| Challenges Facing Subprime Industry
Executives, activists discuss state of industry at conference July 1, 2004 By NEIL J. MORSE |
| Nonprime lenders will have to grow up to keep pace with the maturing market they will be serving.
From technology to internal operations and from compliance to external events, nonprime lenders will experience change brought about by a blurring of category boundaries and a more sophisticated challenge from consumer groups and lawmakers. “For a long time, subprime lending had a questionable reputation,” says Amy Brandt, president of WMC Mortgage Corp. in Woodland Hills, Calif. “But, now, it’s a new business,” she told an audience this month attending the Thomson Subprime Lending Symposium in San Francisco. To compete, Brandt said, the nonprime sector would have to practice “more pricing discipline, and that will squeeze lenders. Every basis point is going to matter,” she declared, offering a stern message but wrapping it in an entertaining and breezy style of delivery. Mortgage companies will continue to be challenged by government regulation and legislative activity, not to mention the actions of aggressive consumer groups. A strong panel at the Thomson Symposium, led by Wright Andrews of the Coalition for Fair and Affordable Lending, debated key issues related to abusive practices. The panelists, a mixture of industry and consumer personalities, outlined issues of disagreement and, surprisingly, some where they concur. On the former, the concept of “net tangible benefit,” a nettlesome phrase (and expectation) seen in some lending laws that is ostensibly aimed at ensuring that borrowers come out ahead in the loan process, drew considerable discussion. “It is a notion that is unworkably difficult,” said attorney James Mann of the firm, Wilmer Cutler & Pickering in New York City. His comment reflected the common complaint expressed by lenders who say it is too vague and without specific criteria, thus rendering “net tangible benefit” an impossible goal to achieve. But Christopher Kukla, senior legislative counsel with the Center for Responsible Lending in Durham, N.C., was unapologetic in his support for the concept. Net tangible benefit, Kukla insisted, “not only is workable” but was intended deliberately to be “subjective,” he said. In that way, the consumer activist reasoned, ultimate arbiters — i.e. judges — would have leeway to determine what is or is not in the borrower’s best interests. The panelists batted around the question of uniform national lending standards that would obviate the need for city, county and state laws. Mann said, “the state-based approach doesn’t work. [It fosters] unfavorable mutations of a ‘can you top this’ attitude,” he remarked. Panelist Steve Nadon, chief operating officer, Option One Mortgage, Irvine, Calif., brought up the subject of “steering,” the practice some charge of lenders providing nonprime loan terms to borrowers who would qualify for prime loans. Recounting past discussions with Freddie Mac, Nadon said: “Freddie always told us that very few Option One loans would have qualified as prime” under their standards. He encouraged fellow lenders to avoid steering. “If you can find a way to give them a prime rate, do it,” Nadon declared. Kukla of the Center for Responsible Lending said his group “does not push hard on this issue,” although he says data used by Freddie Mac in its criticisms are “outdated.” |
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Neil J. Morse is a communications consultant and independent writer working exclusively in the mortgage finance industry. He resides in Newtown, Conn. and may be reached by e-mail at:Â [email protected] |
