CNBC's Cohn: Mortgage Lenders Worry Lawmakers Will Overreact
The subprime industry is getting a pretty bad rap, and lenders are concerned U.S. policymakers will overreact, overregulate and actually get into the business of setting lending standards, says CNBC’s Scott Cohn, reporting from the Mortgage Bankers Association’s National Nonprime Mortgage Networking Conference in Carlsbad, Calif.
That could actually make the situation worse, lenders and MBA members say.
“The story I’d like to tell to Washington is this industry is getting together in a set of very productive conversations looking at real solutions that it can offer policymakers and
consumers going forward,” said Kurt Pfotenhauer, MBA’s senior vice president of government affairs.
The subprime market -- the riskiest segment of the U.S. mortgage market that serves borrowers with poor credit histories -- has garnered widespread attention and concern due to rising default rates. At least 20 lenders in the subprime mortgage sector have gone out of business. Lawmakers have criticized the subprime industry for lax lending standards that are contributing to the increased amount of homeowners facing foreclosures.
But MBA Chairman John Robbins said many of the culprits have already been called to account.
“Those most responsible for making those loans have already been punished in many cases to the maximum degree possible,” Robbins said. “Their companies aren’t in existence anymore and their shareholders have been wiped out.”
Congress is holding hearings on the subprime issue beginning this week, with executives at five big subprime mortgage companies asked to testify Thursday about their lending practices. Those companies are HSBC Holdings, New Century Mortgage, Countrywide Financial, General Electric's WMC Mortgage unit and First Franklin Mortgage. GE is the parent of NBC Universal and CNBC.
Mortgage bankers say they are already tightening standards, rejecting riskier loan products and requiring more money down or more verification of income and assets. A lot of the issue is the economy and foreign investors that have bought mortgage-backed securities and "didn't get it before and are overreacting now," Cohn said.
Industry insiders say the loans being written now and securities that back them are "the best book of business in 25 years," Cohn added.
About 250 people are attending the MBA conference, including the CEOs of H&R Block’s Option One Mortgage and Lenders Direct Capital. Both declined to comment. Some companies pulled out altogether, including the CEO of Accredited Home Lenders.
"The industry has stood up and is working through this process," Robbins said. "The loans in foreclosure in the non-prime sector is less than half of what it was in the fourth quarter of 2000."