KEVIN CUFF
‘Fluid’ process
Just as a new Massachusetts predatory lending statute intended to protect consumers from unscrupulous lenders becomes effective, certain national companies are threatening to pull out of the Bay State’s refinance market.
The announcements came as the Division of Banks released emergency regulations for the borrower’s interest provision of the law. David Cotney, senior deputy commissioner at the DOB, said he also has heard about the announcements from national companies.
“We have heard thirdhand that companies had made announcements like that,” said Cotney.
Emigrant Mortgage Co., which has an office in Boston, released an announcement to local mortgage lenders on Nov. 5, two days before the law went into effect. The company stated that it was temporarily suspending Massachusetts rate/term refinance transactions.
“[Emigrant] is temporarily not accepting loan registrations and/or applications for owner-occupied (both primary and secondary homes) rate/term refinances for Massachusetts properties,” the announcement read.
The company notes it still plans to accept purchase, cash-out refinances, investment properties and properties held in corporate or trust title name transactions. Emigrant also said it will reassess its current position based upon information from legal and regulatory counsel.
Emigrant did not return phone calls seeking further comment.
For Gateway Funding in Woburn, Emigrant’s announcement has some impact. According to Charlie Nilsen, regional executive vice president, Gateway is one of Emigrant’s biggest customers.
“We do look to Emigrant for certain transactions,” said Nilsen.
The good news, Nilsen said, is there are other investors to whom Gateway can sell loans.
Citigroup Global Markets Realty Corp. released a statement in late October saying it would not be accepting any residential refinance loans after Nov. 1 in Massachusetts.
“Due to the significant uncertainty in the market as to the vagueness of certain provisions of the law, coupled with the uncertainty regarding the consequences for a compliance failure, Citigroup has determined that it cannot at the present time provide a market value for such mortgage loans,” its statement said.
Further comment from the company was unavailable.
‘The Right Thing’
James Dougherty, executive director of the Massachusetts Mortgage Association, said it will be some time before anyone knows what impact the new law will have on the Massachusetts lending industry.
“It is too soon to make the call,” Dougherty said, “[about] what effect it will have on credit availability.”
However, he said the regulations were appropriate.
“It was precisely the right thing for them to have done,” Dougherty said.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said consumer protection and availability of credit must be combined in order for the law to work.
“The MMBA is making every effort to support the spirit of the state Legislature’s intent to provide consumer protection,” said Cuff. “It is within that spirit that the industry hopes reasonable business practices will also be considered in order for the industry to continue to provide the appropriate access to credit to satisfy consumer demand.”
Nilsen, who plans to attend the DOB’s scheduled Dec. 1 public hearing on the emergency regulations, said there is still some “murkiness” in the statute.
“No one questions the intent,” said Nilsen. “[But] some clarity would go a long way.”
Nanci Weissgold, a partner at Kirkpatrick & Lockhart’s office in Washington, D.C., said when other states, like Georgia, have issued anti-predatory lending laws, financial companies have threatened to pull out of the market.
Weissgold said the borrower’s interest provision is creating all the fuss in Massachusetts.
“The Massachusetts provision is very subjective and laden with value judgments the lender has to make,” Weissgold said.
There is the possibility of contested foreclosures, she added.
Several safe harbors are included in the emergency regulations. Lenders will not need to make a determination that the refinancing of a home loan is in the borrower’s interest if the new home loan is guaranteed by the Federal Housing Administration, the Department of Veteran Affairs or other state or federal housing agencies.
Another safe harbor states that lenders also do not need to make the determination of borrower’s interest if the annual percentage rate of the new home loan does not exceed by more than 2.25 percentage points for closed-end first-lien home loans, or by more than 3.25 percentage points for closed-end subordinate-lien home loans, the yield on U.S. Treasury securities having comparable periods of maturity to the loan maturity. The calculation is based as of the 15th day of the month immediately preceding the month in which the application for extension of credit is received by the lender. The regulations also state that when calculating the annual percentage rate for adjustable rate loans, the lender shall use the interest rate that would be effective once the introductory rate has expired.
If a refinance is not protected by a safe harbor, lenders must develop procedures and policies to demonstrate compliance. Lenders must complete a worksheet or other document to be signed and dated at or before the closing by both the borrower and the lender indicating how the lender determined that the home loan is in the borrower’s interest.
Until the hearing, Nilsen said Gateway Funding is complying with the regulations and will work around investors who are pulling back.
While Emigrant and other investors temporarily suspend refinance transactions in Massachusetts, Nilsen said he doesn’t expect a dramatic impact.
“I don’t see it playing a big role,” said Nilsen, adding he hopes there will be further clarification after the public hearing.
Cuff also said further clarity is needed in certain areas of the regulations.
“The MMBA, as a representative of the mortgage banking, lending and brokering industry, is working diligently with the Division of Banks to provide the best information and other tools necessary in order to comply with the commonwealth’s new predatory lending law,” Cuff said. “Currently, the process appears to be fluid as both the division and the industry are exchanging information that is necessary for us both to get it right. The industry continues to question specific scenarios for the division’s interpretation including: the mortgage broker’s responsibility in borrower’s interest determination, interpretation of construction lending as part of a home loan [and] specific interpretation of what is included in the points-and-fees calculation.”
