Lenders and their advocates say a recent proposal by Gov. Deval Patrick’s to help borrowers avoid foreclosure will create conflicts of interest.
For the first time next year, non-bank mortgage lenders will be rated on Community Reinvestment Act compliance like their banking counterparts. Mortgage lenders that make 50 or more loans per year in the Bay State will be graded based on making credit available throughout the areas they serve, especially to low-income, minority and other underserved borrowers.
Patrick’s more recent plan involves also grading non-bank lenders and loan servicers on how many loans they modify and the speed with which they do it.
“We just posted the proposed regulations [online] on June 25,” noted DOB Chief Operating Officer David Cotney.
The regulation is part of a new Massachusetts state law governing mortgage lending practices that passed last November. A required public hearing is set for July 29.
Lender evaluations will not start until 2009, but Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff is thinking about them now.
Cuff said he is concerned that Patrick’s plan will create conflicts of interest for lenders.
“These are two diametrically opposed [interests],” Cuff said.
He described a recent conversation he had with lawyers who represent Massachusetts lenders in which the duties of loan trustees, who are obligated to investors, were contrasted with the state regulation that will grade lenders on the number and quality of loan modifications they do to help delinquent borrowers.
The regulation only applies to non-banks, Cotney said. Major lenders and servicers Countrywide Financial, GMAC, Wells Fargo, and Option One will be among those covered. Lenders will be evaluated based on loans they either originated or purchased and now service.
One Massachusetts mortgage banker said his first reaction after Patrick announced his proposal a month ago was that it won’t apply to most mortgage holders in the Bay State, because most aren’t state-licensed.
“I think that, to a large degree, the state really won’t have jurisdiction to speak of” over most non-bank lenders, said the banker, who requested anonymity as he is not authorized to speak on his firm’s behalf.
“In the odd case where a state-licensed lender is servicing the loan,” he continued, “they may be servicing on behalf of an investor pool that doesn’t allow the servicer to modify.”
