Thrifts are furiously lobbying for changes to the language in the flood insurance provisions of the Community Development, Credit Enhancement and Regulatory Improvement Act that exempt mortgage bankers from the bills escrow rules. But mortgage bankers argue the change is unnecessary because the nature of their business requires them to follow the same rules as banks and thrifts anyway. The thrift furor was sparked by language in the flood insurance provisions of the Senate-endorsed CDFI package now in conference. In a letter to House Banking Committee Chairman Henry B. Gonzalez, a key conferee in the CDFI bill, the Savings & Community Bankers of America asked for a rewrite of a passage in the bill that would remove the loophole exempting mortgage bankers. SCBA said the bill requires only regulated lending institutions escrow flood insurance premiums where flood insurance is required for the particular loan, and the lending institution requires the escrowing of funds for reasons other than flood insurance. Mortgage bankers, which arent regulated by any of the banking regulatory agencies, such as the FDIC, OCC or OTS, would be exempt. Thrifts contend language needs to be broadened to include all lenders and mortgage servicers to level the playing field. Mortgage bankers, however, believe the change would be a matter of over-regulation, not just of the mortgage banking industry, but to the GSEs as well. Every loan we make that is insured by FHA, or sold to Fannie Mae or Freddie Mac, must comply with flood insurance requirements anyway, said Sharon Canavan, a regulatory counsel with the Mortgage Bankers Association. Fannie, Freddie and FHA are looking over our shoulders now, [the system] doesnt need someone looking over [their] shoulders too. The long-debated flood legislation moved closer to passage when Rep. Joseph Kennedy, D-Mass., who had been holding out for stronger language in the House bill, finally allowed a more sanitized version that had a reasonable chance at passage, acquiescing to the demands of Realtors and home builders along the way. The bill, which was approved easily by the full House, was expected to pass once it reached the House-Senate conference. The Senate bill, however, which lenders generally prefer, contains the language thrifts find objectionable. One lobbyist said the language issue had been resolved, adding no substantive changes are expected to occur. In the matter of notice requirements whereby regulated lending institutions and federal agency lenders must notify borrowers of special flood hazards, SCBA has urged that the provision not be mandatory, but that if they are, that the vagueness of the requirement be replaced with precise language specifying how the determinationsi.e., that the security property is in a flood hazard area, flood insurance is available, and the required amount of insuranceregarding flood insurance should be made, and at what frequency. SCBA believes to avoid any conflicts between the law and existing loan contractual provisions that do not address such issues as the lenders purchase of flood hazard insurance on behalf of the borrower and the charge of a reasonable fee for flood insurance determinations costs the application of these provisions should apply only to loans originated after the date of implementing regulations.
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