KEVIN CUFF
Lending ‘drove economy’
“For the most part, it’s all mortgages and mortgage companies,” said Massachusetts Deputy Commissioner of Banks David Cotney when asked to sum up 2006 highlights from a regulator’s point of view.
The DOB’s year started with the announcement that Ameriquest Mortgage Co. and 49 states had reached a settlement in which the California-based lender paid $325 million in restitution and fines, including more than $12 million to Massachusetts homeowners, and agreed to revamp its business practices to settle allegations it used “high pressure and unfair tactics that trapped consumers into burdensome debt.”
Later, the agency and industry trade groups co-produced consumer brochures about non-traditional mortgage products. The DOB also continued to participate in the creation of a national database of mortgage licensees and enforcement actions, due for release in 2008. In the fall, the agency issued at least 17 highly publicized cease-and-desist orders to unlicensed brokers and lenders, and to mortgage firms found to have sold mortgages deceptively; put forth attendant emergency regulations governing prohibited mortgage sales practices; hosted a November summit for industry leaders prompted by concerns about rising foreclosures; and released state guidelines aimed at licensed brokers and lenders selling nontraditional mortgage products.
The guidelines are meant to parallel federal government guidelines dealing with so-called “exotic” mortgages, which were issued in September but apply only to banks and credit unions. The state regulations will incorporate similar rules for mortgage firms.
The slumping housing market in Massachusetts also placed a spotlight on lending and increasing foreclosures.
In October, Boston Mayor Thomas Menino announced a foreclosure prevention program designed to aid victims of predatory lending by offering loans to be issued by six area banks.
In March, the Massachusetts Credit Union League introduced its Homeowner Loan Payment Relief program, or HLPR Loan, designed by Brockton-based HarborOne Credit Union, in response to consumer demand.
The interest rate on the loan never gets more than 4 percent higher than the original market rate at which it was issued, said MCUL’s Senior Vice President for Marketing Rob Kimmett.
“This puts an affordable loan in front of people so they don’t have to go to a predatory lender to get a ‘yes,'” he said.
Of $104 million committed by member credit unions, $28.8 million has been loaned under the program to date. The National Credit Union League has since developed a similar product, Kimmett said.
Commenting on the much-talked-about state and federal mortgage guidelines, Massachusetts Mortgage Bankers Association Director Kevin Cuff said he hopes that tightened regulations do not limit access to credit for prospective homeowners. “The real estate finance industry drove the economy for the last four to five years,” Cuff said.
The Massachusetts Mortgage Association plans to re-file a bill next year that would require individual loan originators, rather than just mortgage lenders and brokers, in the Bay State to be licensed. DOB officials say they support the concept, but the agency didn’t support the original bill when it was filed in 2003 because it lacked adequate enforcement provisions and did not provide funding for regulatory oversight of the large group of potential new licensees.
MMBA’s Cuff said the bill shouldn’t include bank and credit union employees; rather, the association wants to focus on loan officer professional development.
Cuff said Florida, one of the fastest-growing home-building markets in the United States, has one of the strictest loan officer licensing requirements in the country but one of the highest rates of predatory lending.
“Their [Division of Banks] will clearly tell you they have a hard time keeping up with 1,800 entity licenses, let alone 20,000 to 30,000 originators,” he said.
Cotney said the DOB doesn’t have enough staff to enforce new licenses for the estimated 40,000 loan originators in the state.
Despite a sharp drop in both refinance loans and home-purchase mortgages, the DOB hasn’t seen any drop in applications for new broker and lender companies.
Following the change in the political makeup of Congress following the November mid-term elections, and resulting appointment of Massachusetts Democrat Barney Frank as chairman of the House Financial Services Committee, mortgage industry trade representatives say further regulatory initiatives are likely.
“I will assume from Barney Frank’s background and that of the other two Massachusetts members [of that committee] that it will become a more consumer-friendly process, and we expect greater corporate oversight [by] regulators,” Cuff said.
“What a great resource the country has, but also Massachusetts – to have somebody from here, and as well-informed, in a post like that,” added MCUL’s Kimmett.
Some mortgages are on the decline in the Bay State because of changes within the market, however. Banker & Tradesman stories in 2006 reported 40-year mortgages “languishing” and 15-year mortgages “in sharp decline” in Massachusetts.
Diminishing mortgage volume prompted changes within the mortgage industry, as several companies merged, including New York-based American Home Mortgage Corp.’s purchase of Needham-based Homevest Mortgage, and California-based Countrywide Home Loans’ acquisition of Hopkinton-based Marathon Mortgage.
Also last year, two of the largest U.S. mortgage lenders, Countrywide and Washington Mutual, each announced they would lay off 2,500 employees in the wake of declining demand for loans.
But in April, smaller companies announced expansions in Massachusetts.
“In the face of a shrinking market you have a choice, downsize and lose quality people or grow. I am not willing to downsize,” Summit Mortgage President Rick Fedele said while discussing Summit’s opening of its Norwell loan office in March.
‘Priority Bills’
While the increased scrutiny on mortgage lending was a headliner in 2006, regulatory relief and increasing competition in the state also garnered attention.
Massachusetts Bankers Association Executive Director Dan Forte said legislative initiatives moved faster on at the state level than the federal side last year.
“We were very pleased to get four of our priority bills enacted [last] year,” he said, giving credit to outgoing Senate Financial Services Committee Chairman Andrea Nuciforo.
Nuciforo, 42, was elected Middle Berkshire Register of Deeds in November.
The bills included one that put Massachusetts law governing electronic fund transfers in line with the 2004 federal Check 21 legislation, which enables more electronic reproduction and exchange of checks. The federal legislation came about after Sept. 11, 2001, when airplanes full of checks were stuck on runways for days, Forte said.
Another law enacted in Massachusetts prohibits non-bank marketing firms from using public information about which bank issued a consumer mortgage in their marketing materials, Forte said. The practice gave consumers the notion that banks were selling their personal information.
“That was really hurting the industry,” Forte said. The new rules went into effect Nov. 1.
One bill that was passed put state law in line with federal rules governing loans given to officers within a bank, and another created a statewide standard on corporate governance, “which was helpful,” Forte said.
Forte said the MBA also worked successfully with the DOB in 2006 to create a pilot program in which the division and the Federal Deposit Insurance Corp., which formerly conducted bank examinations separately every 18 months, will now do them jointly, eliminating the burden on banks of preparing for examinations twice.
Congress also passed the Financial Services Regulatory Relief bill in 2006. It gave what most local bankers described as minor relief on certain reporting requirements.
The federal government also held off on allowing Wal-Mart to form an ILC, or industrial loan company – a financial institution owned by a non-financial company. At the state level, however, the DOB allowed the national retail chain to start cashing consumer checks at its 44 Massachusetts stores after a series of hearings this spring.
“We were disappointed that the check-cashing went forward, but the state law is pretty broad and [the DOB] didn’t have the latitude to reject it,” said Forte, who added that the MBA also opposes allowing large retailers to form ILCs.
“On the federal side, I think Barney Frank has made stopping it [Wal-Mart’s application] a priority,” he said.
Competitive pressure on banks isn’t all originating from non-bank entities, however. B&T reported that Massachusetts banks outpaced their U.S. counterparts in forming new branches, and two de novo banks opened. Patriot Community Bank opened its doors in Woburn in April, and Bank of Cape Cod started up in Hyannis in September, marking the first new bank openings in the state in four years.
B&T also was first to report last year on Citibank’s plan to expand into Massachusetts, continuing a recent trend of large, national banks entering the market that began with Bank of America’s takeover of Fleet in 2004.
The New York-based, $302 billion-asset Cititbank opened its first Boston branches in November.
