South Florida Mortgage Lenders Feeling Heat From Regulators

Many South Florida mortgage lenders are being watched - more closely than their counterparts elsewhere in the nation - after regulators tightened standards on exotic mortgages in response to spiking foreclosures.

“We are one of the epicenters of the housing bubble, so regulators have targeted this area, as in Las Vegas and California,” said Ken Thomas, a Miami-based banking analyst.

As a result, many Florida mortgage lender groups have simply cut back on un-traditional loans including payment-option, adjustable-rate mortgages and interest-only loans.

“Banks are now proud to say they don’t issue any non-traditional loans because it’s been painted as a negative,” Thomas said.

“The concern is there is a large segment of the population that counts on having access to those home loans.”

Banks are required to comply with the Community Reinvestment Act, a 1977 law designed to prevent red-lining and encourage Florida mortgage providers to help meet the credit needs of low- and moderate-income neighborhoods, often home to people deemed to be financially risky.

“It can be somewhat confusing for banks,” Thomas said. “For years, the emphasis was on increasing home ownership, which a lot of times was done through alternative loans. Now it’s the opposite as many people have been put in a situation they can’t afford.”

Florida ranked second after California in the number of foreclosure filings in May with more than 20,000 - about three times more than a year before.

In fact, South Florida foreclosure filings have more than doubled since June 2006, according to court filings examined by the Daily Business Review.

Some banks already have tightened standards and improved consumer disclosure practices on nontraditional Florida home loans.

Nationwide, about 45 percent of banks polled in a recent federal survey reported tighter review of non-traditional home mortgage applications.

“A number of these loans were referred to as an affordability loan,” said Jay Brinkman, vice president of research and economics at the Mortgage Bankers Association.

“I don’t have any numbers to show how much of an impact that has had on CRA. But it will have an impact, not on every bank because some banks deal with their CRA requirements in other ways, but those who heavily relied on nontraditional to meet CRA requirements will have to be creative. For example, some can work with 40-year fixed.”

Federal guidance tightening lending standards has not had a noticeable effect on Florida mortgages, and area bankers don’t expect the new standards to hurt the volume or quality of CRA loans.

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