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House Eyes Vote on Mortgage Industry RegulationBy Jim O'Sullivan - October 16, 2007
State House News Service
BOSTON - The House plans to vote this week on anti-foreclosure legislation that would require 20,000 non-bank loan originators to receive state licenses, give $3 million to state regulators for broader monitoring of mortgage lending, and encourage lenders to shift adjustable rate mortgages to fixed rates.
Committee staffers were deciding Monday afternoon where to set the thresholds for wrongdoing in providing for civil and criminal penalties, said Rep. Ronald Mariano, D-Quincy, House chairman of the Committee on Financial Services.
The Division of Banks would receive $3 million for personnel to regulate lenders more aggressively, money raised through new licensing fees on loan originators. The bill would also eliminate regulatory exemptions for non-profit companies who float mortgage loans, House sources said.
"We give an awful lot of authority to the DOB to come up with some regulations and then monitor these regulations, and we’re also going to give them some money to do it," said Mariano.
House Speaker Salvatore DiMasi, D-Boston, said the transitioning of adjustable rates to fixed would relieve pressure on homeowners who are likely to face rate "re-sets" on the mortgage format popular in the last several years. State officials, coping with widespread foreclosures, predict such re-sets will lead to even more foreclosures in 2008.
"I think it sets up a mechanism by which people who are facing an increase in their interest rate under their current mortgages, not just for now, taking care of the people who are in desperate straits now, but for next year and the year after," DiMasi told the News Service. "In 2008, there will be many more people, so we're allowing them to go to a fixed rate. So that's very important."
The bill resembles legislation put forward by Gov. Deval Patrick and the state Senate in offering homebuyer counseling and providing for a 90-day "right to cure" for borrowers in default.
The legislation comes amid a flurry of activity around the mortgage industry, which has rattled markets and pervaded quality of life in Massachusetts, where foreclosure rates spiked 76 percent in the last year.
Congressional Hearing
At a congressional hearing at Roxbury Community College, Patrick pinned responsibility on large commercial banks and Attorney General Martha Coakley warned that a wave of foreclosures was likely to deepen and spread.
"I think it's very, very important that none of us let the downtown banks off the hook," Patrick told reporters, noting that borrowers with poor credit are often funneled to lending companies because large banks refuse to do business with them.
Testifying before three Bay State congressmen, Patrick said the administration plans to outline a plan later this week based on a five-point plan heavy on outreach, transition assistance, and neighborhood stabilization. Administration officials confirmed the plan would encourage lenders to allow homeowners to pay off their loans under full value.
"There are important steps that can be taken at the state level to protect consumers while maintaining a viable, competitive mortgage lending industry in Massachusetts," he said.
The hearing featured an array of proposals to ameliorate the rise in foreclosures and a troubled credit market, also in the news Monday because three large banks moved to establish a potentially $100 billion fund to alleviate investor concerns about buying short-term debt.
U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, said Congressional leaders planned to meet next Friday with industry leaders and urge mortgage lenders to forgive prepayment penalties against homebuyers struggling to beat foreclosure pressures. Frank also said he wanted stronger enforcement of anti-discrimination laws, at one point challenging a bank executive to name any bank official penalized for unfair lending practices.
"We have virtually no record of any discipline, virtually no record of any enforcement, and that cannot continue," Frank told a panel that included Thomas Kennedy, a senior vice president at Sovereign Bank.
Frank said the U.S. House would pass a bill this year, with action likely in the Senate next year. Congress would revisit the question of expanding the Community Reinvestment Act next year.
Appearing on a separate panel with Patrick and Boston Mayor Thomas Menino, Coakley said dual federal and state enforcement of lending laws would help curb ethnic disparities that show a concentration of foreclosures in low-income and minority residential areas.
Foreclosures Spreading
Both Patrick and Coakley, a North Adams native, pointed to a broadening of foreclosure trends that so far have largely afflicted city neighborhoods.
"You haven't seen the end of this crisis yet," Coakley said. "You are going to see foreclosures in some of our middle and more tony communities, and that is going to affect everybody's health and well-being in the market."
The state Senate has already approved legislation designed to safeguard consumers against risky loans, and House leaders, who recently heard testimony from Patrick administration officials on another mortgage lending proposal, have been fashioning their response to a problem that state officials predict will worsen before it gets better. Mariano said the bill would likely come to the House floor Wednesday.
Patrick said the pilot program he plans for later this week will focus on six cities, chosen for number and concentration of foreclosures and regional needs.
Massachusetts Banking Commissioner Steven Antonakes said the state currently has one of the nation's strongest "community reinvestment" laws, which are widely used to leverage mitigation and fair lending practices.
Antonakes said he was unaware of any discussion here of taxpayer money being used to bail out consumers or lenders hit by the crisis.
Shifting adjustable rates to fixed could head off future foreclosures, he said.
"If lenders can step forward we can mitigate some of the foreclosures that could occur in the future," Antonakes said, speaking generally and not in reference to the House proposal.
Financial industry executives acknowledge the "denial rate disparities" between ethnic groups. Kennedy, the Sovereign executive, called the trend "something that we're not proud of," but said the bank had been working to reach out to communities on the low end of the acceptance scale.
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