In a conference call outlining its upcoming plans, the country’s mortgage broker trade group criticized the use of trigger leads and projected the recent nonprime meltdown will have little impact on the broker share of business.
The National Association of Mortgage Brokers is pushing for an independent, government-sponsored study of the causes of foreclosures, including any abusive lending practices that may lead to foreclosures, in order to work toward effective solutions to fight such problems, according to a conference call Thursday.
While abusive lending practices and mortgage reform have been discussed in or around Washington, D.C., since the mid-1990s, the issues have been “crystallizing in these past several months due to the unfortunate rise of foreclosures that appear to be spreading around the country,” said Joe Falk, the group’s legislative chair.
“We are unsure about the reality of why foreclosure filings appear to be heading higher,” he said. He questioned whether the rise was a cyclical problem, a seasonal issue, a result of new products that entered the market in the last three or four years, a product of repeated refinancing that is delaying problems for consumers who now find themselves ultimately unable to refinance at a time when property values are level, or a result of the income disparity the Federal Reserve Board recently reported.
“There should be no rush to judgement” for who or what is at fault, Falk added. “There is plenty of blame to share for all aspects of our industry,” including broker community, bankers, secondary market and borrowers.
But the trade group’s members don’t necessarily have data on the performance of loans they originated — making it difficult to draw accurate conclusions about brokers’ roles in foreclosures. Mortgage bankers, on the other, who set the guidelines and maintain the liability for early payment defaults or fraud, can turn to their own historical data to analyze performance.
NAMB’s legislative chair also highlighted the problem of identity theft being possible through mortgage trigger leads. He explained that when a mortgage company pulls a credit report for a consumer, this “trigger” or information is resold to lenders, brokers and others in the marketplace. Falk said consumers are sometimes bombarded with phone calls within hours of applying for a mortgage due to the credit leads being sold by repositories, erroneously leading consumers to believe the brokers who hold their information through the application are responsible for the “inappropriate” calls.
“We’re very concerned about the illegal sale of prescreened mortgage trigger leads,” Falk said. “We do not believe that, in the context of the mortgage application, any creditor can simply purchase a trigger lead and make a firm offer of credit. There has to be underwriting guidelines. There has to be appraisal standards. We have to look at income, as well as the information on the credit report.”
Despite that some of its members are buying trigger leads themselves, NAMB is pushing for the use of prescreened mortgage lists to be restricted to written solicitations only for consumers to be aware of their right to opt-out of trigger lists as opt out screens can take up to five days to become effective.
NAMB told MortgageDaily.com it does not see the fallout of wholesale lenders affecting the share of business brokers do at this point.
Market and underwriting adjustments will reduce originations as a result of the recent rash of early payment defaults and foreclosures, NAMB said. “It’s just a natural market adjustment. So I think you’ll see less subprime loans being made but I don’t know if the broker share will decrease.”
NAMB additionally said it is advocating implementation of a new, mandatory payment disclosure form to be provided at the time of application and funding for any loan that may have a payment change during its lifetime. The group said current disclosures are not enough for consumer information, choice and protection from possible abusive practices. It believes each loan should have a payment disclosure form that shows the minimum payment, maximum payment, indexes, margins, caps, prepayment penalties, and, if applicable, how negative amortization will work.
The group is skeptical of any suitability standard and language that could be passed federally that would take away the right of consumers to be the ultimate decision maker in what loan best fits their individual circumstances.
“We’re concerned, quite candidly, that an ill-defined, vaguely-worded suitability standard would roll back the clock on the objective that has been in place” and been the hallmark of fair lending compliance measures for the last 40 years, Falk said.
Also on NAMB’s agenda are minimum, uniform standards for all originators, including pre-licensure education, continuing education requirements, and background or employment checks. The group is advocating a good faith estimate that matches numbers and titles contained in the HUD-1 closing statement and for all origination channels to be required to disclose yield spread premiums, par-plus pricing or gain on sale transactions. Falk additionally pointed out that a national system of licensure can produce an appropriate consumer benefit only if it applies to all originators.
“We are not in favor of any federal regulatory environment where a broker-only registry is being maintained.” Falk said.
Among other reforms, NAMB said it would like for brokers to be allowed to offer FHA products with a surety bond rather than audit and net worth requirements. The group also supports zero-downpayment FHA loans, authorization of risk-based pricing on insurance premiums, and extending the term of FHA loans to 40 years from 30 years.
