Quinn Urges Fed to Take ‘Right Approach’

Submitted by Ronald Tennant with Metrocities Mortgage:

MBA (5/19/2008 ) Sorohan, Mike
CHICAGO—Mortgage Bankers Association Chairman Kieran Quinn, CMB, in a speech Friday before the Federal Reserve Bank of Chicago, praised the Fed for addressing current market situations but cautioned it not to over-regulate in a way that could hinder the recovering mortgage market.
Quinn, speaking at the Federal Reserve Bank of Chicago's 44th Annual Conference on Bank Structure and Competition, emphasized the work mortgage servicers are doing to help at-risk borrowers and said that the proper legislative and regulatory approach would allow servicers to help more borrowers, while stabilizing the market and preventing a reoccurrence of the events that resulted in the current difficulties. He cautioned that the wrong approach has the potential to exacerbate the current troubles and deprive future borrowers the opportunity to become homeowners.

“We saw the breakdown in discipline across the board, innovations streaking ahead of regulation, the near overnight anathema attached to the words ‘subprime loan’ and this body’s unprecedented actions to avoid a spreading credit crisis,” Quinn said.

Quinn said the Fed’s proposed rule amending the Home Ownership Equity and Protection Act “clearly demonstrates a comprehensive and thoughtful approach to modernizing the process. MBA has long supported a uniform national lending standard as the best means of curbing abusive lending practices and assuring the future availability of mortgage credit. Responsible uniform standards are the best way to protect consumers. They will maximize competition, lower costs and increase choices for all consumers.”

However, Quinn said while MBA supports the Fed's overall objectives, some aspects of the proposed rule cause disagreement, describing some of the definitions, prohibitions and penalties as “overly broad.” For example, in the rule’s definition of “non-prime” or “higher-priced” loans, which ties the amount that a loan’s annual percentage rate exceeds comparable Treasury securities, “we believe that many more loans than were intended by this definition will be subjected to unnecessary regulation. This will cut worthy borrowers out of homeownership.”

Quinn said MBA also favor standards in the form of safe harbors to define permissible lending behavior in regards to a borrower’s ability to repay, rather than the proposed rebuttable presumption of non-compliance. “Rebuttable presumptions invite unnecessary litigation, while safe harbors assure appropriate conduct,” he said.

Quinn also asked the Fed to reconsider holding lenders liable for the conduct of independent third parties, such as appraisers and brokers. “While we want regulation concerning the behavior of these third parties—and want restrictions to be backed by real authority—it should not be driven by lender liability.”

“We have to get this one right,” Quinn said. “We need the proper regulations and legislation in place to prevent abuse and at the same time allow homeowners to make sound decisions in their best interest; decisions that can keep them in their homes. After all, at this stage in their lives, there’s no chance to rebuild a nest egg—we’re not talking about 30-year-olds who may have made a costly mistake in judgment."

Quinn emphasized the work of the HOPE NOW Alliance, of which MBA is a founding member. “The recent HOPE NOW numbers, while showing the depth and breadth of the crisis, also show a strong response,” he said. "One of those trends, the increase in actual modifications versus simple repayment plans in the workouts, speaks both to the nature of the loans coming through—the 2/28 and 3/27 ARMs—and to the extraordinary steps servicers have taken to help borrowers stay in their homes.”

HOPE NOW figures indicate that of 430,000 2/28 and 3/27 loans set to reset in the first quarter, only 553 have gone into foreclosure; 14,418 were modified—the majority, nearly 64 percent, for terms of five years or longer; and 203,000 were paid in full, either through refinance or a sale.

“Throughout this crisis, we as an industry have been proud of the job our servicers are doing; with plenty of blame to go around, they are the least deserving to be hit hard, yet they bear much of the burden,” Quinn said. “I believe this quarter’s numbers from HOPE NOW show why we are so proud of our servicers. The efforts of the HOPE NOW alliance to reach and help borrowers in trouble have been invaluable.”