Lawmakers at the State House worked late into the night last Tuesday in order to get a mortgage regulation bill to Gov. Deval Patrick’s desk by the next morning.
State legislators worked, not quite literally, till the midnight hour two days before Thanksgiving to get a mortgage regulation bill to Gov. Deval Patrick’s desk.
After passing the House by a vote of 150-3 and Senate by 36-0 – with nearly all members voting – it arrived there first thing Wednesday morning.
The Massachusetts Affordable Housing Alliance (MAHA) called the bill the “toughest in the nation,” and its board president, Acia Adams-Heath, said in a prepared statement that it “will put Massachusetts in the lead in dealing with lenders who engage in unscrupulous lending.”
The governor, who has 10 days to review the bill and could not be reached by Banker & Tradesman’s press time, filed his own bill containing similar provisions several months ago and is expected to sign the Legislature’s version.
“The bottom line is, had this bill been law six years ago, thousands of Massachusetts families would have been spared the heartache and devastation of foreclosure,” said Sen. Susan Tucker, D-Lawrence, chairwoman of the Senate Housing Committee and co-chairwoman of the six-person conference committee that in the days leading up to the vote resolved what she described as “minor differences” between the House and Senate versions.
A Senate proposal that would have made mortgage fraud a felony was removed during conference committee deliberations, but a committee staff member said it could be reintroduced in separate legislation later.
Sen. Scott Brown, R-Wrentham, a real estate attorney and conference committee member, said legislators “made an effort to get a handle on some of the problems that have been happening with the loans, with people who never should have owned houses [who got] these no-doc, no-verification loans.”
Brown said he believed there was “blame to go around – with the borrowers, lenders, and agencies that oversee these types of laws.” The final bill, H. 4387, imposes new requirements on all these groups.
For example, all but the smallest non-bank mortgage lenders will be subject to low- and moderate-income lending requirements similar to those that banks now follow under the Community Reinvestment Act. Borrowers in early stages of foreclosure will, as of May 1, 2008, have a 90-day “right to cure” the problem without incurring additional attorneys’ or lenders’ fees, although they’ll only be allowed to exercise that right every five years.
As of Jan. 31, 2008, first-time homebuyers also will have to undergo in-person loan counseling from a state-approved nonprofit and affirmatively opt in to subprime adjustable-rate loans before they can accept one. And loan originators for non-bank entities now will have to be licensed individually by the state Division of Banks. Those already working in the field will have 180 days to comply.
DOB has until Dec. 1, 2009, to create a licensing exam that would-be originators who apply as of that date will have to pass.
Changing Industry
The final bill offers $3 million for DOB oversight and $2 million toward counseling programs, to be paid for through loan officer licensing fees of $500 per originator. Originators working for community development corporations, which do more home improvement loans than purchase loans, are exempt from the $500 fee.
DOB Chief Operating Officer David Cotney has said his agency would hire 50 new staff members – including about 35 new bank and mortgage company examiners who would be added to the division’s current roster of about 100 – with such funds.
Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff said he thinks the fee amount, when compared with the $5 million total offered for oversight and counseling, seems excessive. He said it made him wonder whether the real purpose of the fees is not to pay program costs but “price certain people out” of the industry.
Cuff said that by DOB’s estimate, there are 30,000 non-bank originators in Massachusetts.
“If they’re saying 30,000 times $500 [per originator fee],” he noted, “that’s $15 million” – three times the funding amount offered for counseling and DOB oversight.
“The question becomes whether we are managing the industry by regulation, or by pricing out certain people,” Cuff said, adding that $500 is a significantly higher license fee than real estate agents, appraisers and many others involved in the lending industry have to pay. Still, he said the state’s mortgage lending industry as a whole preferred the House version of the legislation, and a number of provisions contained in that version were passed.
Local housing advocates, however, said there were few differences between the two versions. The Senate bill originally passed through the Housing Committee and full Senate over the summer, while the House’s version passed the Financial Services Committee, and the full House, in October.
The final bill combined aspects of at least a dozen earlier bills filed by Gov. Patrick, Boston Mayor Thomas Menino, and conference committee member Rep. David Torrisi, D-Lawrence, among others.
MAHA Executive Director Thomas Callahan said he’s pleased the bill appears headed for the governor’s signature.
“It won’t mean that 1,000 people in foreclosure will immediately be helped,” he cautioned. “But I think it’s important that we move quickly to start to regulate the mortgage companies that this bill would cover,” so that the problems some borrowers are experiencing now can be prevented in the future.
One group caught in the middle of many foreclosures these days – tenants in foreclosed buildings – gains some protection in the final bill, which directs that those in government-subsidized programs such as Section 8 will be allowed to complete their leases, and other tenants will be deemed tenants-at-will, with the legal protections such tenants now have.
MAHA considers the Community Investment Act-related oversight provision “the most forward-looking piece of the bill,” and is particularly pleased that it’s in the final bill, Callahan said.
“This industry has changed dramatically,” he said, and putting non-bank mortgage companies to the same test as banks, which have to demonstrate they’re lending in equal measure to residents of all communities where they are located, will help regulators keep pace.
However, Callahan said, state law still cannot affect a company not required to get a state mortgage license, including, most prominently, some large federally chartered banks.
“That is a limitation,” he said.
Massachusetts-chartered credit unions also are covered by CRA, although federally chartered credit unions are not.
Massachusetts Credit Union League spokesman Rob Kimmett said MCUL supports both the licensing of mortgage lenders not already employed by regulated financial institutions, and DOB’s current efforts toward the development of a nationwide database of lenders – an effort also directed by the bill.
