Superintendent Richard H. Neiman Addresses the Mortgage Bankers Association of Northeastern NY on Regulatory Changes in the Mortgage Industry
February 2, 2010
Thank you for that welcome, and I am pleased to be with you again. The last time I spoke at this gathering, Governor Paterson’s comprehensive mortgage reform legislation of 2008 had just been signed. This has been yet another significant year for the mortgage industry, including expansion of that landmark state legislation. So I consider speaking here today to be something like a “State of the Industry” address from my perspective, an opportunity to take stock of where we are as an industry in New York and to consider future trends.
A. Governor’s 2009 mortgage reform legislation
Consumer protection issues were a major focus for the Department in 2009, and have been a top priority for me from day one as Superintendent. When I began this position, I was immediately confronted with the meltdown in the subprime mortgage sector, including the failure of several large mortgage lenders. And the number of homeowners at risk since then continues to grow.
While the foreclosure crisis began with borrowers in inappropriate subprime or exotic mortgages, the recession has expanded the impact of this crisis to homeowners with loans that were originally affordable. This makes the expanded scope of the Governor’s legislation so timely. In addition, with commercial and multifamily mortgages potentially in jeopardy as well, the added protections for renters are critical to assist displaced families and to stabilize New York neighborhoods.There are six main aspects to the 2009 mortgage reforms:
- Pre-foreclosure notice. Requires the 90-day pre-foreclosure notice to be expanded to include all home loans, not just those that are subprime.
- Notice filing. Requires those lenders who serve a 90-day notice on a homeowner to make a regulatory filing with the Banking Department within three days of that service with specified information. The Banking Department and the Division of Housing and Community Renewal (DHCR) will be using this data to provide targeted assistance to distressed homeowners during the critical pre-foreclosure timeframe and to closely monitor foreclosure statistics.
- Mandatory settlement conference. Expands the scope of the early mandatory settlement conference to include borrowers of all home loans and not just borrowers with subprime loans.
- Tenant protections. Establishes protections for tenants in foreclosed properties by requiring that they receive written notification of the change in ownership of the property and be permitted to remain in their home for the remainder of their lease term or 90 days, whichever is longer.
- Neighborhood preservation. Require plaintiffs in a foreclosure action who obtain a judgment of foreclosure and sale to maintain the property, to preserve the safety and quality of life in our neighborhoods.
- Foreclosure rescue scams. Enhances consumer protections to prevent homeowners from falling prey to foreclosure rescue scams, and to prevent brokers who perform distressed property consulting services from accepting upfront fees.
A data system to capture 90-day notice filings will be operational soon, beginning on February 13. Our website provides a sample form for filing that I urge you to review, and please provide us with your ideas for improvement. There have been over 50,000 properties each year in some stage of the foreclosure process since the financial crisis began, and we anticipate that a high volume of 90-day notices will need to be processed.A related effort involves the registration of mortgage servicers, who perform payment processing and collections work after the loan is originated. This group was previously unregulated, but became subject to the Department’s jurisdiction as part of the reforms enacted last year. Currently we have received applications for registration from 40 servicers and notification of exempt status from well over a hundred more.
As part of this registration process, the Department has prepared draft regulations to cover conduct of business rules. These regulations address areas such as servicer obligations to borrowers, handling of consumer complaints, mortgage delinquencies and crediting of payments and regulatory reporting, including with respect to loss mitigation. A copy of the draft regulations is available on the Department’s website, and we look forward to continuing to work with you to refine these regulations.
B. National Mortgage Licensing System
But undoubtedly the largest project we have underway remains the registration of mortgage loan originators through the state-run National Mortgage Licensing System. This is a massive new undertaking, but one that is vital to ensuring the integrity of the mortgage market in New York and nationwide.
Almost 15,000 MLOs in New York have applied through the system, and an additional 500 or more are anticipated. This heightened screening process has already yielded results in enhanced consumer protection: to date, 21 individuals who might otherwise be selling mortgage loans in New York have been denied MLO status.
This meeting will provide you with detailed information on the nuts and bolts of MLO implementation. I am pleased to have Rholda Ricketts, the Deputy Superintendent of our Mortgage Banking Division, with me today, as well as Tim Doyle, the Vice President of the Conference of State Bank Supervisors. Rholda and Tim will be answering your questions on all aspects of the MLO process, including the standards for eligibility, testing and educational requirements.
C. Regulatory reform at the federal levelI am excited about the potential of the NMLS on multiple levels- first and foremost as a tool to strengthen consumer protection and raise standards, but also as an example of the right approach to state-federal relations in regulatory reform.
The federal SAFE Act interacts with our state-run NMLS in a positive way: it leaves primary responsibility with the states, with the option of a federal back-up if a state elects not to participate. This is the type of cooperation, or new approach to federalism, that should be a model for the broader reform effort.
Modernizing our regulatory framework is a top priority in Washington, and exploring reform options is part of my responsibility as a member of the TARP Congressional Oversight Panel. Of the many proposals being considered by policymakers, the idea to create a new consumer protection agency at the federal level is one that could have enormous impact on the mortgage banking industry.
I admit that I bristle when commentators occasionally refer to non-depository institutions as “unregulated”- the absence of a federal counterpart is not synonymous with being unsupervised! The states have a long and successful history of regulating the mortgage banking industry, and in holding companies accountable for unfair practices through landmark settlements and consumer restitutions.
But if federal lawmakers move ahead with the new agency concept, it is critical that it build on the precedent of the SAFE Act and NMLS. I firmly believe that states should remain the primary supervisor of non-depository lenders, with the federal government functioning in a backup capacity.
I understand that these are challenging times for the mortgage industry, and I appreciate your efforts to continue making credit available in communities across this state. We can’t stabilize the economy without stabilizing the housing market- and your contribution as responsible lenders is the key.