Fleet Bank disappeared from the Boston landscape in 2004 after being taken over by Bank of America.
Think financial services professionals enjoy a placid work environment? For bankers and mortgage lenders, the past year was anything but.
As banks spent most of 2004 preparing for the technology revolution enabled by Check 21, mortgage companies watched closely as a landmark anti-predatory lending bill moved through the state Legislature. Meanwhile, everyone was watching and listening as Bank of America absorbed Boston-based Fleet Bank and moved into Massachusetts, generating controversy with each step. Smaller bank mergers also radically changed the Massachusetts banking landscape in 2004.
Before Check 21 and local legislation, however, came the threat of Real Estate Settlement Procedures Act reform by the U.S. Department of Housing and Urban Development.
In March, the real estate and mortgage industry scored a victory when the proposal was withdrawn. The proposal to reform RESPA suggested a single, federally regulated fixed-fee package of interest rates and settlement charges for each homebuying transaction. Many mortgage industry practitioners, however, were concerned that would curtail competition and make transparency of fees and charges more opaque to customers.
Kevin Cuff, executive director of the Massachusetts Mortgage Association, said there was a large “volume of paper created by the industry for one issue,” referring to the thousands of comments sent to regulators outlining concerns with the proposal.
On Oct. 28, the Check Clearing for the 21st Century Act, or Check 21, went into effect. Banks prepared months in advance for the new law, which allows banks to replace original paper checks with “substitute checks” that are made from digital copies of the originals.
Banks are able to send digital images of checks electronically, eliminating the need to physically transport paper checks between banks.
Glen White, president and chief executive officer at Mutual Federal Savings Bank in Whitman, said a law like Check 21 is slowly morphing society into a cashless one. For banks taking advantage of the measure, speedier transactions and less paperwork are benefits that also may bring lower transaction costs.
“I think it’s a better thing,” White said.
Meanwhile, those in the lending industry said business was good in 2004, despite new compliance burdens brought about by high-profile laws and regulations created to protect consumers from predatory lenders and confusion caused by interest rate-lock issues.
“It was a very stable year in terms of business” James Dougherty, executive director of the Massachusetts Mortgage Bankers Association.
Cuff also agreed business was strong.
“The interest-rate environment maintained strength, which was positive,” Cuff said.
Cuff said there was a steady purchase mortgage origination market because of continued low interest rates throughout 2004, which he called a “pleasant surprise.”
Rick Fedele, president and founder of Summit Mortgage of Boston, described 2004 as an “incredible year.”
“Home sales were incredibly strong and stable,” Fedele said.
As business remained healthy, lawmakers were cracking down on unscrupulous practices.
Dougherty said the anti-predatory lending law and new rate-lock regulations occupied much of the mortgage industry’s time in 2004. Although targeted only toward the very few lenders that break promises of rate-lock commitments or engage in predatory lending, regulatory changes and compliance issues affect the entire industry.
“It had an impact because it got everyone’s attention,” Dougherty said.
It is too soon to tell if the new laws will help consumers instead of hurt them, Dougherty said.
The anti-predatory lending legislation is primarily aimed to protect borrowers of “high-cost home mortgage loans.” It would improve existing safeguards and create additional protections against the practices of predatory lenders. The law became effective in November.
“We’re hopeful it addresses issues it was intended to address and does not inadvertently capture loans it wasn’t intended to,” said Dougherty.
One of the chief concerns is that legitimate subprime lenders may curtail activity in the wake of the new regulations, limiting access to borrowers with less-than-perfect credit records.
Since the law was enacted, the Massachusetts Division of Banks has held a handful of public hearings concerning the “borrower’s interest” provision. While some national companies threatened to pull out of the refinance market in the Bay State due to the stipulation that the lender must prove a refinanced loan be in the borrower’s best interest, others in the industry expressed concern about future litigation by consumers.
Mortgage industry representatives have said they hope the state Division of Banks will listen to their concerns.
Daniel J. McMorrow, president, chief executive officer and founder of Bayside Home Mortgage, said the industry is fortunate to have an open-minded Division of Banks.
“We’re lucky to have a Division of Banks that understands industry complications,” McMorrow said. “The predatory lending law was something that was needed.”
McMorrow said the DOB has shown it is willing to listen to the institutions that it regulates.
Kevin Kiley, executive vice president of legislative and regulatory policy for the Massachusetts Bankers Association, said the borrower’s best interest provision continues to be an issue and needs additional refinement.
“[The] borrower’s interest [provision] is such that traditional main street banks got wrapped into an issue involving refinance,” Kiley said. “[It] creates an additional burden on the industry.”
Commissioner of Banks Steven Antonakes said his goal has been to maintain the Legislature’s intention regarding predatory lending protections while providing greater clarity to lenders regarding compliance.
Final regulations on how proving a loan is in the borrower’s best interest will be released in early January, Antonakes said.
“We’ll see what happens,” he said.
‘A Busy Year’
Rate-lock regulations also were a hot topic in 2004. The DOB issued the regulations after more than 100 complaints were logged between July and September of 2003 – a period when mortgage interest rates rose rapidly – regarding promises of low rates that were not being honored. The regulations state that a written agreement must be drafted between the mortgage lender and the borrower for a mortgage loan. The agreement obligates the lender to make a loan at the specified rate when the lender and the borrower sign the agreement.
“We think we clarified some things,” said Antonakes. “A rate lock is a contract Â… If you’re [a lender] walking away because you bet wrong on rates Â… tough.”
As banks and mortgage companies dealt with their specific industry issues in 2004, all eyes were still on Charlotte, N.C.-based Bank of America. The bank created a storm of controversy at the end of the summer when it appeared it was breaking promises to maintain jobs during its mega-merger with Fleet.
“Bank of America has gone through the process of hearings, getting regulatory approval, [but] clearly there were stumbles along the way,” Kiley said.
In terms of mergers and consolidations, Antonakes said, the system is not perfect.
“Things can always go smoother,” Antonakes said.
Despite the bank’s less-than-smooth entry into the Bay State, Kiley said Bank of America is being responsive and will soon become an “extremely strong” competitor in the marketplace.
Antonakes said the lines of communication are clear now between the DOB and Bank of America.
While Bank of America made the largest splash with its merger involving Fleet, other banks with a presence in the Bay State were also consolidating at a rapid pace.
Pennsylvania-based Sovereign Bancorp, the parent company of Sovereign Bank, acquired New Bedford-based Seacoast Financial Services Corp. for approximately $1.1 billion. Seacoast was the holding company for CompassBank and Nantucket Bank. Prior to the Sovereign merger, Seacoast had announced its acquisition of Abington Bancorp.
Portland, Maine-based Banknorth and Burlington-based BostonFed Bancorp, the parent company of Boston Federal Savings Bank, also agreed to merge. The transaction was valued at approximately $195 million.
Rhode Island-based Citizens Financial Group and Ohio-based Charter One Financial merged, making Citizens one of the 10 largest commercial bank holding companies in the United States. The cash purchase price was approximately $10.5 billion.
Another merger taking place in 2004 was not intended for stockholders. Eastern Bank and Plymouth Savings Bank agreed to merge in July, calling it “a partnership of mutual benefit” because both banks are mutually owned. The combined entity has $6.6 billion in assets and $4.9 billion in deposits.
2004 was also a significant year for Antonakes, who served his first year as Commissioner of Banks.
“It was a busy year,” said Antonakes. “It was a good year.”
The condition of the banking industry is considered good by Antonakes.
“The industry is very sound,” he said.
Antonakes also commended the mortgage industry, saying it performed well in 2004.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
