Lenders are shooting for the moon when it comes to legislative fixes in the coming year, but their lobbyists are trying to bring them gently back to earth.
David Stevens, the president and chief executive of the Mortgage Bankers Association, admits that key legislative priorities may be a tough sell next year because of the upcoming 2016 presidential elections. The midterm elections in November also will usher in new leadership on the Senate Banking Committee, further complicating the industry's efforts to persuade lawmakers to make changes, Stevens said.
"Because we're heading into a presidential election, the longer we go into 2015, presidential politics dwarfs much of the debate," Stevens said. "I question how productive the upcoming year will be post-election."
So the mortgage industry's main lobby will instead be pushing more for regulatory relief and tweaks next year to bolster the housing market and boost profits for its 2,200 member companies.
The MBA's list of priorities for 2015 is a long one. The group continues to push back against regulations stemming from the 2007-2008 financial crisis, when shoddy underwriting practices caused widespread defaults and billions in losses to consumers, the government and lenders.
Undaunted, the MBA could set a record this year in raising money for Congressional campaigns. The MBA already raised more than $950,000 in contributions in the first six months ended in June.
The lobbying group could potentially set a new record for contributions this year if it exceeds the peak of $1.2 million raised in 2006, according to the Center for Responsive Politics, which runs the website OpenSecrets.org.
Spending by the MBA on both lobbying and campaign contributions has soared dramatically since 2000, the center found.
Spending on lobbying alone hit $1.8 million in the first half of this year, compared with $2.9 million for all of 2013, the research group found. The group's lobbying peaked in 2008 at $4.2 million.
Kurt Pfotenhauer, a vice chairman at title insurer First American, and a former top MBA lobbyist, said the main issue MBA members believe is holding back the housing market is access to credit. "We want as many people to be able to buy homes as want to buy homes and can reasonably make a mortgage payment," he said. "Getting that balance between compliance and flexibility is a work in progress."
Here are the top regulatory issues the MBA is working on in the coming year:
Federal regulators are expected to publish a final rule soon setting risk-retention requirements for securitized mortgages.
The risk retention provision remains one of the top unfinished items for regulators implementing the Dodd-Frank Act. Lenders were relieved when regulators broadened an exemption for mortgage securitizers to avoid a 5% risk retention requirement. The industry also got a big "win" when regulators aligned the criteria for ultra-safe "qualified residential mortgages," which are exempt from risk retention, with the CFPB's definition of a "qualified mortgage."
Still, Stevens said the risk retention rule remains "a huge point of uncertainty."
Mortgage lenders and community bankers want fixes to various rules implemented by the Consumer Financial Protection Bureau, particularly the 3% points and fees cap on qualified mortgages.
The CFPB is still the one regulator mortgage lenders complain about and fear the most. Asked about the No. 1 issue causing lenders pain, Ty Jenkins, the founder and CEO of DocuTech, a compliance and documentation technology provider, said: "The intrusion of the CFPB."
"To a certain extent it's calmed down a bit but they need some oversight," Jenkins said, echoing many lenders' frustration at the agency. "It causes a lot of uncertainty and unease within the industry." Specifically, the MBA is pushing for changes to the CFPB's 3% points-and-fees cap. Lenders want to pay affiliated businesses like title insurers and settlement service providers outside the cap, so they can pocket more profits and still get an exemption from liability and legal risk. House lawmakers passed a bill in June that would exclude fees to affiliates from the points and fees tally.
The CFPB is considering easing its interpretation of affiliated fees, allowing transactions that are passed through an affiliate to a third-party provider to be excluded from the 3% points and fees test. The MBA's Stevens has argued that fees on low-balance loans in particular can quickly exceed the 3% limit, disproportionately hurting consumers.
The MBA also wants modifications to Appendix Q, a written underwriting manual they lenders claim is too narrow in scope and requires too much documentation from a borrower. It contains detailed requirements for determining both debt and income as part of debt-to-income calculations and the borrower's ability to repay a loan.
In addition, the MBA will push for more feedback on the CFPB's examinations of lenders and whether enforcement actions are excessive or inappropriate, Stevens said.
A CFPB proposal to require more data from lenders through the Home Mortgage Disclosure Act has caused heartburn.
Currently, publicly released HMDA data is primarily broken down by geography, race, gender and whether the applicant was approved for a loan. But the Dodd-Frank Act required that the CFPB begin collecting new data including requiring lenders to disclose the age and credit score of homebuyers, property value and interest rate details.
HMDA data collected before the financial crisis failed to tip off regulators about the proliferation of teaser rates to minority borrowers that led to many defaults and foreclosures.
Still, the industry was taken aback by a CFPB proposal in July, arguing it goes too far beyond the reform law's intent.
Jim Deitch, the chairman and CEO of Teraverde Management Advisors, a Lancaster, Pa., consulting firm, said the requirements use statistically based regression analysis to show a bank restricted credit to a minority group.
"Lenders are experiencing extreme pain on fair lending," he said. "Even if there are no allegations of overt discrimination, the data is going to generate more fair lending penalties."
The CFPB's final regulation combining mortgage disclosures required by the Truth in Lending Act and Real Estate Settlement Procedures Act will take effect Aug. 1, 2015.
In addition to major changes to loan disclosure and closing forms, the RESPA-TILA rules will require that settlement statements be completed three days prior to closing. RESPA-TILA also changes the relationship between lenders and settlement service providers, requiring far more communication and collaboration than in the past. Lenders are working on changing systems, training employees and streamlining the closing process, something Pfotenhauer called "a big challenge."
The MBA's staff of 120 employees includes lawyers, former regulators and policy experts who analyze the issues and work with members on committees and task forces to influence legislators, regulators and consumer groups.
The MBA is actively promoting the Federal Housing Finance Agency's single security, common securitization platform, and upfront risk-sharing with mortgage insurance companies. Changing Fannie Mae and Freddie Mac's rules on repurchases of loans, including what constitutes a significant defect, are also high on the list of priorities for next year.
Lenders have imposed credit overlays on home loans, requiring higher credit scores than the government-sponsored enterprises or the Federal Housing Administration, to protect themselves from buybacks.
"The only certain thing that Congress does is pass laws of unintended consequence, and with something as complex as the mortgage system, they aren't going to get it right the first time out of the box," Pfotenhauer said.
"The majority of the industry's energy goes into trying to understand and comply with the regulations, but we've got a human capital intensive process, with a lot of people involved, and it's very manual. It has to become automated. Once there is automation, errors will be reduced significantly."