Bay State bankers and brokers have suggested various changes to Attorney General Martha Coakley’s new consumer-protection mortgage regulation.
Attorney General Martha Coakley’s new consumer-protection mortgage regulation could use a few additions but is basically fine, according to the Massachusetts Bankers Association.
Trade groups for mortgage bankers and brokers, however, had more targeted suggestions for improvement of the regulation, 940 CMR 8.00, which went into effect on an emergency basis Jan. 2.
Both sides had their say during a second hearing on the matter last Monday in Boston. That hearing was required before the regulation becomes final. Christopher Barry-Smith, head of Coakley’s Consumer Protection Division, said it’s expected that will happen by March 18.
Massachusetts Bankers Association Executive Vice President Kevin Kiley, Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff and Massachusetts Mortgage Association Executive Director Denise Leonard were the only representatives to offer their opinions in person at the Boston hearing, although Barry-Smith said he also received 20 to 30 phone calls and e-mails from brokers and lenders seeking clarification on technical points.
Initial hearings held when Coakley first proposed the regulations last fall garnered far more attention from the industry. The section prohibiting conflicts of interest between mortgage brokers and borrowers inspired particular concern and especially questions on whether it would, in effect, prohibit yield spread premiums.
A yield spread premium is the difference between the interest rate for which a borrower qualifies and that he or she agrees to pay on the loan, and is a common means of broker compensation.
But following several industry compliance forums and Coakley’s written guidance on YSPs and other areas of concern, the public furor died down.
Kiley said MBA is “pleased” that Coakley implemented its request to eliminate a mortgage disclosure form for lenders that the association considered “duplicative.” He said he thinks Coakley’s guidance to lenders on how to implement the regulation will be “extremely helpful” to lenders.
He added, however, that MBA hopes the regulations soon will require real estate brokers who are affiliated with mortgage companies to inform consumers they have no obligation to get funding from that company.
Kiley also requested that more be done to stop “abusive advertising practices.” He said advertisements are still running for loans with low initial teaser rates or negative-amortization features.
Leonard, who owns her own lender-broker firm in Wakefield, asked that the guidance be revised to suggest a 2 percent yield spread premium in examples of how brokers and lenders can comply with the regulation’s conflict-of-interest section.
Currently, the guidance frequently refers to 1.5 percent yield spread premiums in those examples. In response, national lenders Taylor, Bean & Whitaker and Wells Fargo decided to limit YSP compensation on Massachusetts loans to 1.5 percent while a smaller company, Crescent Mortgage, eliminated YSP use completely.
“There are a number of lenders who [still] think 1.5 percent is the limit,” Leonard said.
Cuff, representing MMBA, asked for further clarifications on the regulations’ prohibitions on certain types of advertising, timing of required disclosures, and no-income loan products.
Those sections, respectively, conflict with established marketplace standards, could put a broker in conflict with existing Division of Banks regulations, or stand in conflict with other parts of Coakley’s regulation, he said.
“The Massachusetts mortgage market remains fragile,” Cuff said. “I am not sure that there is much more Â… that will have any additional corrective measure than [to wait for] general and overall correction as a result of market forces.”
