In the 26-page comment letter, MBA Chairman John M. Robbins, CMB, encourages the Board to use its authority surgically, in a targeted manner to address those acts or practices which are unequivocally unfair or deceptive.  Overbroad use of the authority could expose lenders to increased liabilities, and could thus result in a further limiting of the availability of affordable mortgage credit to worthy consumers.

In the letter, MBA also recommends that the Board use its authority under section 105(a) of the Truth in Lending Act (TILA) to improve disclosures where such an approach addresses their policy concerns.  Beyond that, MBA recommends that the Board issue regulatory guidance where lenders are in need of flexibility to better serve consumers.  MBA acknowledges that, “the market reacts to guidance as though it were a regulation.”

In the letter, MBA also responded to specific questions the Board asked on certain subjects:

• Prepayment Penalties:  MBA points out prohibiting or significantly restricting prepayment penalties can be expected to increase rates to borrowers and would eliminate certain financing options for consumers.  MBA supports the limitation of prepayment penalties to three years for all mortgage loans and expects that the market will conform to the recent subprime statement requiring prepayment penalties not extend beyond the reset period of hybrid ARMs and allow borrowers a period of up to 60 days prior to the initial ARM reset to avoid a prepayment penalty.  MBA also supports the use of section 105(a) of TILA to require the provision of a prepayment fee disclosure as long as the requirement avoids unreasonable liability.
• Escrow for Taxes and Insurance:  MBA strongly asserts that escrowing or not escrowing cannot be viewed as predatory, deceptive or unfair.  MBA supports providing borrowers with greater information about their obligations to pay taxes and insurance and a clear disclosure of whether or not their loan has an escrow for these expenses.  MBA does not support mandating escrows for all loans, as such a requirement would increase the amount of cash necessary for a borrower to close their loan and would increase the cost burden on loan servicers, resulting in increased loan costs for consumers.
• Stated-Income and Low-Documentation Loans:  MBA believes these products are valuable options for borrowers regardless of loan type or category.  MBA recommends that the Board require that the originator provide the borrower a disclosure informing him or her of the cost of taking such a loan and that a documented loan could lower the cost to the borrower.  Further, borrowers ought to always be offered the option of documenting their income if they are in a position to do so.
• Ability to Repay:  MBA strongly believes that gauging the ability of a borrower to repay his or her loan is a key component of prudent underwriting and the Board ought to use great caution in using section 129(I) of HOEPA in the area of underwriting standards, as it could dramatically affect the cost and availability of mortgage credit for all borrowers.  MBA acknowledges that the recent Subprime Statement and Nontraditional Guidance has gone a long way toward ensuring that nontraditional and certain ARM products are underwritten to the fully indexed rate.  The letter expresses concern that requiring all ARMs to be underwritten to the fully indexed and fully amortizing rate threatens their availability

A copy of the full letter can be found on www.mortgagebankers.org

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.