JOHN BATTAGLIA
Removal process added

The Massachusetts Mortgage Bankers Association has taken steps that will allow the industry trade group more freedom in policing its membership. The new bylaws voted in make it clear the association has the ability to kick members out.

While association leaders say the move was not prompted by any specific event, it comes hard on the heels of a high-profile, multi-state settlement involving national lending giant Ameriquest Mortgage Co., which has been cited for predatory lending practices and was a member of the MMBA in 2005. The association’s change also coincides with recent plans by federal regulators to increase scrutiny of lenders that issue nontraditional mortgages.

Among the changes adopted by the association on March 1 is a clause that reads: “The membership of any member may be revoked by the board of directors with or without cause by a majority vote by the board.”

Voluntary resignation from membership also is now an official option written into the group’s bylaws.

According to MMBA Executive Director Kevin Cuff, the association needed to update its policies to make them clear.

“There was a lot of gray area. It was confusing,” he said.

Cuff said the bylaw changes were in the works for a few months and not a direct result of any one particular event.

However, high-profile cases in which members are cited for predatory lending could stain the reputation and integrity of trade associations, which hold members to a code of ethics.

Last week, Attorney General Thomas Reilly filed a complaint and final judgment against Ameriquest Mortgage Co. The $325 million settlement – $12.2 million of which will go to Massachusetts borrowers – made national headlines when it was reached in January. The mega-lender is accused of falsifying home values and borrower incomes and using high-pressure tactics, trapping consumers into debt.

Riley’s filing reveals details surrounding violations of state consumer protection laws. In an earlier violation of state consumer protection laws, Ameriquest also was ordered by the Division of Banks to shell out $5.6 million in restitution to Bay State borrowers in 2003.

Although the MMBA change may not have been a direct result of the Ameriquest case, the stricter rules regarding membership are intended to uphold the association’s integrity and the reputation of the mortgage banking industry, said Cuff.

Cuff said Ameriquest has not yet sought to renew its membership, which expired on Jan. 1. But renewing memberships is often a process that can go on for the first six months of the year, he added. He would not comment on what might happen if a company cited for lending violations by regulators does seek to renew membership.

Phone calls to Ameriquest were not returned by Banker & Tradesman’s press deadline.

MMBA Chairman John Battaglia also would not comment on the future of Ameriquest’s membership.

“I think one of the things we wanted was to make sure the bylaw was clear and there was a process we could take,” said Battaglia. “This particular section wasn’t clear.”

Battaglia said there a subcommittee was formed last year to began updating and altering sections of the bylaws. He said a few of the changes were small and included updating the language, but the section on resigning from and revoking membership is a new addition.

“We want a membership that people are proud of,” he said. “It’s a stamp of approval. If there are members that don’t meet the canons or the bylaw, we have a process where we can remove them. It is written now very clearly.”

Battaglia and Cuff both said that could not recall an instance of a company’s membership being terminated by the association in the past. Battaglia said an active mortgage license is required to be a member. If a mortgage license is revoked by the Division of Banks, the mortgage company would automatically lose membership, he said. Battaglia said the MMBA works closely with the DOB and will be evaluating companies that receive cease-and-desist orders or other penalties in the future.

However, in the case involving Ameriquest, a settlement took the place of other disciplinary actions that might have been pursued, such as revocation of the lender’s license. In the Ameriquest settlement, the mortgage company also did not admit to having done anything wrong. Part of the settlement instructed the lender to create internal new policies to address the abusive lending practices of which the company was accused.

Cuff stresses the bylaw change is about protecting the integrity of the association and the industry in general, not a response to the Ameriquest situation.

“That [bylaw change] is going to be a benefit for every member. As an association, you have to stay on top of things,” said Battaglia. “I can’t stress enough how important it is to have clear bylaws.”

According to Battaglia the association serves as a voice of the industry when it comes to legislative issues. He said providing members with education, guidance and support also are important parts of the MMBA.

Battaglia said he did not think the bylaws would need to be updated again for another year or two unless some sort of loophole is discovered.

“When it became apparent that we had not done it in a while, it made sense to have a bylaw committee,” said Ruth Dillingham, a member of MMBA who lead the committee in making the recent changes.

Growing Pains
According to Dillingham, a big reason for adding the membership section of the bylaws was changes in the demographics of members the association has attracted over the years.

Dillingham said the MMBA once was comprised of members who knew each other well. She said many of the members had even worked with one another at some point, and the group was a lot more intimate. Today, however, the growth of large national Internet-based lenders has changed the group’s makeup.

According to Cuff, the MMBA has 390 lender members and 110 affiliate members. The MMBA was formed 30 years ago. It initially had about 20 members. Cuff said the growth has been gradual and consistent. It was between the mid-1980s and the mid-1990s that national lenders started to join, said Cuff.

“Now, of course, the association has grown, and we have gone through a number of industry changes,” said Dillingham. “It is the understanding you when you apply [for membership] you will abide by the [association’s] code of ethics.”

What effect the bylaw changes may have on the industry or the association’s membership is yet to be seen. But the new rules could be tested in the near future. In December, five federal regulatory agencies issued proposed guidance on “nontraditional” mortgage products, including interest-only loans. The comment period on the proposed rules has been extended to March 29. Once in effect, the agencies have indicated that scrutiny of firms that issue what former Fed Chairman termed “exotic” mortgages will increase. On the state level, Commissioner of Bank Steven L. Antonakes said following the announcement of the Ameriquest settlement that his agency has implemented a more investigative approach to monitoring practices and policies of mortgage companies has been adopted in recent years. As regulatory agencies crack down on abusive lenders and violations enter the public spotlight, the MMBA will be prepared to take action if it deemed necessary by its board of directors.

Cuff said he was not aware of whether mortgage banker associations in other states were making similar changes to their bylaws, but it was something that leadership of the MMBA felt was necessary here.

“There is an industry responsibility that we have,” said Cuff.