Magazine article American Banker

In Focus: Groups Pinch-Hit for Regulators on Mortgage Coverage

Magazine article American Banker

In Focus: Groups Pinch-Hit for Regulators on Mortgage Coverage

Article excerpt

If America's Community Bankers and the Mortgage Bankers Association of America are not careful, they could be mistaken for regulators. The groups issued guidelines last week explaining how to comply with the Homeowners Protection Act of 1998, which generally requires lenders to disclose information on private mortgage insurance and to terminate policies when owners build up sufficient equity.

"The guide will help both borrowers and lenders reduce the risk of misinterpreting the law," ACB president Paul A. Schosberg said.

The groups acted because Congress did not authorize a banking agency to issue regulations implementing the law. Instead it left it up to the industry to figure out how to comply.

"This is an unusual statute," Mr. Schosberg said. "Look at it as the full employment act for Washington trade associations."

Paul Reid, the MBA's executive vice president, said the groups drafted the guidelines because they represent the bulk of the companies originating, servicing, and buying mortgages. "We wanted to develop comprehensive, consistent guidance that would cover all aspects of the owner-occupied market," Mr. Reid said.

Karen Shaw Petrou, president of the consulting firm ISD-Shaw Inc., said a self-regulatory approach may work well for consumer protection laws. Consumers and regulators retain authority to punish banks that fail to follow the law, but the industry gains the flexibility of determining how it should comply.

"This is a very constructive step," Ms. Petrou said. "It fits these circumstances really well."

Regulators praised the guidance, but said they do not expect that trade groups will put them out of business.

"The effort by the trade groups has produced a useful resource that the industry can look to," said Richard R. Riese, director of compliance policy at the Office of Thrift Supervision. …

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