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Motley Testifies on Access to Mortgage Credit

WASHINGTON, D.C. – April 16, 2015 – (RealEstateRama) — J. David Motley, President of Colonial Savings, F.A. and a member of the Mortgage Bankers Association’s Residential/Single Family Board of Governors, testified today before the U.S. Senate Committee on Banking, Housing, and Urban Affairs at a hearing entitled “Regulatory Burdens to Obtaining Mortgage Credit.”Below is Mr. Motley’s oral testimony, as prepared for delivery:

“Chairman Shelby, Ranking Member Brown and members of the committee, I appreciate the opportunity to testify today.

“I am currently President of Colonial Savings, a community bank headquartered in Fort Worth, Texas. I am a past member of MBA’s Board of Directors and I currently serve on the Community Bank Advisory Council for the Consumer Financial Protection Bureau.

“As a four-decade veteran of the mortgage banking industry, I can tell you from experience that recently-enacted laws have created commendable consumer protections and have made the market safer.

“However, new regulatory demands imposed under these laws have negatively affected the availability and affordability of safe, sustainable mortgage credit.  Qualified borrowers, including many potential first-time homebuyers, continue to have difficulty accessing credit.

“MBA has consistently supported reasonable requirements to prevent the repetition of past excesses.  However, MBA’s data show that mortgage credit availability remains far below the levels seen in “normal” times, prior to the mortgage crisis, and much of this constraint can be attributed to new regulatory demands on mortgage lenders.

“Although the CFPB did good work in developing the Ability to Repay rule and the Qualified Mortgage definition, MBA believes it is time to consider changes in the QM definition.  This will mitigate the adverse impact the initial rule has had on access to credit for some qualified borrowers.  Additional adjustments to the rule can expand access to sustainable mortgage credit and ensure that lenders can fully utilize all four corners of the QM credit box.

“MBA believes that changes to the QM should be made holistically, and not based solely on charter type or business model.  Expanded product choices under the QM should not be limited to certain providers, and the burden should not be on the consumer to determine which institutions offer particular types of QM loans.  This will only cause unnecessary consumer confusion and reduced competition.

“To this end, we support several changes to the QM definition, including expanding the safe harbor, increasing the small loan definition, replacing the current “patch” for government-backed loans, and expanding the QM to include certain loans held in portfolio.

“With regard to a portfolio exemption, we believe that any such expansion should apply both to banks and to nonbank lenders who originate loans for sale to banks or private institutions that plan to hold them in portfolio.  However, in order to protect against the re-emergence of loans with particularly risky features such as pay option ARMs or stated income loans, we believe some of the parameters of the standard QM definition should be retained for portfolio QM loans.

“We also strongly support legislation that would exclude title insurance fees paid to lender-affiliated companies from the calculation of points and fees under QM.

“Beyond these changes to QM, there are several other areas that could be addressed to facilitate increased access to credit for qualified borrowers.

“First, we strongly believe that the CFPB should offer authoritative written guidance to accompany its rules.  The absence of timely written guidance from the CFPB has resulted in confusion and slowed the implementation process of several important regulations.  This is particularly important in light of the forthcoming TILA RESPA Integrated Disclosure rule that will take effect in August.

“Second, the cost to service mortgage loans has increased dramatically.  This is due to new CFPB rules as well as the punishing treatment of Mortgage Servicing Rights under the Basel III Framework.  Under that rule, Banks are required to hold extraordinary amounts of capital to support the MSR asset, making it less likely for banks like mine to retain mortgage servicing.  These increased costs directly impact consumer access to credit and make new mortgage production less attractive to lenders.  To address this situation, MBA supports congressional efforts to mandate a study into the effect of Basel III on mortgage servicing rights.

“Third, MBA believes that FHFA should direct the GSEs to adopt the latest validated credit scoring models on an expedited basis.  The newer models help score borrowers with limited credit experience including first time homebuyers. Using updated models, lenders will be able to extend loans to a greater number of qualified borrowers.

“Finally, in addition to addressing many of the regulatory hurdles currently facing the mortgage market, MBA believes that Congress should continue its work from last year to address comprehensive housing finance reform.

“Again, I am grateful for the opportunity to testify before you today.

“MBA commends your efforts to examine the regulatory hurdles preventing qualified consumers from accessing credit and we are eager to work with the committee to improve the availability of sound mortgage credit for American consumers. I look forward to your questions.”

Mr. Motley’s full written testimony can be found here.

Rob Van Raaphorst

(202) 557- 2799