JOSEPH KRIESBERG
‘A very troubling trend’
Of some 6,300 bills filed on Beacon Hill last week as a new legislative session began, a handful could make a huge difference to those who work in, regulate or are affected by the mortgage industry.
“There have been major problems as a result of the subprime lending and predatory lending markets,” said Chris Norris, assistant director of Citizens’ Housing and Planning Association. CHAPA last week co-filed “An Act to Preserve and Promote Homeownership” with the Massachusetts Affordable Housing Alliance, the Massachusetts Association of Community Development Corporations and the National Consumer Law Center, whose headquarters are in Boston.
CHAPA’s members brought up that issue repeatedly in meetings across the state last fall, Norris said. “They said we need to find a way to help folks who are already facing foreclosure and prevent more people from running into it.”
“This is not a cycle of the economy or an odd coincidence of bad luck,” added Massachusetts Association of CDCs Director Joseph Kriesberg. “This is a very troubling trend Â… where we see some downright predatory products.”
Kriesberg said the problem of predatory lending is a national one from which Massachusetts is not exempt.
The number of foreclosures in Boston in recent years is a clear indication of a pending emergency and a need for new laws to address it, said the city’s Department of Neighborhood Development Director Charlotte Golar Richie. Among the bills filed last week was the “Homeownership Protection Act” proposed by Boston Mayor Thomas M. Menino.
City figures show 24 Boston homes were foreclosed upon in 2004, 60 in 2005 and 260 in 2006, Richie said.
Statistics collected by The Warren Group, parent company of Banker & Tradesman, paint a similar picture statewide. Lenders filed 10,000 Petitions to Foreclose in Massachusetts Land Court in 2005 and 17,000 last year. Not every petition results in a foreclosure; in Boston, 700 petitions were filed in 2005 and 1,440 last year.
“The [petitions] are a bellwether, a warning,” Richie said, but the quadrupling in actual foreclosures in one year is a “crisis.”
“The mayor has charged us with getting ahead of this issue, and doing whatever we can to slow down this trend,” she said. “It’s been said before, but the thing we are tying to do is help prevent the American dream from becoming a nightmare.”
Denise Leonard, owner of her own Wakefield mortgage lending business and executive director of the Massachusetts Mortgage Association, said that her group has filed its “Act to License Mortgage Loan Originators” before.
“We feel we’ve pioneered the initiative in Massachusetts, knowing that it would only be a matter of time before other interested parties filed similar legislation,” she said.
MMA first filed the bill in 2003. It has resubmitted it for the new legislative session with some revisions. Leonard noted that all professionals involved in a home purchase, including Realtors and closing attorneys, are licensed, and said she believes all loan originators should be licensed, as well.
MMA President Rosemary O’Neil acknowledges it might seem odd to want to pile more regulations on an already heavily regulated industry, but says the bill “is about higher standards.”
A fourth bill dealing with loan originators has been filed by a mortgage lender, according to Deputy Superintendent of Banks David Cotney, who would not disclose further detail about that initiative.
Cotney said the Division of Banks, which regulates the Massachusetts mortgage industry, hadn’t actually seen any of the bills that would increase its responsibilities by the Jan. 10 deadline for filing them.
“But we are very interested in tracking their progress,” he said.
Originator Licensing
One common element to the bills would have a direct and immediate effect on the Division of Banks: licensing for individual loan officers.
Mortgage companies, but not individual originators, currently are licensed by the state of Massachusetts. Licensing those estimated 30,000 mortgage brokers is a legislative priority for the MMA, and licensing is a component both of Menino’s bill and the bill filed by the nonprofit coalition.
The bills, however, differ in exactly which mortgage professionals would be required to be licensed and in how licensing would be enforced.
For example, Menino’s Homeownership Protection Act would fund enforcement with a fee of $150 to $500 per license, to be paid by the would-be licensee. At least 50 percent of the fee would go to the Division of Banks to fund oversight and enforcement.
The other two bills make no similar provisions for enforcement funding. According to Cotney, lack of a funding mechanism was one reason the DOB didn’t support previous incarnation of MMA’s licensing bill.
Under Menino’s bill, licenses would be renewable every year, while MMA changed its bill this year to make renewals bi-annual.
Both bills would require every loan originator who comes in direct contact with a consumer to be licensed. In contrast, the nonprofit coalition’s Act to Preserve and Promote Homeownership would exempt originators who work for banks and credit unions from the requirement.
“Banks are not in the business of making really bad loans,” said Maureen Flynn, deputy director of the Massachusetts Association of CDCs, who previously had worked on a foreclosure-prevention project in New York.
“The folks that are [issuing bad loans] are the mortgage companies,” she said. “It was the same companies over and over again.” She declined to name them.
A Boston Department of Neighborhood Development spokesman said 97 percent of foreclosures in Boston last year originated from mortgage companies or out-of-state banks.
The 13th annual report of the Massachusetts Community and Banking Council, released late last fall, showed that mortgage companies and out-of-state-banks have been increasing their market share of home-purchase loans. In 2005, they made more than three-quarters of all such loans in the state.
The report also showed that Massachusetts banks and credit unions, whose local lending activities are examined by regulators under the Community Reinvestment Act, directed a greater share of the loans they did give to “traditionally underserved” borrowers that year than did out-of-state banks and mortgage companies.
A major provision of the coalition bill would apply CRA, which currently covers only to banks and credit unions, to brokers and lenders that make 50 or more loans in the state annually.
The Massachusetts Bankers Association generally supports that concept, said David Floreen, the group’s senior vice president for government affairs. However, Floreen said he had not yet read the specific bills in question.
“I think it’s fair to say that we have generally supported legislation that levels the playing field by adding the CRA to mortgage companies,” Floreen said.
However, Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff said the mortgage industry will oppose applying CRA requirements to mortgage firms.
“The title alone doesn’t work: ‘Reinvestment,'” said Cuff. “A mortgage company doesn’t take in deposits. How can it reinvest?”
Authors of the coalition and city bills both included state-financed pools of funding, which would pay for the state Department of Housing and Community Development to educate consumers on how to prevent bad loans and, in some cases, help them get out of loan trouble.
In the city’s bill, the funds would come from a new filing fee of $500 per foreclosure petition. Richie estimates there will be 3,500 petitions to foreclose in Boston this year, which would bring in $1.8 million.
In the coalition bill, a brand-new, $10 million appropriation from the state operating budget would pay for counseling to homeowners at risk for foreclosure, and a remediation fund some could access.
“These exist in other parts of the country, but they are rare – and extremely needed,” said Flynn of the Massachusetts Association of CDCs.
Under the bill, DHCD would administer the fund and programs associated with it.
The city and coalition bill also provide for a 30-day waiting period, triggered when a loan is about to default. Sponsors of both bills describe the provision as critical.
Normally, lenders can send matters to an attorney after 60 or 90 days of homeowner payment delinquency, Flynn explained. The new waiting period would tack on a 30-day additional grace period – during which the homeowner would know there’s a crisis, but have 30 days in which to right it without additional legal fees during.
Authors of the bills declined to make specific predictions about their changes for success in the upcoming legislative session.
“Anything can happen in the legislative process,” said Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, a co-author of the coalition bill.
But he, Kriesberg and others pointed out that rising foreclosure rates have received lots of press attention of late.
“Gov. [Deval] Patrick talked about it during his campaign, and his secretary for housing, Dan O’Connell, [recently] indicated he supports the CRA reinvestment provision,” Kriesberg said.
“We do think that there is a growing awareness in the lending industry itself” of a problem, Callahan added. Indeed, MMA’s loan officer licensing bill is, in its own words, “industry-driven.”
Rep. David Torrisi, a North Andover Democrat, is chairman of the Joint Committee on Community Development and Small Business and lead House sponsor of the coalition’s bill.
“I’d be surprised if it made it out [of committee] in the same way in which it came in,” he said. “It has a lot of aspects – some more controversial than others.”
For example, the proposal to extend CRA to mortgage companies has been filed before, Torrisi said. Sen. Jarrett Barrios, sponsor of the new coalition bill in the Senate, also sponsored that provision as a standalone measure in 2005. And a request for $10 million in new money will be a hard sell in tough budget times, Torrisi predicted.
But on the other hand, Torrisi, who also represents the city of Lawrence, said, “Foreclosure is a major problem in our state.”
