Magazine article Mortgage Banking

High-Stakes Debate

Magazine article Mortgage Banking

High-Stakes Debate

Article excerpt

The finish line for 2009 is fast approaching for the Obama administration and Congress, with the high-stakes debate surrounding the mortgage industry as unsettled as ever. Countless policy issues are in play, but this column will focus on three potential game-changers for our industry. The pivotal issues are financial modernization, Federal Housing Administration (FHA) reform, and the future of Fannie Mae and Freddie Mac.

While these big-picture topics are complex and will take time to resolve, the stakes for mortgage lenders have never been higher--these issues can permanently change our industry's landscape.

Financial modernization

The White House believes the recent distress in the financial sector creates a political opening for regulatory reform, and has launched a major legislative and public relations campaign toward that end. In June, the administration rolled out an 88-page proposal, followed later by hundreds of pages of legislative text, to create a radically new financial oversight regime--including a brand-new entity called the Consumer Financial Protection Agency (CFPA).

Since then, key administration officials have been aggressively touting the need for reform, with the president twice giving major televised speeches on the topic. The administration's message has been consistent: Major new rules are needed so that lenders don't repeat past mistakes that harm consumers and threaten the economy.

While there are other important aspects of financial modernization, such as managing systemic risk, regulating derivatives, resolution authority ("too big to fail") and credit-rating agency reform, the CFPA is the most directly relevant to mortgage lenders.

As proposed, the CFPA would have a broad mandate, including consolidated powers to create consumer-protection standards for virtually all financial products, especially mortgages. Moreover, CFPA would create a "floor," not a "ceiling"--meaning states could impose additional requirements. Prudential regulators would work with the CFPA, but their role would be limited to safety-and-soundness oversight while CFPA would have complete jurisdiction over consumer financial-protection standards.

For mortgage lenders, what it means is a whole new set of standards for mortgage products and practices, imposed by a new federal regulator, with states empowered to add even more restrictions. The additional regulatory and legal risks, not to mention the operational complexities, would be daunting even under the most rational regime. Under a worst-case scenario, one can imagine credit rationing, stifled innovation and a byzantine regulatory scheme.

A Mortgage Bankers Association (MBA) member task force, led by MBA Vice Chairman Michael W. Young, met for several weeks to develop robust policy on the key aspects of the financial modernization debate. Using this policy as guidance, MBA has been working to educate policymakers on the need for uniform and workable standards--especially the importance of a level playing field for mortgage lenders regardless of their location, regulator, charter or ownership structure.

We have also raised multiple concerns about separating consumer protection from safety and soundness, citing the potential for regulatory conflicts and confusion. As important, MBA has argued that it is essential for lawmakers to avoid a rush to judgment--our constant refrain being that it is more important to do things right than to do them quickly.

While these arguments have resonated with many lawmakers, the momentum in the House of Representatives, where the Democrats command a substantial majority of votes, favors a bill passing in 2009. Already, as of early November when this article is being written, House Financial Services Committee Chairman Barney Frank (D-Massachusetts) has successfully moved key legislation through his committee, clearing the way for House floor consideration. …

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