Reverse mortgage lenders operating as subsidiaries of national banks have a choice to make after the Dodd-Frank reform law ends federal preemption.
American Banker is reporting that if lenders choose to continue operating as bank subsidiaries, they would be subject to state consumer protections laws. However, if banks roll up the subsidiaries, they retain the federal preemption shield but losing the practical benefits of keeping the mortgage business in a stand-alone unit.
Industry lawyers expect most institutions to go the roll-up route, partly out of fear that sooner or later the states would try to force operating subsidiaries — and, potentially, their individual loan officers — to get state licenses. The burden of satisfying 50 state regulators would outweigh the cost in legal fees of restructuring.
“There is a whole business model that surrounded the bank operating subsidiary and cutting the costs of the enterprise by avoiding state licensing and state regulation,” said Clinton Rockwell, a partner in the BuckleySandler LLP law firm. “That was the big sales pitch for a lot of those entities, and basically that model is dead.”
The mortgage market is volatile, and banks like to be able to get in and out of it with ease. This is the main reason financial institutions like to keep their mortgage businesses in separate operating subsidiaries — with separate management teams, human resources departments and health plans, such outfits can stand on their own and thus are easier to sell.