BARNEY FRANK
Understands industry’s needs
New bank and credit union presidents – and there are at least half a dozen in the Bay State this year – enter 2007 cognizant that the battle for new depositors will continue in earnest. In recent weeks, Banker & Tradesman has reported on their mergers and new branch openings, and their technology chiefs’ work to add new ways to attract customers with the convenience of online services, even as they work to thwart increasingly sophisticated hackers.
Meanwhile, as headlines warn that home foreclosures are on the rise, regulators and some mortgage professionals and trade groups are eyeing each other warily. Many industry watchers say they believe nontraditional mortgage products will face increased scrutiny from the state and federal agencies that oversee them in the coming year.
And while U.S. Rep. Barney Frank, who hails from Newton and has newly been installed as chairman of the House Financial Services Committee, is generally seen as understanding the needs of both the financial services industry and consumers, some say new Massachusetts Gov. Deval Patrick – who’s worked on both sides of the aisle – is a lesser-known quantity.
In the early 1990s, Patrick helped enforce fair lending laws as President Clinton’s assistant attorney general for civil rights. Last year, as a board member of ACC Capital Holdings, which controls subprime mortgage lending giant Ameriquest, he helped the company settle unfair lending-practice claims in Massachusetts and 48 other states.
Many mortgage industry leaders say they don’t yet know what housing and lending issues will rise to the top of the new administration’s priority list.
Such is the financial climate as Massachusetts’ bankers and lenders enter 2007: exciting times, but keep an eye on which way the wind is blowing.
At the state Division of Banks, Deputy Commissioner David Cotney said the focus in the coming year will remain as it was through much of 2006, squarely on the mortgage industry.
In addition to finalizing a nationwide database of licensed individual brokers and lenders, which is expected to debut in early 2008, “we will be looking at nontraditional mortgage issues,” Cotney told Banker & Tradesman late last year.
Cotney, along with DOB Commissioner Steven Antonakes, was in meetings much of last week, trying to figure out how to help the state’s consumers affected by the Dec. 29 announcement by Connecticut-based subprime lender Mortgage Lenders Network USA that it would no longer fund or take applications for residential loans (see related story on Page 6).
The state guidance for state-licensed mortgage brokers and lenders, which goes into effect today, is meant to parallel last October’s federal guidance that covers only the banks and credit unions the federal government regulates.
Both aim to require lenders’ stricter attention to soundness issues such as risk management and assessment of whether consumers will likely be able to repay certain loans.
In response to rising home prices in recent years, many homebuyers took out loans with adjustable interest rates or other features that made, or will soon make, monthly payments adjust upward sharply and suddenly, causing so-called payment shock. Many industry watchers predict foreclosure rates will rise this year as a result.
“I would say we are concerned with it,” said Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff.
However, he also noted that any rise in foreclosures is in part “a numbers game.” Since more loans closed in recent years, there will be more foreclosures as a result, he said.
Late last year, Cuff predicted that regulators wouldn’t be the only ones scrutinizing nontraditional mortgages in 2007.
“Wall Street and the secondary market will take a hard look” as well, he said.
MMBA is gearing up for a statewide media campaign focusing on borrowers’ rights and responsibilities, and also will continue to stress training for loan officers and other mortgage specialists.
However, the Massachusetts Mortgage Bankers Association will not support a bill expected to be re-filed for the upcoming state legislative session by its sister trade group, the Massachusetts Mortgage Association. The bill would require licensing of all loan originators. Cuff said MMBA “will not be led to believe that licensing is the answer, where Florida has the most strict licensing criteria in the nation and the highest levels of mortgage fraud and predatory lending.”
The DOB didn’t support the bill the first time it was filed, in 2003, Cotney said, because it didn’t provide enough funds for agency staff to oversee the large number of licensees that would be created via the initiative.
‘More Problems’
Also on the legislative front, several affordable housing groups are expected to file a comprehensive bill this week addressing existing consumer mortgage problems and trying to head off future predatory lending practices in the state. Boston Mayor Thomas M. Menino separately is expected to file a bill relating to predatory lending. The mayor’s bill also reportedly will seek licensing for individual mortgage originators.
The Massachusetts Bankers Association also will be doing more work on foreclosure assistance and prevention, said President Dan Forte, “keeping in mind that these types of [nontraditional] loans don’t tend to be offered by banks.”
If the Federal Reserve Board lowers short-term interest rates, as many economists anticipate it will early this year, that could take pressure off some borrowers with adjustable mortgages, Forte said. “But clearly if there were abusive practices, it’s possible that you could have more [foreclosure] problems this year.”
Interest rate predictions vary, but the Mortgage Bankers Association of America reportedly expects the average 30-year fixed-mortgage rate to climb from to about 6.6 percent by the end of 2007, and the National Association of Realtors says it will hit 6.7 percent.
The Massachusetts Bankers Association also plans to put high priority on other issues related to bank security and competition. The trade group is re-filing a bill that would make a jail term mandatory for all bank robbers, even those who do not carry weapons.
So-called “note passers” are usually given probation instead of jail time, Forte said “A high percentage of these are related to drugs, [so] how does it help the person just to be put back on the street?” Forte asked. In prison, a bank robber could get help for his or her drug problem, he suggested.
On both the state and federal level, Forte predicted, bank-sponsored legislation that would make retailers who compromise customers’ credit card information responsible for identifying themselves and/or paying the cost of issuing new cards will be “prominent” in 2007.
MBA also will be working on federal legislation that would require industrial loan companies, such as the one Wal-Mart hopes to form, to run any bank they receive permission to open at a location separate from their retail stores, Forte said.
MBA’s Beacon Hill Report, the weekly newsletter the association provides to its 210 member banks, on Dec. 22 said several recent appointments by Gov. Deval Patrick will be “significant” to the financial services industry in the year ahead.
For example, it said, the naming of Leslie Kirwin as state secretary of administration and finance, “a post often referred to as deputy governor Â… [is] one of the first and most significant appointments.”
Kirwin until recently was director of administration and finance and secretary-treasurer at the Massachusetts Port Authority, and was chief of staff at the Office of Administration and Finance under former Gov. William Weld.
Patrick also named Daniel O’Connell, a former Massport director of planning and development and, until recently, an executive vice president at commercial real estate firm Meredith & Grew, as his secretary of housing and economic development – the cabinet-level post that will oversee banks and finance.
That choice “reflect[s] [Gov.] Patrick’s greater emphasis on Â… the need to generate improved synergies between housing and economic development,” MBA suggested, perhaps an indicator of how he’ll handle the housing questions some members of the industry have posed.
