Senators continue debate this week on amendments to a bill aimed at promoting economic revitalization. Three of these amendments have raised concerns from the Mortgage Bankers Association that they would result in “unintended consequences” for both consumers and the real estate finance industry.
S. 782, the Economic Development Revitalization Act of 2011 (http://thomas.loc.gov/cgi-bin/query/F?c112:2:./temp/~c112E9repu:e1093:), introduced by Sen. Barbara Boxer, D-Calif., would update the Public Works and Economic Development Act of 1965. It generally has support from unions and small business groups but is generally opposed by conservative-leaning groups. More than 50 amendments have been attached to the bill--some, as the legislative process in Washington often shows, that have little to do with the original intent of the bill.
The first amendment (http://10.16.2.165/IssueDocuments/MBA%20Summary%20of%20Merkley-Snowe%20amendment%20to%20S.%20782.pdf), introduced by Sens. Jeff Merkley, D-Ore., and Olympia Snowe, R-Maine, seeks additional regulations for servicing of residential mortgages. MBA said the servicing amendment, which is based on legislation introduced a month ago, would duplicate efforts already underway by several regulators and create a single point of contact for borrowers, establish a third-party review process and add additional delays to an already protracted foreclosure process.
In a June 10 letter to Senate leadership, MBA and the Housing Policy Council of the Financial Services Roundtable expressed concern with the Merkley-Snowe amendment, saying it was not the appropriate vehicle to implement national servicing standards, given current dialogue involving creation of such standards in the legislative and regulatory arenas.
“Residential mortgage servicing has been an issue of great concern for consumers, legislators, regulators and industry practitioners alike,” the letter said. “Because of these concerns, Treasury, federal regulators, the government-sponsored enterprises and state officials all have initiatives and new requirements for mortgage servicers that are already underway. It is clear that the housing crisis has placed extraordinary strains on the existing servicing system. Servicers have tried to respond by hiring thousands of additional staff, engaging in regular outreach events for homeowners, implementing the government’s Making Home Affordable modification program, as well as proprietary efforts to assist customers.”
The letter said while these efforts have helped more than 3.7 million homeowners avoid foreclosure since 2007, industry performance has been challenged by the historic extent of the housing crisis. “That is why the industry supports the current dialogue surrounding national servicing standards to strengthen current efforts to assist at-risk homeowners and to create an improved system for the future. This amendment, however well intentioned, is not the appropriate vehicle to implement national servicing standards. The Merkley-Snowe legislation, that is the basis of the amendment, was introduced less than a month ago and no subcommittee or full committee hearings have yet been held on the legislation to compare it to servicing standards and requirements now underway. Nor have the Housing Subcommittee or the full Banking Committee held a markup on this legislation.”
In short, the letter said, the Senate’s “long-standing deliberative process is being set aside in an attempt to address an issue that truly needs thoughtful consideration to review other servicing standard initiatives and develop a comprehensive approach for the future.
Unfortunately, the Merkley-Snowe amendment would not unify or clarify the different approaches underway on servicing standards.”
Additionally, the letter said, a proposed Qualified Residential Mortgage (QRM) rule required by the Dodd-Frank Act contains new servicing standards for QRM loans. At the
same time, individual states and local jurisdictions are implementing additional and diverse requirements on mortgage servicers for mediation programs and other loss mitigation requirements.
“These multiple attempts to address servicing standards are well-intentioned, but are creating a confusing piling on effect,” the letter said. “The competing standards from multiple regulators, coupled with the Merkley-Snowe amendment, may actually slow the resolution of the issues we all want to address."
The second amendment, offered by Sen. Ben Cardin, D-Md., would change the FHA program so that borrowers pay per diem interest when they pay-off their mortgage. (http://10.16.2.165/IssueDocuments/MBA%20Summary%20of%20Cardin%20Amendment%20to%20S.%20782.pdf). In a June 10, letter to Senate leadership, MBA President and CEO David Stevens (a former FHA commissioner) said the proposed change to the FHA program does not need to be legislated.
“FHA can make this change administratively and is currently conducting a cost-benefit analysis on this policy to determine if and how FHA should amend its policy,” Stevens said. “MBA would recommend not making a statutory change at this time, especially since FHA’s analysis is not complete.
Stevens noted currently FHA borrowers can pay off their mortgages at any time; if the loan is paid off on the first of the month, the borrower pays no interest for that month; otherwise the borrower pays a full month’s interest. This provision mirrors the Ginnie Mae mortgage-backed security, which provides that securities holders are entitled to a full month’s interest for the month of pay-off.
“The majority of FHA borrowers prepay their mortgages on the first of the month or the last few business days of the previous month, resulting in zero or nominal post-settlement interest costs in connection with the sale or refinancing of their homes,” Stevens said.
Stevens added while the proposal attempts to benefit FHA borrowers, MBA believes it would actually increase costs for the vast majority of FHA borrowers. “Lenders would be required to price in approximately 15 days of lost interest into every mortgage transaction in order to offset the lender’s cost of passing through post-settlement interest to Ginnie Mae bondholders,” Stevens said. “When Ginnie Mae previously analyzed similar proposals, it concluded that it would be in the best interest of consumers to maintain the current loan structure.”
The third amendment, also offered by Merkley, would establish a program to finance energy-efficient upgrades for homes and residential buildings. The proposed program would require states to apply to the Department of Energy for funds and in the application it must state one of several types of means of repaying the energy efficient loan; one such method would permit the type of financing used in the Property Assessed Clean Energy loan program that repays the debt through the properties tax assessment. PACE and PACE-like liens have first priority over mortgage debt.
MBA said it has serious concerns about adding significant new debt that would be ahead of a first mortgage in the event of foreclosure. The Federal Housing Finance Agency has expressed the same concerns about PACE loans.
Additionally, the Mortgage Action Alliance Inc., MBA's grassroots advocacy arm, issued a Call to Action on Friday urging its members to contact their senators to encourage opposition to these amendments (http://www.mortgagebankers.org/Advocacy/MortgageActionAlliance).
These amendments and other amendments are expected to be considered by the Senate this week.