Motley to Congress: Remove ‘Impediments’ to Lending

Mortgage Bankers Association Chairman-Elect J. David Motley, CMB, testifying last week on Capitol Hill, called on Congress to remove regulatory impediments that have imposed unnecessary burdens on mortgage banks and restricted credit to vulnerable consumers.

Appearing before the House Financial Services subcommittee on Financial Institutions and Consumer Credit, Motley, president of the Colonial Savings FA, Fort Worth, Texas, said increased federal regulations and resulting constricted availability of credit in recent years have affected the ability of the mortgage industry to provide financial products and services to consumers and smaller lenders.

“MBA has consistently supported reasonable requirements that will prevent a reemergence of housing and market disruptions” Motley said. We believe some aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act and other statutes have made the mortgage market safer; however, in many other respects the Dodd-Frank rules have reduced the availability and affordability of mortgage credit for many American families.”Motley noted today, credit availability is substantially more constrained than it has been historically.

“Regulatory uncertainty, combined with heightened enforcement risk have forced many responsible lenders to reconsider their ability to lend to the full extent of the credit box,” Motley said. “These decisions ultimately impact the consumer, and often disproportionately impact low-to-moderate income borrowers, minorities and first-time homebuyers.”

Motley said in the wake of Dodd-Frank, “the pendulum has swung too far and certain aspects of the current regulatory regime warrant review and adjustment. These changes need to be considered judiciously to balance the need for appropriate consumer protections while ensuring access to safe, sustainable mortgage credit. In this regard, we strongly urge that particular attention be given to simplifying rules, providing greater clarity and certainty, and mitigating supervisory burdens. These goals are particularly important for smaller, community lenders that may not be able to sustain excessive compliance and legal infrastructures.”

Motley pointed out that while measures of mortgage credit, such as the MBA Mortgage Credit Availability Index, have shown improvements in mortgage credit availability, the index remains half of its 2004 level. At the same time, the MBA Quarterly Mortgage Performance Report notes both production and servicing expenses have substantially increased over the past 10 years.

“These soaring production and servicing costs are, to a large degree, a consequence of a new legal and regulatory landscape for mortgage lending,” Motley said. “The Dodd-Frank Act charged several key regulators with drafting a number of significant and complex rules that impacted almost every facet of the mortgage industry. Most of these rules have already been implemented or are in the process of being implemented. Unfortunately, many of these rules were also drafted and implemented unevenly creating the need for additional clarifying rules and guidance or even considerable revision.”

Additionally, Motley said while the Consumer Financial Protection Bureau is empowered with significant rulemaking authority, its approach to redirecting behavior in the marketplace has relied heavily on enforcement actions.

“For most financial institutions these actions have resulted in tremendous uncertainty about where and to what extent legal and reputational risks exist,” Motley said. “Too often it is unclear how the CFPB interprets a particular statute until an enforcement action, or even multiple enforcement actions, have occurred. Rather than responding proactively to a rule or guidance, financial institutions can only pay for considerably more counsel and compliance advice and hope they are not used to exemplify non-compliant behavior. These costs are particularly burdensome to smaller lenders.”

MBA offered several recommendations to remove or diminish many of the regulatory impediments that are too restrictive or complex:

—Ability to Repay and Qualified Mortgages. MBA believes the ATR rule and QM standards must be improved and we continue to work with policymakers, including the CFPB, to responsibly widen the credit box, including expanding the Safe Harbor, increasing the small loan definition; establish alternatives to Appendix Q; broaden right to cure for DTI and other technical errors; revise the Points and Fees Definition; and replace the patch and the default QM.

—Servicing Market Regulations. MBA believes mortgage servicing market regulations would benefit from review under President Trump’s recent Executive Order’s direction to “make regulation efficient, effective, and appropriately tailored.” Coordination among federal agencies and streamlining of existing regulations would go a long way toward lowering costs and increasing the availability of credit.

—Additional Authoritative Guidance and Clarity Needed in Key Areas. MBA supports congressional action to require the CFPB to develop an appropriate framework with public comment for its issuance of rules, policies, and supervisory guidance. “This would include criteria for issuing rules, commentary, supervisory memoranda or compliance Bulletins to put the industry on notice regarding supervisory expectations on what the CFPB regards as illegal practices,” Motley said.

—Home Mortgage Disclosure Act. “While we appreciate that the CFPB has recognized the problem of potential harm to privacy by virtue of the public disclosure of HMDA data and has committed to engaging in a public discussion about these issues, MBA believes nonbank mortgage lenders play a key role in the mortgage marketplace,” Motley said.

—FHA. Reforms to FHA servicing are necessary to add cost certainty and reduce operational inefficiencies. Such reforms should include: 1. Direct conveyance of foreclosed FHA properties; 2. A unified timeline for FHA servicing process rather than three separate milestones. 3. Streamline FHA loss mitigation processes.

—Government Housing Resources. MBA urged Congress to ensure that the FHA, VA and Ginnie Mae programs operate as 21st century programs.”No matter how well-intentioned rules and enforcement may be, we are concerned that key rules and practices are unduly restricting credit opportunities for qualified borrowers,” Motley said.

The subcommittee hearing, The State of Bank Lending in America, also featured testimony from Scott Heitkamp, President and CEO of ValueBank Texas, on behalf of the Independent Community Bankers of America; Holly Wade, Director of Research and Policy Analysis with the National Federation of Independent Businesses; and Michael Calhoun, President of the Center for Responsible Lending.