Tough 1993 for mortgage business

January 17, 1993|By Steve Kerch | Steve Kerch,Chicago Tribune

SAN FRANCISCO -- The housing finance industry is likely to face a demanding year in 1993 as a new Congress takes office with what is predicted to be a more consumer-oriented agenda.

Already under fire because of federal lending data that show minorities are denied mortgages more often than whites, the mortgage banking business is also expected to tussle in the political arena over other issues, including escrow account management, Federal Housing Administration reform and tax law.

"In the coming year we can expect to face intense regulatory scrutiny and a more hostile government attitude toward mortgage lenders," said Herbert Tasker, president of the Mortgage Bankers Association of America.

"I believe we'll see a more pro-consumer, anti-interest group mentality in Congress. We'll see legislation and regulations that benefit consumers and cost a lot of money," Mr. Tasker told MBA members who met in San Francisco recently for their annual convention.

One of the first things a new Congress may tackle is escrow account legislation, which died after being introduced in the House of Representatives this year.

Under the proposed bill, mortgage lenders who held borrowers' funds for taxes and insurance in escrow accounts would have had to have paid 5 1/4 percent interest on those accounts.

And they would have had to have calculated account balances in such a way that at least once a year the balance would have had to have been no more than two months worth of reserves, a requirement that could have led to more refunds of overpayments each year.

A third provision of the bill would have given borrowers who had paid down their original loan to less than 80 percent of its value the option to terminate their escrow accounts and make payments on their own.

The mortgage banking industry has strongly objected to the escrow reforms, arguing that its own set of standards for mortgage servicing is sufficient.

Donald Atkins, senior vice president with Margaretten & Co. in Richmond, Va., said the proposed legislation could have hurt consumers by forcing lenders to discontinue their practice of advancing funds for deficient escrows and recouping the money through higher payments spread out over future months.

The Federal Housing Administration program was revamped this year to remove a ceiling on the amount of closing costs that could be financed and to change the way limits are set on the size of loans that can be insured by the agency.

FHA borrowers can once again finance 100 percent of their closing costs after Congress removed a 57 percent cap set by HUD in earlier regulations. And the arbitrary ceiling on loan amounts was replaced by a formula allowing the FHA to insure loans of amounts up to 95 percent of an area's median home price.

But those two changes haven't satisfied many in the mortgage lending community, who would like to see FHA's role expanded even further in the low- and moderate-income housing arena.

"We are going to need a housing plan next year that focuses on the revitalization of the FHA, especially if we are to attract more first-time, low-income and minority homebuyers into the market," said Don Lange, chief executive officer of Weyerhauser Mortgage Co.

Among the recommendations of the mortgage bankers for FHA are lowering down-payment requirements and allowing more underwriting flexibility in non-traditional lending, such as in the inner city and to minorities.

Congress also is expected to keep a close eye next year on the Veterans Administration loan program since two pilot projects authorized by Congress this year will make their debut and the Veterans Affairs Committee in the Senate will get a new chairman with the retirement of Democrat Alan Cranston of California.

Michael Cogan, associate counsel for the committee, said the two programs should help to revitalize the VA mortgage arena, which has seen loan originations slip in the last few years.

The pilot projects involve a new adjustable rate loan that will be made available in addition to the VA's fixed-rate mortgage and a new category of eligible borrowers -- reservists who meet certain requirements -- to be brought into the program.

"This addresses the decline in VA lending by revising and updating the program to reflect more of the complex market that is out there," Mr. Cogan said.

On the tax side, a credit for first-time homebuyers, knocked out of legislation this year, is likely to be revisited. It could be part of a fiscal stimulus package that economists believe will be crafted to help the struggling economy out of its doldrums.

But while housing lobbyists are expected to fight for the tax credit, they may also have to spend time defending the mortgage interest tax deduction, which some analysts say may be in trouble.

Most analysts expect Congress to attempt to come to grips with the budget deficit, making the mortgage interest deduction vulnerable.

But a key Senate staffer doesn't think the mortgage interest deduction will come into play.

"I haven't heard anyone on Capitol Hill saying they are targeting the mortgage interest deduction to pay for anything. If they did, they can expect years of fight," said Norman Richter, tax counsel to the Senate Finance Committee.

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