MBA chairman: regulate bad actors, not subprime loan products.

The mortgage lending industry and borrowers would be better served with legislation and regulation aimed at policing "bad actors" who close loans in bad faith rather than curtailing the use of nonprime mortgage products that permit otherwise unqualified applicants to become homeowners, noted MBA Chairman John M. Robbins, CMB.

As the featured speaker at the National Press Club's Newsmakers Lunch in mid-May, Robbins took MBA's case to the public, discussing the critical need to protect the availability of subprime mortgage options in the United States, especially for consumers with no credit or those with a poor credit history.

Such subprime loans have enabled millions of Americans to purchase homes, said Robbins, explaining that nearly 81 percent of subprime borrowers who are making timely payments are building a sound credit rating and helping strengthen the communities in which they buy homes.

"But potential new laws now being discussed by some legislators and regulators may result in tightening access to credit, robbing prospective homebuyers of the benefits of subprime loans as well as closing the door to current subprime borrowers wishing to refinance," warned Robbins.

"We don't want to revert to a time when, without perfect credit, you couldn't buy a home. Yet regulatory or legislative over-reaction could prompt a return to just that--to raise the bar."

In calling for a national licensing system to weed out the "scam artists," Robbins expressed the frustration that he shares with fellow mortgage bankers over "the very few unethical people" who have wreaked havoc on unsuspecting borrowers and cast a shadow over the entire lending industry.

"Frankly, it's too easy to hang a shingle and call yourself an 'expert' in mortgages. We need licensing of brokers, with a threshold that will weed out those unwilling to be responsible, to be held accountable," said Robbins. "Some cross the line into pure fraud, and for them we have laws. But as long as there are scam artists willing to look someone in the eye and say, 'I'm going to get you something for nothing,' people will be hurt."

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MBA is in the process of establishing foreclosure-intervention programs in cities at high risk by helping to train and certify more foreclosure counselors through its partnership with Neighbor-Works[R] America, a non-profit organization providing financial support and training for nearly 4,500 communities around the nation.

As a prelude to Robbins' speech, MBA joined with five other financial services trade groups in a joint statement to call upon federal and state regulators to provide enhanced consumer protections without limiting the availability of homeownership to creditworthy borrowers.

"Responsible subprime lending has helped many Americans improve their lives and achieve the dream of home-ownership," the statement said. "Our trade associations look forward to working with all market participants, the regulatory agencies and Congress in addressing the issues in the housing market and preserving the opportunity of homeownership for all Americans who seek it."

MBA and the other trade groups called for any regulatory action on sub-prime lending to be based on the following three key principles:

* Lenders should only make home loans to consumers with subprime credit whom they reasonably believe have the ability to repay the loans, based on information available at the time the loan is made.

* Loan terms, features, benefits and risks should be clearly disclosed to consumers in ways that enable them to make an educated decision about the loan product that they choose. The timing and estimated amounts of future payment changes should be clearly communicated to consumers in accordance with applicable disclosure laws and good business practices.

* Regulators, loan servicers and investors should work together to make available to homeowners appropriate options to help them sustain homeownership.

In addition to MBA, the statement was released by the American Bankers Association, America's Community Bankers, the Consumer Bankers Association, the Housing Policy Council and the Financial Services Roundtable.