Original Bill Could Have Severely Curtailed Lending in Communities

The MHI National Communities Council (NCC) achieved a significant victory for the industry recently when MHI’s proposed changes to H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007,” were included in version passed by the U.S. House of Representatives. H.R. 3915 is the House’s legislative response to constituent and media outcries relating to the ongoing meltdown in the subprime mortgage marketplace. MHI was successful in working with Financial Services Committee Chairman Barney Frank (D-Mass.) in addressing two major issues of specific concern relating to manufactured housing lending. Without these changes, chattel lending, especially in communities, would be severely curtailed and most retailers would have been redefined as “mortgage originators.”

The first issue relates to the definition of a “high cost loan.” In the legislation. To make a high cost loan, a lender would be required to comply with onerous disclosure requirements, pre-settlement counseling standards, and certain prohibitions which would typically result in such loans not being originated. MHI succeeded in securing a different “high cost” standard for personal property loans. As originally drafted, any loan that had an annual percentage rate (“APR”) of 8 percentage points or more above the rate for comparable Treasury securities would fall into the “high cost” definition. Most lower balance chattel loans originated today, especially in land-lease communities, carry APRs that would trip this “high cost” trigger because the loan’s origination costs are fixed (regardless of loan amount) while the rate takes into account the lack of a secondary market and the absence of real property as loan collateral. To address MHI’s concerns, Chairman Frank, together with Reps. Brad Miller (D-N.C.) and Mel Watt (D-N.C.), agreed to amend the bill to provide that manufactured housing chattel loans of $50,000 or less would be allowed to carry an APR of up to 10 percentage points above comparable Treasuries without being considered “high cost” loans.

The second manufactured housing-specific issue in H.R. 3915 relates to the definition of “mortgage originator.” As originally drafted, the bill would have required any person who takes a loan application or otherwise assists a customer to be licensed under state or federal law. Such persons would have been required to have a net worth of $100,000 or more or post a surety bond of $100,000 or more. While these provisions are clearly aimed at the activities of mortgage brokers and others in the mortgage business, these requirements would have applied to nearly all salespeople at manufactured home retail sales centers, including those in communities.

In response to MHI’s concerns, Chairman Frank and Ranking Member Spencer Bachus (R-Ala.) both agreed to drop the net worth requirement. They have also agreed to an exemption from licensing for “administrative and clerical work” including activities such as taking loan applications and assisting loan customers, as long as such assistance does not include negotiating loan rates or counseling consumers about loan rates and terms. While this change is helpful regarding the activities of many retail salespeople, it may not go far enough regarding other activities at some retail sales centers. When MHI shared this with Chairman Frank, he committed to continue to work with MHI to reach a solution to this issue as the legislative process continues.

Notwithstanding the manufactured housing-specific changes described above, H.R. 3915 still contains several broadly-worded provisions that are problematic for the industry and for traditional mortgage lenders, including members of the Mortgage Bankers Association, the American Bankers Association and several other national lending trade groups. Among the bill’s defects are: the lack of federal preemption of onerous state and local lending laws; subjective lending duties and standards; and “assignee liability” for secondary market players who package, securitize or purchase home loans that subsequently go into foreclosure. MHI belongs to a coalition of these national trade groups and will continue to work with them on these issues as the legislative process continues.

Although Senate Banking Committee Chairman Chris Dodd (D-Conn.) has not introduced a subprime bill in the Senate, MHI will continue to meet with his committee staff regarding the key issues involved. If you are an MHI member and have any comments, contact Brian Cooney at 703-558-0660 or brian@mfghome.org or Tom Beers at 703-558-0649 or tbeers@mfghome.org.