As we pause for Memorial Day and celebrate the start of summer, we stand at the beginning of the end of Congress’ legislative year, but are by no means at the end of the larger market crisis. The Memorial Day recess marks the end of a very productive eight week session of Congress. From here on, there will be relatively short bursts of activity in June, July, and September, leading up to the November election. At the same time, policymakers continue to focus squarely on our industry, as evidenced by this week’s Conference of State Bank Supervisors meetings that seemed to focus exclusively on the housing market.

Senate Banking Committee Passes Housing Package that Includes GSE Regulatory Reform and an FHA Rescue Plan

On Tuesday, May 20, the Senate Banking Committee held a brief and affable markup, passing “The Federal Housing Finance Regulatory Reform Act of 2008.”  The bipartisan bill includes both government-sponsored enterprise (GSE) regulatory reform and a Federal Housing Administration (FHA) refinance program.  This bill will be considered the first week of June (click for the GSE bill and manager’s amendment).  We now expect the legislation to be reconciled with the previously passed House bill and ultimately form a complete legislative package that will include GSE reform, FHA modernization, housing tax incentives and an FHA rescue plan, to be passed by the full Senate and House (again), and sent to the President for his signature.  Notably, we do not expect this package to include bankruptcy cramdown legislation or broader reforms of the mortgage process to address predatory lending.

An updated rescue plan is expected side-by-side next week.

MBA Testifies Before House Financial Services on Conforming Loan Limit

On Thursday, May 22, MBA testified before the House Financial Services Committee in a hearing entitled, the “Impact on Homebuyers and Housing Market of the Conforming Loan Limit Increase,” in reference to the Economic Stimulus Act of 2008 provision temporarily raising the limit on loans Fannie Mae, Freddie Mac and FHA are allowed to purchase.  MBA Vice President of Economics and Research Jay Brinkmann discussed the factors influencing the spread between conventional conforming loan rates and the rates of the higher limit loans.  Mr. Brinkman also articulated the rational for MBA’s opposition to a permanent loan limit increase.  Moreover, MBA reiterated its support of comprehensive GSE reform that will assist in market recovery, as well as help prevent future problems.

MBA Testifies Before House Committee on RESPA

On Thursday, May 22, MBA Chairman-Elect David Kittle, CMB, testified on behalf of MBA  before the House Committee on Small Business at a hearing entitled, “The Real Estate Settlement Procedures Act (RESPA) and Its Impact on Small Business.”  Mr. Kittle told the committee that while the current RESPA proposal from the Department of Housing and Urban Development (HUD) aims to eliminate confusion - considering the four page form, the proposed closing script and the lack of true comparability between the good faith estimate and the HUD-1 - the proposals would not simplify the process.  Considering that the Board is also expected to issue new Truth in Lending Act (TILA) disclosure proposals, Mr. Kittle said that to avoid undue hardship for businesses and confusion of consumers, the Board’s and HUD’s efforts should be coordinated, or at least HUD’s implementation should await the Board’s effort.   MBA is in the process of completing comments to HUD on the proposed rule, which is now due on June 12, 2008. 

MBA Releases Policy Paper to Clarify the Roles of Mortgage Brokers and Bankers

On Tuesday, May 21, MBA released a policy paper entitled, “Mortgage Bankers and Mortgage Brokers:  Distinct Businesses Warranting Distinct Regulation.”  The paper is intended to clarify the respective roles and responsibilities of mortgage bankers and mortgage brokers to help inform legislators and regulators as they consider policy alternatives (click here to view paper).  The paper points out that mortgage bankers and mortgage brokers perform distinct functions in the marketplace and are perceived differently by consumers.  Mortgage brokers act as intermediaries or middlemen to arrange mortgages; mortgage bankers lend money.  Consumers regard brokers as shopping for them and they tend to stop shopping when using brokers.  On the other hand, consumers regard bankers as sources of their own loan products whose prices they shop and compare.  The paper also points out that brokers and bankers have different incentives and regulatory requirements and brokers have both lower barriers to enter the market and present greater risks of consumer steering. 

Because improvements to the mortgage origination process can best be accomplished through proposals that recognize these differences, MBA offers several recommendations including that: 1) borrowers receive clear disclosures of brokers’ responsibilities and compensation; 2) mortgage brokers who claim to be or act as borrower agents be treated legally as agents; 3) mortgage brokers have sufficient financial resources - through a national minimum net worth requirement - to provide protection to borrowers and mortgage bankers where necessary; 4) mortgage brokers be appropriately bonded to give consumers greater protection; and 5) all loan originators, including brokers and bankers, be registered and appropriately licensed in accordance with rigorous standards.

OFHEO Responds to Industry Letter on Appraisal Settlement

On Tuesday, May 20, the Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart sent a letter to MBA President and CEO Jonathan Kempner in response to comments on the Home Valuation Code of Conduct (the Code) that Fannie Mae and Freddie Mac have agreed to adopt.  Mr. Lockhart asserted that OFHEO will meet with several other regulators and then the Attorney General to further discuss the Code, and also reiterated the importance of accurate and independent appraisals.  MBA is working with regulators, trade groups and other interested parties to repeal or revise the agreement.

In related news, MBA met with OFHEO’s General Counsel Alfred Pollard to discuss the appraisal deal.  Mr. Pollard said that he expects the GSEs to provide OFHEO with a summary of all public comments received and suggested improvements by the end of May. 

MBA Submits Comments on Flood Insurance

On Tuesday, May 20, MBA responded to the request for comment on the Bank regulators’ and Federal Trade Commission’s (FTC) Interagency Questions and Answers Guide on Flood Insurance.  MBA commented on aspects of the proposal that were problematic and suggested the following changes: 1) eliminating the limitation in dwelling policies to cover special assessments for co-insurance penalties and deductibles given that the agencies are requiring that unit owners obtain additional insurance where condominium associations coverage is insufficient and might result in co-insurance penalty; 2) clarifying that servicers can force placed coverage on second mortgage loans; 3) eliminating the proposed prohibition on gap policies; and 4) eliminating the proposed requirement that lenders verify the accuracy of flood zones for insurance agents.

MBA Submits Comments to Financial Literacy Commission

On Friday, May 23, MBA submitted comments to the President’s Advisory Council on Financial Literacy (the Council) in response to the Council’s call for comments on the matter.  MBA highlighted some of its financial literacy initiatives, including our Home Loan Learning Center, The Simple Facts brochure, and the distribution of youth financial education materials.  MBA also has engaged with the United States Conference of Mayors, the National Black Church Initiative and the Financial Literacy and Education Commission to promote financial literacy.  MBA advocates that financial education initiatives be instituted in schools, the workplace, and in underserved communities. Furthermore, MBA believes that the government, nonprofits, and the private sector should coordinate and consolidate successful financial education resources to reach a greater number of people more efficiently.

House Passes Tax-Extenders Bill

On Wednesday, May 21, the House approved H.R. 6049, the “Energy and Tax Extenders Act of 2008,” by a vote of 263 to 161. Among other provisions of the bill are four, supported by MBA: 1) extension of special rules for qualified mortgage bonds for veterans; 2) extension of the 15-year straight-line cost recovery for qualified leasehold improvements; 3) extension of the expensing of “brownfields” environmental remediation costs; and 4) an additional standard deduction for real property taxes.  The bill will now go to the Senate for consideration. Click here to view the bill.

MBA Opposes Minnesota Foreclosure Moratorium Bill

This week, MBA Chairman Kieran Quinn, CMB, wrote a letter to Minnesota Governor Tim Pawlenty requesting his veto of Senate File 3396, the “Subprime Borrower Relief Act of 2008.”  If enacted, the bill would permit a one-year “foreclosure deferment” for certain negatively amortizing and “subprime” loans in default.  This yearlong foreclosure moratorium, although well-intentioned, would actually harm those borrowers it purports to help and effectively increase the cost of mortgages to all Minnesotans.  Moreover, if enacted, Minnesota would be the first state to impose a foreclosure moratorium setting a bad precedent that other states may follow.  MBA encourages its members to contact Governor Pawlenty at tim.pawlenty@state.mn.gov to request his veto of this harmful legislation. 

ARM Illustrations Finalized: Interagency Guidance

On Thursday, May 22, the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), and the National Credit Union Administration (NCUA) issued final illustrations for helping consumers understand hybrid adjustable rate mortgage (ARM) products (click here to view illustrations).  The illustrations respond to recommendations made by the agencies’ Statement on Subprime Mortgage Lending that became effective July 10, 2007, and include explanations of certain hybrid products and charts depicting possible payment shock.

ASF Releases Guidelines on Servicer Reimbursements for Credit Counseling

On Monday, May 20, the American Securitization Forum (ASF) released, “Operational Guidelines for Reimbursement of Counseling Expenses in Residential Mortgage-Backed Securitizations,” designed to provide procedural assistance to servicers and counseling organizations for the reimbursement of borrower counseling expenses (click here to view guidelines).  The guidelines allow for counseling expenses to be viewed as servicer advances, which are eligible for reimbursement up to $150 from securitization trust cashflows under certain conditions.  The guidelines will expire on July 31, 2010.

MBA to Host Educational Event for Congressional Staff on Costs of Foreclosure to Lenders

On Wednesday, May 28, at 2:30 PM, MBA will host a Congressional Education Series event on how foreclosures impact lenders.  There have been several instances of media and Congressional commentary that the lending industry profits from foreclosures.  This briefing is designed to set the record straight on the foreclosure process and what it costs lenders.  Speakers will include Steve O’Connor and Erick Gustafson from MBA’s government relations team and Jay Brinkmann, MBA’s economist.

MBA will release a short paper on this topic concomitant with the event.

OFHEO Reports Q1 Decline in House Price Index

On Thursday, May 22, OFHEO released its seasonally adjusted purchase-only house price index (click here to view report).  The index, based on data from home sales, fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, exceeding the 1.4 percent price decline between the third and fourth quarters of 2007.  Prices fell in the first quarter for 43 states.  Eight states exhibited more than three percent declines, while California and Nevada exhibited more than eight percent declines. 

MBA Speaks Before the Conference of State Bank Supervisors

On Thursday, May 22, former MBA Chairman John Courson participated in a panel discussion entitled “Mortgage Originations:  Beyond the Current Credit Crunch,” at the Conference of State Bank Supervisors Annual meeting in Amelia Island, Florida.  The panel, consisting of mortgage brokers and bankers, predicted the state of the mortgage industry two years out with consideration of current market challenges and the new laws and regulations that are being promulgated as a result.  In his remarks, Mr. Courson discussed how the current environment offered the industry an opportunity to take “bold” actions to help shape new legislation and regulations that could better reflect the future market and industry structure, thus serving the best interests of borrowers and lenders going forward. 

FHA Commissioner to Speak at the National Press Club on the Housing Crisis

On Monday, June 9, at 12:30 PM, FHA Commissioner Brian Montgomery will speak before the National Press Club to discuss remedies to alleviate the housing crisis.  Mr. Montgomery will address the state of housing, the role FHA is playing to stabilize the market, as well as FHASecure.

FASB to Hold Webcast on the Crisis in the Credit Markets

On Tuesday, May 20, the Financial Accounting Standards Board (FASB) announced an upcoming webcast entitled, “The Crisis in the Credit Markets: Causes, Reporting Issues, and Responses.”  The webcast will air on June 2, 2008, and is open to the public.  Webcast panelists include Robert Robert Herz, Matt Schroeder, Raymond Beier, and Jack Ciesielski.  Additionally, viewers can email questions to the panelists during the event.  Please click here to register.