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Bankers pout about the umps

By Polyana da Costa ·
Tuesday, October 23, 2012
Posted: 2 pm ET

Why is it so hard to get approved for a mortgage these days? Because the mortgage industry is being over-regulated -- at least, that's what mortgage bankers say.

The Consumer Financial Protection Bureau is working on several new rules that go into effect in early 2013 that will shape the future of the mortgage industry, says David Stevens, president and CEO of the Mortgage Bankers Association.

"It’s time for Washington to stop thinking of our industry as a problem they need to fix," he said, speaking to an audience of hundreds of bankers at the association's annual convention in Chicago.

Stevens says the MBA doesn't oppose regulations that protect consumers and ensure a safe lending environment, but he claims there are too many rules in the works at the same time by different regulators, and they often conflict with each other.

Congress and nine regulators are working on housing policies to "fix the problem," Steven says. "But the reality is regulators don't seem to talk to each other."

MBA wants a "traffic cop" for new rules

The MBA says the government needs to create a role for a housing policy coordinator to act like "a traffic cop" for all these new mortgage rules to ensure they "complement one another rather than conflict."

Of all the regulations in the works, the most controversial one is the qualified residential mortgage rule, which was proposed by the CFPB in 2010. Originally, the rule suggested defining a qualified mortgage as a loan that would require borrowers to put 20 percent down when buying a home or have 25 percent equity when refinancing. Borrowers with a 60-day late payment on any debt in the last two years wouldn't qualify for mortgages under this rule.

Immediately after the rule was proposed, housing advocates and the mortgage industry pushed the panic button and voiced their concerns. The CFPB decided to take more public comment, and the rule has been pending since then.

The qualified-mortgage rule will be implemented in January, but I suspect it will be much different than the one originally proposed.

Safe Harbor for lenders

For one, the mortgage industry is pushing to include a "safe harbor" in the rule, which would essentially protect loan originators from most borrowers' lawsuits.

I asked many bankers at the conference if they think the safe harbor provision will be added to the final rule. Most replied with a confident smile.

Some consumer advocates aren't pleased with the idea.

"The industry is saying we want to get back to doing no high-cost, toxic loans but we want to make sure the borrower has no right to pursue us in court," John Taylor, president of the National Community Reinvestment Coalition, said during a panel discussion at the conference. If you want to avoid lawsuits, "do things responsibly," he told the bankers.

What do you think? Is over-regulation hurting borrowers?

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Wes Farrell
November 13, 2012 at 7:37 am

Is it true that the fannie and freddie changed the allowed 5% down on arm mortgage and increased it to 10% week of oct 20th 2012?

October 24, 2012 at 12:18 pm

It is intended to be for the common good in protecting consumers and their lenders in the market. Lax underwriting of mortgage borrowers was a key factor in the real estate collapse. Lenders with responsible underwriting & strict enforcement know its a bad business decision to make a loan when they have to hold it in their own portfolio and be held responsible for the chores & expense of cleaning up from a bad lending decision.

Originators & Brokers need to play by the rules too, so NO get-out-of-jail- free cards should be allowed. Keep all persons & entities in- volved in mortgage transactions educated & responsible to best avoid future turmoil.

Regulation is necessary for understanding & to keep the playing field level for all; otherwise, loan sharks will takeover and leave the mess behind for "somebody else" to take care of.