Sept. 10, 2007 - Report on Hearing 8/29/07

Date: September 10, 2007

To: All MBA of PA Members

From: E. Robert Levy, Executive Director & Legislative/Regulatory Counsel

REPORT ON HEARING 8/29/07 RE: PROPOSED REGULATION

On August 29th, I appeared and testified at an informal hearing held by Representative Peter J. Daley, Chairman of the House of Representatives Commerce Committee, regarding the Department of Banking’s proposed Regulation. MBA of PA and PAMB members have already received copies of the formal written comments we had previously submitted to the Department of Banking (DOB) and the Independent Regulatory Review Commission (IRRC). The Acting Secretary of Banking, Steven Kaplan, (not yet confirmed by the Senate) spoke briefly at the outset of the hearing followed by the Executive Deputy Secretary, Victoria Reider, (formerly Acting Secretary) and Paul Wentzel, the DOB’s Legislative Liaison. ACORN was represented as was the Pennsylvania Bankers Association and the Community Bankers Association.

The state chartered Banks and their operating subsidiaries will not be included in the Regulation, according to Ms. Reider (to give them parity with the National Banks and Federal Thrifts who pre-empt state law). However, the banks were attempting to have their affiliates (e.g. mortgage companies owned by a holding company) fall within the same exemption despite the fact that they do not attain the pre-emption on a federal level as do the subsidiaries under the Waters v. Wachovia decision of the US Supreme Court. Our position was that the affiliates should be subject to the same regulations as our other members (which is how we have always interpreted the Mortgage Bankers and Brokers and Consumer Equity Protection Act). The Department indicated its agreement with this view.

With regard to stated income products, the Executive Deputy Secretary noted that DOB did not intend to prevent any specific product types but it occurred as a necessary result of the way the regulation would function.

Alan Bennett, First National Bank of PA was helpful when he explained that we were in a national market that doesn’t stop at state borders and the regulation could make it too costly for lenders and would make their loans unsaleable. He also explained that stated income loans were never intended for some of those who received them, such as 100% LTV’s, and that they have their place in the market. The Community Banks indicated that the overall tenor of the regulation was, inappropriately, to substitute the Government’s judgment on underwriting for that of the industry.

In my testimony on behalf of the Joint Council (MBA of PA and PAMB) I suggested to the Committee members that we were approaching a significant crossroad regarding the manner in which government regulates our industry when we begin controlling the specific loan product types that lenders and brokers can offer, whether directly or indirectly, as well as how to underwrite them. I emphasized that we believe in consumer choice and a free market wherein the competition brings benefits such as the low rates of interest we have provided and the highest homeownership rate in our history (and with some 86% of the subprime loans being paid according to their terms).

We proffered the loan solicitor (mortgage originator) licensure bill as the appropriate way to regulate and explained that this was an effective way to achieve results for consumers without the negatives inherent in the proposed regulation. I also noted, among other things, the strengthened enforcement by the Department which is a positive regulatory approach for consumers and went on to discuss the competitive inequality of having affiliates exempted from regulations that our other members were subject to (which can lead to the emasculation of the state licensing system).

Other issues were included in the written statement provided to the Committee (which contained the comments we submitted to the DOB).

We will continue to seek revisions to the proposed rule through the various avenues available to us and will keep MBA of PA and PAMB members informed of any new developments.