and still not have defaults at a level that would cause HUD any problem. If a local area had a default rate of 1%, a lender that originates 100 loans could be subject to termination if it had just two defaults.
The proposed regulation would put a lender on a "credit watch" if it exceeded 150% of the local default/claim claim rate. MBA said rather than termination if the level reached 200%, lenders should be required to meet with HUD officials and submit a plan for improvement when the lender reaches the 150% level. If the lender's performance doesn't improve, or it cannot justify the high rate, it should then be terminated, the MBA recommended.