MBA: Mortgage Industry Needs “Traffic Cop” to Direct Contradicting Regulations

As Dodd-Frank and its many implications looms large in the financial sector’s “immediate future,” the mortgage industry is facing too many regulations from too many different sources that overlap, intersect, and in some cases contradict each other. 

That’s why there needs to be a “traffic cop,” of sorts, to function as a housing policy coordinator who can ensure that regulations complement—rather than conflict with—each other, said David Stevens, the president and CEO of the Mortgage Bankers Association during its 99th Annual Convention, held this year in Chicago. 

There is a “massive disconnect” among the federal agencies charged with reforming the mortgage industry, he said, with Congress and nine different Washington regulators working on rules that will “directly affect” it.

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The problem, according to Stevens, is that they’re not working together.

The MBA acknowledged that regulations have the best interests of consumers at heart, but the mortgage industry needs to help regulators understand that excessive credit restraints could negatively impact the housing recovery.

“Over the next four months, much of the future of our industry will be decided. The Dodd-Frank rules are now truly imminent. And they will dramatically transform our business—make no mistake about it,” Stevens said. “More importantly, they will determine what kind of housing market we leave for future generations.”

Washington’s policymaking often appears to be dysfunctional, he said, and the same is true for housing policy. 

An example of inconsistency between regulatory bodies is the Department of Housing and Urban Development’s proposed ‘disparate impact’ rule and the Consumer Financial Protection Bureau’s qualified mortgage rules, regarding a borrower’s ability to repay a loan. 

If lenders aren’t given a broad credit standard that defines a borrower’s ability to repay as part of the QM with a clearly defined “safe harbor,” which the CFPB is reportedly working on, lenders will err on the side of caution and not make loans to some borrowers are on the credit qualification bubble. This is more likely to happen among the low- and middle-income classes, meaning that disparate impact could occur on these classes as a direct result of the QM rule if there isn’t a safe harbor, or if the credit definition is too narrow.

“Here’s a case of where one rule the federal government is promoting could produce an outcome that the federal government will be punishing,” Stevens said. “It’s a no-win situation for lenders.”

A housing policy coordinator, as proposed by the MBA, would be “charged with bringing a rational, integrated approach to housing policy change management” and would have a “clear and absolute mandate to identify and evaluate downstream effects and unintended consequences of all changes to government housing policy.” 

“It’s time for Washington to stop thinking of our industry as a problem they need to fix,” Stevens said during the convention’s opening general session. “[Washington’s] fixes are often a big part of the problem.” 

Written by Alyssa Gerace

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  • The problems described have changed little in 36 years when auditing savings and loans.  One group of regulators would come in and show the mortgage department how their lending practices would threaten the financial well being of the institution and another group would come in and say that by using the lending standards of the last regulators, the result would be redlining.  Then we would come in and ask legal counsel to describe potential areas of regulator concern and possible violation with the approximate penalties for such violations.  Then it was our job to look into those areas.

    The Carter years were full of conflicting regulations.  Take for example trying to compete for business overseas where bribing is common but under US standards, they can be violations of law and/or reportable events under US accounting standards. One company a Big Four (then Big Eight) I worked for had done audits of this fortune 100 company for over two score years.  My senior who spoke and read Japanese found a $5 million bribe to the Prime Minister.  Although that firm wanted to fire us over ruining their relationship with the Japanese government, they could not do so without SEC permission which refused.

    So who could the company do business in a country where bribes were a szy of life?  The answer in their case was to downsize.

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