Lenders Favor Pre-Emption

Mortgage servicers have joined other industry voices and are advocating for one set of national rules governing "predatory lending" as the issue continues to spread into their sphere of business.

Speaking at the MBA's National Mortgage Servicing Conference here last week, Robert Caruso, executive vice president at Wells Fargo Home Mortgage and chairman of the MBA's loan servicing committee, said that pending legislation and regulation as well as existing predatory lending rules "have a direct impact on the way we do business."

A single, comprehensive national law that pre-empts the proliferating state and local patchwork of predatory lending rules will benefit loan servicers, he said.

"We don't need to take players out of the industry because of bad legislation."

Moreover, he said the existing regulatory framework raises serious questions for servicers, particularly in the area of pre-emption. Currently, federal banking regulators such as the Office of the Comptroller of the Currency and the Office of Thrift Supervision are seeking to exempt companies under their supervision from state and local laws.

He said the OCC's pre-emption of local predatory laws could create "a distinct competitive advantage" for national banks and their subsidiaries.

He also said the OCC's position raises questions about how pre-emption extends into the servicing arena. For instance, if loans are subserviced by a third party, does the pre-emption extend to a subservicer working for a subsidiary of a national bank?

Mr. Caruso said predatory lending is not just a regulatory issue, however, for servicers. Loans originated under abusive terms have a high potential to default, he noted. And the MBA is currently conducting a study to see what impact the defaults caused by allegedly abusive lending practices have had on the cost of lending.

With lending and servicing volume rising, lenders need to be careful about their procedures to make sure that what may have been simple on a small scale does not become a disaster on a large-scale basis, he said.

"We continue to strive for better customer service and save borrowers homes when they become delinquent," he said.

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