To all OAMP Members, Mortgage Industry Professionals, and firm employees:
Oregon Senate Bill 965, which we told you a few days ago passed in the Senate, is moving quickly in the House. Passage in its current form would cause serious problems to both the mortgage lending community and those consumers we serve. When the bill was being considered and passed on the Senate side, representatives of the United Financial Lobby (UFL) were assured by members of both houses that the problems with the bill as written would be solved once it came to the House side. It now appears that not only will those problems not be solved, but the bill is about to become even worse.
It’s URGENT that each of you email your legislators BY CLOSE OF BUSINESS TODAY to express your concern, and ask them to support the UFL-sponsored amendment that would replace the current bill with a new one, referring the issue of compliance with the CSBS/AARMR guidelines already adopted by the Oregon DCBS/DFCS back to those bodies to pursue the matter on a rule-making basis. This procedure would buy us time and the opportunity to provide more input, to keep potentially devastating changes from becoming law too quickly.
The bill has been assigned to the Consumer Protection Committee and scheduled for a hearing tomorrow (Friday, May 25, 1:00PM, in the Capitol). The amendment referred to above is the only one that the mortgage lending industry was able to propose in the time allowed. The opportunity to submit further amendments to Legislative Counsel for consideration by the Committee was closed as of 5:00 PM yesterday. We have been told that in addition to our amendment, others were going in to Counsel before the deadline, which would contain some or all of the outright prohibitions included in the recent laws enacted and signed into law in Minnesota (banning the origination of any loans with negative amortization, stated income or “no income”, and requiring that all ARMs be underwritten at the fully indexed rate, for example).
Copies of the current bill, SB 965, and the UFL-proposed amendments are enclosed as attachments. Though the current bill (prior to the possible inclusion of those amendments) does not specifically ban programs, it has a broad definition of “non traditional mortgages”, which may even include any traditional fully amortizing agency ARM loan, if the DCBS so chooses, in addition to all low doc/no doc loans, interest only loans, option ARMs and negative amortization loans). Though the guidelines on which the bill was based used language like “should consider” when discussing underwriting approaches to those products, the bill says “shall”, which legally means “MUST”. On all of those products, originators (funding lenders and brokers) will be subject to re-underwriting scrutiny by DFCS auditors, and suffer major fines and penalties if the DFCS considers their underwriting decision to be unacceptable. Most troubling, in recent meetings with DFCS leadership, they have indicated that they would not accept automated underwriting findings and the documentation that the AU systems allow through the government/GSE systems (DU/LP and others). For example, they would require that income be verified, even if DU called for a verbal VOE only on a fixed rate traditional loan. And, the DFCS would not allow higher-than normal –guideline debt to income ratios permitted by AU findings if their auditor considered them excessive. This would preclude us from serving many borrowers .The need to educate the DFCS on our business and the harmful effect their decisions would have on our ability to help people buy and finance homes is great, but this bill may go into effect before we have that chance. Thus, many wholesalers who are not owned by or part of national banks (de-facto exempted under the Wachovia case, if not so already) and mortgage brokers may choose not to do any of these loans, or at least not do them in Oregon.
What’s important for you to remember and focus on in the communications we send to our legislators is the effect these changes will have on consumers, not just the impact that it will have on our businesses. If the bill passes as is, consumers in Oregon will be harmed by:
Reduced ability to qualify for home mortgages on the purchase or refinance of homes.
Reduced availability of mortgage credit. Borrowers would experience unacceptable service levels due to the inability of remaining providers to provide mortgage credit, should mortgage brokers and the majority of those wholesalers who fund loans no longer be capable of providing their services if the uncertain risk of DFCS review and penalties made continued business an unacceptable risk. According to an independent study conducted by the National Association of Mortgage Brokers (NAMB) in 2005, mortgage brokers originate two out of every three loans nationwide. Most loans are funded through wholesale lenders not exempt from this bill (though bank owned servicers who eventually purchase over 80% of those loans themselves, simply require adherence to the AU guidelines).
Higher interest rates, due to reduced competition. Only national banks and their affiliates (all of whom will be continuing to use the automated underwriting vehicles, as they do now) will have the ability to make Non Traditional and/or Traditional home loans as they have been done nationally for nearly ten years.
Increased likelihood of discrimination in underwriting of home loans (one of the main reasons AU systems were adopted was to provide for objective loan underwriting that is “blind” to any possible discriminatory factors). AU has been credited for the increase in nationwide homeownership … particularly among minority, inner city, and rural market borrowers.
Loss of the benefits of the underwriting standards used in our industry. Those standards have been developed by the federal government, government sponsored enterprises, and/or our largest banking institutions utilizing more than 30 years of empirical loan performance data, and encompassing literally millions of mortgage loan transactions. Ignoring such superior information, and relying on the subjective opinions of the DFCS, reverses decades of progress in establishing sound underwriting guidelines that have unquestionably and positively expanded home ownership. It has further saved Oregon home owner/consumers literally millions of dollars in lower interest rates, lower closing costs, and availability of more financing options from which to choose.
Declining home values, which almost certainly would be reduced as credit availability is restricted. Many potential home buyers, particularly those using first time homebuyer programs, would find such financing severely limited, or only available through national banks. Trickle down effects of such an occurrence would include reduced property tax revenues for other important social programs, like school funding and public services.
Failure of this bill to focus on protection of Oregon consumers from “Predatory High Cost Home Loans,” and most specifically, Predatory High Cost Home Loans that include loan features listed as Non Traditional. Approximately 4 weeks ago, this bill was amended to now encompass both Prime or traditional as well as High Cost home loans. This bill will NOT focus on curbing abuses in the Sub-Prime markets, but WILL substantially restrict the normal and positive functioning of the Prime mortgage markets.
The intent of those supporting this bill in its current form was undoubtedly good: to protect the consumer. Unfortunately, it does more to harm than help homebuyers of the state.
You need to get this message to your own legislators, TODAY. Use your own words, citing your own experiences in your community. Be SURE that you identify yourself as a constituent (use your home and/or business address to so identify yourself). If you don’t know your legislators’ email addresses, go to www.leg.state.or.us and click on “find your legislator”. Input your home and/or business address and it will provide the addresses and emails of both state and federal lawmakers. Send your email to BOTH you state senator and state house representative. Do it TODAY. Do it NOW. If you don’t have immediate access to email, call your legislator on the phone and at least leave a message on your support of the UFL-sponsored amendment, to replace the current version of SB 965 with a referral to the DCBS for further study and rulemaking.
Your assistance is critical. We need HUNDREDS of messages sent. EACH of your employees should be encouraged to send these messages today, to help protect their jobs tomorrow.
Thank you for your help on this urgent matter.
2006-2007 OAMP Legislative Chair
The Officers & Board of the OAMP