Membership Updates on Leg. and Reg. Developments
Date: April 20, 2007
To: All PAMB Members
From: E. Robert Levy, Legislative/Regulatory Counsel
BULLETIN
MEMBERSHIP UPDATE ON LEGISLATIVE AND REGULATORY DEVELOPMENTS
We had an excellent turnout on Lobby Day, April 17, 2007, when approximately 125 showed up at our Orientation Meeting at 10:00 am, many of whom were mortgage brokers, at the Harrisburg Hilton. From there, we went to the Hill and lobbied our legislators on some of the key bills now pending as well as discussing the conditions in the subprime market, which, of course, is of interest to everyone these days.
On Monday, April 16th, our lobbying arm, the Joint Council, made up of four voting members of each of the two associations (MBA of PA and PAMB) and the presidents of the Associations, as well as myself and Anthony Barbush of Greenlee Partners, met and reviewed regulatory as well as legislative developments.
The Council also had an opportunity to meet with David Bliecken, Director of Licensing, Investigation and Consumer Services, and Paul Wentzel, Executive Assistant to the Secretary, Pennsylvania Department of Banking, to discuss a proposed regulation that will be issued by the Department for public comment shortly. The regulation, which was the subject matter of a public hearing in September at which we testified, had been revised in part, based upon that testimony, however, it is still problematic with its most recent revisions. In this regard, the regulation would require that mortgage bankers and brokers determine whether a borrower has the ability to repay a loan based upon documented income which would preclude the ability to offer stated income or no documentation loans. In addition, when determining repayment ability, the calculation must be based upon the fully indexed rate for the entire term of the loan. This provision, unlike that in the non-traditional mortgage product guidance (which applies only to non-traditional loan products) would apply to all mortgage loans including hybrid arms, both prime and subprime.
In our discussion with the representatives of the Department, we explained why these provisions would cause many consumers that would now qualify for loans to be unable to qualify and lose the opportunity to purchase a home. It was clear from our discussion that the perceived need of the government to act given the current conditions in the subprime market means that the regulation will likely be published as now proposed. We will certainly oppose its adoption when it is reviewed by the Legislature through the Independent Regulatory Review Commission (IRRC) as required by law in Pennsylvania. When our members have an opportunity to review the regulation after it is published, we would appreciate receiving any comments that would add to the arguments we will make in opposing this regulation.
The Department of Banking has also adopted the non-traditional mortgage product Guidance substantially in the form suggested by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). That Guidance, which does not have the same force and effect as a law or regulation, should be read carefully as the examiners for the Department will certainly comment if a mortgage lender or broker is not following its provisions. In this regard, the Guidance suggests that in advertising and promoting non-traditional mortgage loan products (those which have deferred interest or principal payments), borrowers be advised at an early enough stage to assist them in shopping for a mortgage loan of both the positive and negative features and potential results of the loan products. There are written policies that are suggested in terms of advertising and promotion and underwriting procedures as well as the training of loan personnel. Repayment ability should be calculated based upon the fully indexed rate over the term of the loan and third party originations should be carefully reviewed and due diligence done to be sure that the third party originators are providing appropriate loan products and if not, action should be taken. These and other provisions of the Guidance should be reviewed carefully by our members. The federal agencies are also looking at extending the Guidance to subprime hybrid arms and they are seeking comments at this time on a federal level. The CSBS/AARMR has not yet issued its proposal in this regard, but, as noted, the Pennsylvania Department of Banking has put this type of provision into its proposed regulation.
The Department has reintroduced a six Bill Package both in the Senate and in the House. The Bill numbers in the House are HB 1079 (License Loan Solicitors); HB 1080 (Secondary Mortgage Loans); HB 1081 (Real Estate Appraisers); HB 1082 (Banking Code); HB 1083 (PHFA); and HB 1084 (Loan Interest Protection Law). The Bill numbers in the Senate are SB 483 (Loan Interest Protection Law); SB 484 (Banking Code); SB 485 (Real Estate Appraisers); SB 486 (PHFA); SB 487 (License Loan Solicitors); and SB 488 (Secondary Mortgage Loan Act). These bills have been assigned to the Senate Banking and Insurance Committee and the House Commerce Committee. There are also two predatory loan bills in the House, HB38 and HB40, which we oppose. We do not envision them gaining significant support at this time. The proposal to license and educate loan solicitors (referred to in the Bills as “mortgage originators”) would require 12 hours of pre-exam education, an exam and six hours of continuing education each year for every loan solicitor. We are generally in support of the Bill Package except for the expansion of the definition of residential mortgages from $50,000 to $197,000, since it would disallow prepayment penalties on all such loans.
There are three hearings which were announced on relatively short notice by Representative Peter J. Daley’s office (he is the Chairman of the House Commerce Committee), with the first focused on the subprime market on April 20th and the next two being focused on the Bill Package, on May 4, and May 11, 2007. We will keep our members informed as to what transpires at these Hearings.
Our members should also be cognizant of the fact that the Supreme Court of the United States has issued its decision in the Waters v. Wachovia Case, holding that the operating subsidiaries of national banks have the same pre-emptive powers over state laws and regulations that the banks themselves do. This five to three decision with one justice recusing himself will have far reaching implications. In this regard, mortgage banking or brokerage subsidiaries of national banks will not have to comply with state laws and regulations regulating mortgage bankers and mortgage brokers. This creates an unlevel playing field particularly in those states where regulations and laws are more stringent than those applicable to national banks. This will obviously be an inducement for state creditors to become subsidiaries of national banks and it is also likely to result in exemptions of state chartered banks and their operating subsidiaries from state laws so they enjoy the same exemption from state legislation and regulation as their sister national banks. If this were not the case, many of the state chartered banks would simply to convert to national in order to enjoy these benefits leaving few to regulate on the state level.
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