WASHINGTON — Facing criticism that states are not doing enough to prevent abuses in the subprime mortgage market, the Conference of State Bank Supervisors will issue guidance today mirroring federal standards and urge all its members to apply the guidance all licensed nondepository lenders.
Primary responsibility for regulating brokers and nonbank mortgage lenders falls to the states, and 28 of them have already committed to adopting the guidance.
"This is part of the evolution both of a more coordinated system of regulation," said John Ryan, executive vice president of the trade group. "What we really wanted to accomplish here was a consistent expectation throughout the industry on the application of this guidance."
To be issued jointly with the American Association of Residential Mortgage Regulators and the National Association of Consumer Credit Administrators, the guidance mirrors one federal regulators adopted last month.
The supervisors group took a similar step in November, urging its members to adopt the nontraditional mortgage guidance issued by the federal agencies. Thirty-five states have implemented that guidance, and eight are in the process of doing so.
Critics have argued that most of the problems tied to subprime mortgages rest with the 300,000 state-licensed lenders.
In a speech last week, Julie L. Williams, first senior deputy comptroller and chief counsel of the Office of the Comptroller of the Currency, said the guidance cannot be fully effective until it is adopted by states — not as a suggestion but as something with consequences for violators.
Comptroller John Dugan said Monday in a press release, "This is a great first step toward state implementation of the subprime guidance, and we welcome this CSBS initiative."
Even with these steps, Stephen O'Connor, vice president of government affairs at the Mortgage Bankers Association, said Congress is likely to weigh in. "This does not eliminate the need for a uniform national standard for a strong anti predatory lending law."
Rep. Spencer Bachus of Alabama, the House Financial Services Committee's ranking Republican, has introduced a bill to create a national registration and licensing system for mortgage originators. Sen. Charles Schumer, D-N.Y., is sponsoring a bill that would apply tougher requirements to nonbank lenders and mortgage brokers.
The guidance adopted by federal and state regulators would require lenders use the fully indexed rate when underwriting subprime mortgages, restrict the use of stated-income loans, limit when lenders may charge prepayment penalties, and encourage lenders to work with struggling borrowers.
