In recent weeks, both New Jersey and Massachusetts have moved to tighten regulation of mortgage lenders, highlighting a growing trend. Andrea Lee Negroni, a partner in Payne, Negroni & Winston, a Washington law firm, has been following mortgage-industry regulations for several years. She spoke about the increasing regulation of lenders and what it means for the industry's future.

Q.: How has the need for regulatory action changed?

NEGRONI: This is not an industry where everyone is the good guy anymore. Everyone has a horror story with a lender they like to tell. The result is a real proliferation of laws and regulations and lawsuits.

Now you can do everything by the hook and still get sued down the road. Whether you are doing it right or whether you are doing it wrong, the cost of originating a loan with all this regulation has gone up.

Q.: What are regulators' goals?

NEGRONI: Regulators are trying to keep up with technology, protect borrowers, and learn what today's lending is all about. They want to make sure borrowers are not stuck between the devil and the deep blue sea.

Q.: What states are most active' in expanding regulations?

NEGRONI: Most of the regulatory action comes fr9m the states that are the most populated and the most prominent. That means New York, New Jersey, Pennsylvania, Florida, Illinois, California, Oregon, and Washington.

Q.: Why in those states?

NEGRONI: A lot of people live there, that is one thing. In the Northeast, it is a more highly sophisticated borrower community than in the South or Southeast, so they bring their problems to their governments more readily.

Home mortgages are a popular subject right now, they are sort of the issue du jour. So states that are proactive are jumping in. With the Clinton administration, there is more attention being paid to more fun-damental needs and housing certainly falls into that group.

Q.: Are states adopting a certain formula for lender regulations?

NEGRONI: There are two models: One is straight licensing, postings of modest bonds, and letting lenders go about their business. States such as Arkansas, Kentucky, and Michigan follow this model.

And then there are states which tell lenders how to do business. They are going to say you must give the following piece of paper to the borrower at closing time. They are going to regulate your fees.

That is a much more highly regulated model and that's the New York model. It's more burdensome for the lender to keep up with.

Q.: Isn't the first model enough?

NEGRONI: The first model really hasn't been perceived to protect the borrower much and there have been a lot of complaints. When the borrower complains, government officials jump in to do something.

Q.: Is regulation at the state level needed? Do federal regulations of mortgage lending lack bite?

NEGRONI: The federal government has enough laws in place to deal with 99.9% of the garden variety of situations that arise. We have Truth-in-Lending. We have RESPA [Real Estate Settlement Procedures Act], so you can't pay kickbacks. I think federal regulation is well in hand.

Q.: What would improve the regulatory situation from the lender's perspective?

NEGRONI: The best a lender can hope for is not innovation from the regulator, but reasonableness, and for a regulator who understands the lending business.

I found states like Illinois, Rhode Island, Connecticut, New Hampshire, and Vermont all seem to apply a measure of reasonableness with their dealings with lenders. But there will always be people who in the end of the day are frustrated.

Q.: Will mortgage companies soon be as regulated as commercial banks?

NEGRONI: Perhaps not quite to that point, because commercial banks are responsible for taking deposits. For this they get government guarantees. Mortgage companies don't have that But the lending industry will never be what it was 40 years ago.

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