As a subplot to the entire mortgage drama, two feuds recently
emerged or more accurately re-emerged among some major mortgage players.
First, in testimony before the Senate Banking, Housing, and Urban Affairs Committee,
North Carolina Commissioner of Banks, Joseph A. Smith, Jr. representing the
Conference of State Bank Supervisors (CSBS) told the Committee that any
federal move to regulate the mortgage industry must recognize that
the states play a major role in regulating such lending.
Smith told the Committee that state officials have actually been hampered by
federal regulatory preemptions of state consumer protection laws for national
and federal financial institutions and their mortgage lending subsidiaries and
affiliates. "Federal preemption", he said, "undermines
attempts by state policymakers to protect their citizenry and sets
an unlevel playing field among mortgage lenders."
Smith as well as Massachusetts Commissioner of Banks Steven L. Antonakes who
testified before the House Financial Services Committee urged Congress to support
the CSBS/American Association of Residential Mortgage Regulators sponsored project
to track mortgage brokers and agents and to update the federal predatory lending
law to incorporate the consumer protections implemented by several states over
the last few years.
However, a few days later, following a House hearing and in a press release
The National Association of Mortgage Brokers urged Congress not to fund or support
a proposed broker
registration system because it is too narrowly focused to protect consumers
from predatory lending. According to NAMB President Harry Dinham who testified
at the hearing, the regulators' continued rhetoric is hollow and misleading
to the public.
"At hearing after hearing", Dinham said, "these groups extol
the benefits of this new registry. However, they do not let legislators know
that thousands of loan originators at banks and other lending institutions will
be exempted from the registry and left unaccountable to the consumers they serve.
We urge Congress to refrain from offering any assistance until all mortgage
originators are registered in the system."
"Consumers would get a false sense of security from this
system as it stands today. Most consumers do not distinguish between origination
channels and they would naturally assume that a loan originator at a bank would
be held to the same high standards. This is far from the truth and bad actors
at banks would still be able to freely travel from bank to bank even if convicted
(As a clarification, states are, as Mr. Smith pointed out, preempted from regulating
federally charted financial institutions so Dinham's demands are virtually
impossible for CSBS to address.)
The second kafuffle erupted after the Center for Responsible Lending (CRL) issued
a Paper on March 27 updating earlier reports with 4th Quarter 2006 data and
claiming that "subprime originations during 1998 to 2006
have led or will lead to a net loss of homeownership for almost one million
families." In fact, the Paper states, a new homeownership loss occurs in
subprime loans made in every one of the past nine years.
Numbers provided by the Center claim that, in the 1998-2006 period, 1,435,472
subprime loans were used to purchase homes by first-time homebuyers and that
2,366901 have or will be foreclosed for a net homeownership
loss of 931,439.
Since "providing homeownership opportunities" has been a slogan
or maybe more like a flag that has been waved by subprime lenders for several
years, CLA's claims provoked an immediate response from the Mortgage Bankers
MBA claims that CRL has "invented a set of assumptions, developed a worse
case scenario and presented the results of those questionable assumptions as
According to MBA:
- The percentage of foreclosures is far below the rates cited by CRL
and not all foreclosures result in the borrower losing the house;
- CRL assumes a worst case scenario of economic conditions, interest rates,
and home prices to inflate its "facts."
- CRL mixes data on refinance loans with purchase loans
- Subprime loan performance is a result of local economic conditions,
not the loan terms or products;
- 85-90 percent of subprime borrowers are ultimately successful on their
Finally, The Nation has weighed in on another aspect of the subprime mess.
In its April 9 edition it has run a "comment" entitled "The
Loan Shark Lobby" in which it details some interesting financial
connections between New Century Financial Corporation which just declared
bankruptcy and members of Congress.
According to the article, nearly half of House Financial Services Committee
members which have been holding hearings on the tanking of the subprime market
have received money from New Century. Recipients named by The Nation include
Chairman Barney Frank and members/heads of the financial subcommittee including
Paul Kanjorski, Spencer Bachus, and Richard Baker. In all the company has given
nearly $700,000 in campaign funds to legislators since 2004.
The article maintains that two bills that would have provided safeguards for
consumers against some subprime lending abuses; the Prohibit Predatory Lending
Act and the Predatory Mortgage Lending Practices Reduction Act both died after
being referred to financial services subcommittees. New Century "took
the lead" in pushing the Responsible Lending Act which The Nation maintains
would have narrowed the definition of subprime mortgages and preempted some
stricter state regulations. The bill's "patron saint" was
former Congressman Bob Nye of Ohio who is currently in federal prison serving
a 30-month sentence for corruption. Nye received $49,300 in campaign contributions
from New Century.
If one wonders if the changing of the guard will mean increased regulation
of subprime lenders the article doesn't hold out much hope. Mortgage bankers
gave 40 percent of the $6.6 million they contributed to 2006 election campaigns
to Democrats including Senator Hilary Clinton, Frank, and Senator Chris Dodd
who heads the Senate committee concerned with banking.