IBA urges regulators: Now is not the time for more regulation
Ronette Schlatter, CRCM
Senior Compliance Coordinator, Iowa Bankers Association
The Iowa Bankers Association Compliance Department, in conjunction with Iowa Bankers Mortgage Corporation, submitted a comment letter to the Federal Reserve Board (“Board”) regarding the Board’s proposed revision to Regulation Z, which implements the Truth in Lending Act.
The proposed changes would create a new category of “higher-priced mortgage loans” subject to additional disclosures, underwriting provisions and servicing requirements including a requirement to establish escrow accounts for any loan that meets a definition of a “higher-priced mortgage loan.”
In addition to the rules related to “higher-priced mortgage loans”, the proposal also contained additional advertising requirements and restrictions related to promoting mortgage loan products.
The proposed revisions are being made by the Board in an attempt to better protect consumers from unfair, abusive and deceptive lending practices in the mortgage market.
The IBA’s comment letter addressed several specific points regarding the proposed revisions to Reg Z including concerns:
The 3 and 5 percent rate thresholds that deem a loan to be “higher-priced” are too restrictive and will go beyond the goal of capturing subprime loans and impact loans in the prime market.
The rules for selection of comparable Treasury securities for determining if a loan is deemed to be a “higher-priced mortgage loan” are far too complicated and inconsistent with methodologies of selecting the appropriate Treasury rate for purposes of determining rate spread for section 32 loans.
The requirement to establish escrow accounts for “higher-priced” loans is overly burdensome on small lenders who do not routinely offer escrow account services.
The additional advertising disclosures proposed would dissuade bankers from producing print advertisements due to the complexity of the requirements and the potential penalties for noncompliance.
Finally, the IBA urged the Board to recognize recent history has shown that the addition of complex regulations and consumer disclosures has done little to mitigate the risk in the mortgage market, nor has it protected consumers from unscrupulous mortgage brokers and lenders. Rather, the crisis in the subprime mortgage market in large part has occurred due to unequal regulatory oversight and enforcement. The answer is not more regulation, but appropriate enforcement and oversight of all the players in the market.
Additionally, the IBA suggested perhaps the Board and other federal regulatory agencies should refrain from proposing and/or implementing any new regulatory requirements until the economy stabilizes, the housing market adjusts appropriately, and Congress settles on its housing bill. Click here and log in to the IBA Web site to read the IBA’s comment letter.
The IBA Compliance Department will also be drafting a comment letter on the proposed changes to RESPA. Comments are due by May 13. HUD’s proposed revisions to RESPA can be found in the March 14 Federal Register at http://edocket.access.gpo.gov/2008/pdf/08-1015.pdf.
Members are encouraged to review the proposed revisions and submit comments of their own and/or share concerns regarding the proposal with IBA Compliance department staff for inclusion in the IBA’s comment letter. Contact Ronette Schlatter at rschlatter@iowabankers.com or Dodie Bauman at dbauman@iowabankers.com.
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