CAROL BULMAN ´Loans being made´

Saying that Community Reinvestment Act standards should extend to mortgage companies because banks are already subject to them is not comparing “apples to apples,” according to opponents of the bill.

Susan Zuber, president of the Massachusetts Mortgage Bankers Association, testified before the Joint Committee on Banks and Banking at the State House last week in opposition to the CRA-expansion bill filed by Rep. Jarrett T. Barrios, D-Cambridge.

More than a dozen groups and individuals addressed the committee. Only the MMBA and Massachusetts Mortgage Association testified against the bill.

Sen. Dianne Wilkerson, D-Boston, voiced her support for the bill, saying that while not all mortgage companies sit on a pool of money, some do show profits of multiple millions of dollars that could be tapped. Considering that they are now the dominant lender in communities like the ones she represents, she asked, shouldn’t they give back by making home ownership possible for underserved markets?

“This is good business … we’re just following the money,” she said.

Massachusetts Affordable Housing Alliance Executive Director Thomas M. Callahan said banks have found that lending to low-income communities is good business and cited the low, 2.5 percent delinquency rate for MAHA’s Soft Second program as compared to the statewide rate of 3.3 percent. Extending CRA to mortgage companies would be just as beneficial, he said.

Zuber acknowledged in her opening remarks she was in a difficult position, seemingly in opposition to a bill that, at its heart, is intended to benefit the underserved communities in the state. While the MMBA supports the spirit of what the Barrios legislation is trying to accomplish, the bill may have the unintended consequence of decreasing the availability of credit by making it difficult for small companies to exist while meeting the requirements of CRA.

The MMBA’s main opposition to the bill is that mortgage companies do not, as a rule, have the capital resources necessary to extend credit to otherwise non-lendable clients. Zuber said the bill reflects a fundamental misunderstanding of the role the investor plays in the mortgage industry. Mortgage companies don’t hold onto the loan and, therefore, don’t have the money to invest in community outreach or educational opportunities or to fund loans themselves. Since investors set the criteria for extending loans, mortgage companies can’t go beyond those guidelines if they are to sell the loan, which is the purpose of their business.

“We feel this could have an adverse impact of reducing the availability of credit,” said Zuber, who added that the largest mortgage lenders in the state, Washington Mutual and Bank of America, are national institutions and would not be subject to the regulation while small local firms of five to seven employees would.

Fairness Issue
Dean Caso, president of HomeVest Mortgage in Newton and chairman of the MMBA, said that while mortgage companies would like to participate in subsidized programs that extend loans to those not qualified for “traditional” products, there is an initial funding requirement that they often cannot meet. Mechanisms like the Soft Second program through the MAHA and others through groups like the Association of Community Organizations for Reform Now require a capital outlay by the lender. Most of the time, mortgage companies have about $25,000 in capital and cannot meet the basic requirements.

Committee Co-chairman Sen. Andrea Nuciforo Jr., D-Pittsfield, asked the MMBA if there was any CRA-type program they would consider. Zuber responded by saying mortgage companies would “welcome” a way to participate but it may not be in the same way banks participate.

Barrios countered by offering a letter from the Massachusetts Housing Finance Agency stating over a dozen lenders already participate. Caso, after considering the letter, pointed out that nearly all the lenders in the state that do have the necessary capital – roughly $250,000 – to become Fannie Mae loan servicers were represented on the list, and said that most mortgage companies in the state aren’t able to raise that kind of capital.

“The average company is not a Fannie/Freddie [Mac] servicer. This list is not the norm,” said Caso.

Part of Barrios’ impetus for filing the legislation was a Massachusetts Community and Banking Council report that found while mortgage companies are responsible for 60 percent of the loans in the state, they only supply about 5 percent of loans to low-income people.

“If they could do the loans right now … believe me, they don’t care if it’s in low-income neighborhoods or high … They are not making the loan because they don’t have access to the products, the capital,” said Caso.

Carol Bulman, chairman, and James C. Dougherty, president, of the MMA took a different approach in their opposition to the bill. While agreeing that mortgage companies don’t have the capital required for the CRA compliance outlined in the bill, they also said that there might not be a discrepancy after all.

There are 300 mortgage brokers in the commonwealth, said Bulman. In almost all cases, a loan is not recorded in the broker’s name. Therefore, it’s not known whether there’s a problem with brokers avoiding certain types of people or communities. For brokers to choose to not service a community would be “counterproductive,” said Bulman. They will lend in any community where clients meet investor requirements for the loan.

Dougherty cited a study by the Federal Reserve that contradicts the MCBC study. The Fed study recognized the substantial shift from banks extending the majority of home purchase loans to mortgage companies but also said the shift had not resulted in any decreased access to credit. The study also found that, between 1993 and 1997, lending to low- and moderate-income groups increased 30 percent, said Dougherty.

Mortgage brokers actually help banks fulfill their CRA requirements by extending loan products, designed and credited to banks, to customers.

“If fairness is the issue, then a mechanism should have been in place,” to record that mortgage brokers are lending in those areas, said Dougherty.