By Peter Barnes
Published April 26, 2012
FOXBusiness
Mortgage lenders have launched at frenzied round of lobbying over one of the major issues confronting financial regulators in the wake of the 2008 financial crisis — the new legal definition of a “safe,” desirable mortgage.
The activity comes about two months before the Consumer Financial Protection Bureau is expected to issue its decision on the new standard, which is designed to prevent the kind of reckless mortgage practices that helped create the housing bubble, subsequent housing market collapse and financial crisis.
While consumer advocates want tougher loan rules and continued rights for homeowners to sue lenders, industry officials are pushing for broad protections against lawsuits if they foreclose on borrowers. Without them, they say, they could quit underwriting an estimated one in five home loans — or more– which will hurt the fragile housing market.
Last Thursday, about 20 top executives from mortgage companies met with the director of the CFPB, Richard Cordray, and separately at the White House with President Obama’s top housing advisors, according to sources with knowledge of the sessions.
A legislative alert from the Mortgage Bankers Association (MBA) confirms the meetings and some participants, including White House Chief of Staff Jack Lew and Housing Secretary Shaun Donovan, but did not disclose details of the discussions. It said representatives of the association also met with “the entire Board of Governors of the Federal Reserve System, including Chairman Ben Bernanke” on April 16.
The alert, provided to FOX Business by an MBA spokesperson, said more than 400 MBA members visited Washington last week as part of its annual National Advocacy Conference.
Sources close to the discussions said that about three weeks ago, MBA President David Stevens and Michael Heid, president of Wells Fargo’s (WFC: 33.57, +0.22, +0.66%) mortgage division, the nation’s largest home loan underwriter, met with Cordray’s top deputy, Raj Date, and one of President Obama’s top housing advisors, James Parrott, and warned them that Wells Fargo could withdraw from portions of the mortgage market if the CFPB issues rules the bank considers too strict.
Stevens declined to confirm or comment on the meeting and declined to detail discussions with officials last week. Until last year, Stevens was the commission of the Federal Housing Administration, a position he was appointed to by the President.
But an April 12 letter sent to Cordray by the MBA and 32 other groups, including some community activists, said that certain loans are “unlikely to be made” if lenders face higher legal risks–and “in the unlikely event they are made, they will be far costlier, burdening families least likely to bear the expense.”
A Wells Fargo spokesperson did not immediately respond to request for comment on the meeting. A CFPB spokesperson did not return calls or emails from FOX Business.
The CFPB rulemaking, required under the 2010 Dodd-Frank financial reform law, focus on the definition of a “qualified mortgage” and would include new customer “ability to repay” standards that lenders must consider when making new mortgages. Among other things, a qualified mortgage could not include interest only payments, balloon payments or maturities of more than 30 years.
Homeowners who qualify for loans that met these and other tests would be automatically assumed to be able to make payments on them — but then also might be unable to sue their lender later if they miss payments for any reason and lose their home in foreclosure.
Without that legal “safe harbor,” lenders could face costly government and homeowner legal proceedings, judgments and penalties.
“This is critical because these (standards) will set the terms of residential mortgages for at least the next generation,” said Diane Thompson of the National Consumer Law Center. “There’s a lot at stake.”
