The mortgage servicing business is under attack because of the rash of capital requirements that federal and state regulators have proposed, the chairman of the Mortgage Bankers Association said today.
Capital requirements affect not only companies that originate mortgages, but also mortgage servicers, MBA Chairman Bill Cosgrove said during a panel discussion at the Regional Conference of Mortgage Bankers Associations in Atlantic City, N.J.
Every mortgage loan created must be serviced and without servicers, there will be less consumer access to credit, said Cosgrove, who's also chief executive of Union Home Mortgage in Strongsville, Ohio.
The entire industry needs to advocate for "fair, not egregious servicing standards," Cosgrove said.
As part of his effort to advocate for those standards, Cosgrove said that he's had discussions with the Conference of State Bank Supervisors about how to avoid the creation of 50 different requirements for non-bank mortgage servicers.
Mortgage-servicing rights are "the dynamo that drives our engine," Stan Middleman, president and chief executive at Freedom Mortgage in Mount Laurel, N.J., said during the conference panel. Returns on servicing have diminished to the point where the groups that invested in the industry during the financial crisis are now exiting.
Money-center banks also are not purchasing mortgage-servicing rights, which means that the industry is hurting for buyers, Middleman said.
If the pool of buyers of mortgage-servicing rights continues to shrink, it is a problem for the mortgage business and housing in general, Cosgrove said.
It is "incumbent on us to create the opportunity for people to get into homes and to do it safely and soundly," Middleman said.
Originators should treat each loan they create as if they have recourse on it for the life of the loan, Middleman said. Credit decisions should be based on the assumption that they will own the loss if the loan goes bad. Originators should not act as if they are pushing off the risk onto a third party.
Manufacturing processes have led to improved credit performance, but government-sponsored agencies still have a "long list" of exclusions they can use to force lenders to buy back loans, Garry Cipponeri, chief executive of Traderoom Capital in New York, said at the conference. That should change, he said.
When Fannie Mae requests a file for review from a lender, it is because of a data anomaly or missing data, Jennifer Whip, head of customer management business development, said during the panel discussion. File requests are not based on the risk profile of the borrower and lenders should not do business based on that fear, she said.
In terms of guarantee fees, providers of private mortgage insurance take the first risk on loans when they go into default, said Teresa Bryce Bazemore, president of Radian Guaranty in Philadelphia. But insurance companies, in certain cases, charge less than GSEs because of risk-based pricing policies.
Higher guarantee fees will enable the return of a robust private securitization market that will support multiple products, including riskier products, Middleman said, adding that he supports higher fees. Investors also will be willing to leverage the risk-reward principle, he said.
But if guarantee fees are reduced, it will slow the process, he said.
Lenders are panicked about the implementation of Real Estate Settlement Procedures Act/Truth-in-Lending Act reform, scheduled for Aug. 1, said Peter Norden, chief executive of HomeBridge Financial Services in Galloway, N.J.
The major game-changer is the requirement that consumers receive the disclosure three days before closing, Norden said. The biggest challenge will be getting everyone in the closing process, especially title and escrow agents, to buy in, he said.
Title agents will find their role in the closing diminished and processes will be dictated to them, Middleman said. Further, they will be unable to make last-minute changes at the closing table, eliminating the threat that the moving van is circling the house, he said.
Meanwhile, real estate agents are not aware of the upcoming change in the closing process, Cosgrove said. In many cases, the real estate agent has a hand in selecting the title agent, which means that an unfamiliar party often handles the closing.
The reformed law will hold lenders accountable for new combined disclosures. However, the National Association of Realtors has apparently not articulated that to its members and they are not aware the lender is now in charge of the closing, Cosgrove said.
