MORTGAGE LENDING HAS ALWAYS BEEN SUBJECT TO REGULATORY AND LEGAL hurdles and challenges. Over the years, most lenders found ways to adapt to the combination of federal fair lending and state consumer protection laws. However, in the specialized world of antipredatory lending compliance, a veritable minefield of potential problems exists for the unwary.
What once was handled by a relatively simple Section 32 compliance check has, over the last few years, evolved into a highly specialized multijurisdictional review, with lenders, brokers, investors and servicers facing stiff penalties if they overlook even the smallest detail.
AppIntell Inc., Weldon Spring, Missouri, recently conducted an informal survey of chief executive officers and other top executives of 27 mortgage lenders and brokers, banks and investors to hear about the impact antipredatory lending laws have had on the industry. This article shares some of the results, along with additional discussion and insight about some of the current issues facing the industry.
People are worried
Eighty-eight percent of those surveyed expressed serious concerns about the issue of predatory lending compliance. These executives are trying to find foolproof ways to stay compliant, and are worried about potential liability and their ability to remain profitable in an era of confusing antipredatory lending laws. Brokers appear to be the least worried; some stated that the lenders they deal with and "market forces" are all the predatory lending compliance they need.
It is interesting to note that executives of the banks we surveyed expressed concern, despite a common sentiment that banks are largely not typically the ones responsible for predatory lending abuses. This view was echoed in a statement made last year by the Comptroller of the Office of the Comptroller of the Currency (OCC), as published in the Aug. 1, 2003, issue of MortgageDaily.com. Banks typically originate high-quality loans to moderate- to low-risk borrowers; but then, why are bank executives so worried?
For starters, they still must concern themselves with the Home Ownership and Equity Protection Act (HOEPA)--the federal abusive lending law that requires loan-level annual percentage rate (APR) and points/fees threshold reviews. They must also concern themselves with the OCC's antipredatory lending guidelines (the Office of Thrift Supervision [OTS] and the National Credit Union Association [NCUA] have also issued antipredatory lending guidelines for their member institutions). Banks that sell rather than portfolio their loans must concern themselves with investor requirements (which typically incorporate the requirements of the state and local antipredatory lending laws), ratings agency standards and government-sponsored enterprise (GSE) points/fees limitations.
Although nationally chartered financial institutions enjoy exempt status from many state laws by virtue of federal pre-emption claimed by their oversight agencies, there's no assurance that the same can be said for servicers and investors that eventually touch or take possession of their loans in the secondary market.
What are they worried about?
In informal discussions with mortgage executives, general patterns have emerged. From a predatory lending perspective, they are genuinely concerned about being sued. This raises several questions--such as what will their company's liability be and what will it cost in terms of litigation, bad press and collateral damages? What will their personal liability be?
It's easier now to pursue claims of abuse. Until the proliferation of state- and local-level abusive lending laws, it was somewhat of a challenge for regulators and aggrieved borrowers to pursue claims of abusive lending practices. In response to this, most of the state and local antipredatory lending laws have codified fraudulent lending practices that are already prohibited under existing federal or state fair lending or consumer protection laws, thereby linking the abuses to much more severe penalties for noncompliance. …