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Community Mortgage Lenders of America Warns: Congress Will "Pull the Plug" on Main Street Lenders

"If enacted, the proposals in Congress to impose new capital requirements on main street mortgage lenders effectively spells the end of the community mortgage banker, resulting in less competition and fewer choices for borrowers," said Scott Stern, chairman of CML America. "Under these proposals the mortgage system will become riskier and the local mortgage banker will be extinct. Congress will literally destroy hundreds of thousands of lives if this proposal is approved. We urge Congress to reconsider this ill-advised provision."

The letter was signed by 87 community mortgage lenders from CML America and the Community Mortgage Banking Project. The lenders provide home mortgage loans in 30 states, representing over $120 billion in annual mortgage originations.

About CML America

CML America represents the nation's Main Street mortgage lenders. CML America is founded on the principal that a thriving independent mortgage banking sector increases competition in the industry and provides borrowers with more choice, lower costs, and innovative products. For more information, visit www.cmlamerica.com.

About the Community Mortgage Banking Project

Community Mortgage Banking Project is a public policy organization representing the interests of independent mortgage bankers. For decades, the community-based mortgage banker has delivered value and choice to consumers by leveraging local market expertise, quality service, and lower costs for borrowers. The CMBP supports financial market reforms that promote consumer access, borrower and investor transparency, local competition and choice, and a value added mortgage chain. For more, visit www.communitymortgagebankingproject.com.

RE: Risk Retention Provisions in Restoring American Financial Stability Act

Dear Chairman Dodd and Ranking Member Shelby:

Community mortgage bankers are traditional, community-based lenders that have remained focused throughout the housing bubble and in its aftermath on their core business - originating FHA, VA and GSE-eligible home mortgages. We are very concerned about the risk retention requirements proposed in the Restoring American Financial Stability Act. We firmly believe that the language, which establishes an across-the-board credit risk retention requirement, will sharply increase borrowing costs, dramatically restrict the availability of affordable mortgage options, and cut short efforts to stabilize the fragile housing market.

Our housing finance system relies heavily on the securitization process to deliver several hundred billion dollars in mortgage credit to borrowers each year. As the Committee seeks to mitigate excessive risk taking in the securitization process, it is critically important that you preserve the full benefits of securitization in the core of the market for lower risk products. The most effective way to accomplish this is by creating a clear, statutory exemption from the risk retention requirements for stable, affordable, well-underwritten and well-designed products.

Under the risk retention requirements in the draft bill, independent mortgage bankers - which accounted for almost one-third of all home mortgages in 2008 - would be forced out of business. Community banks and credit unions would shortly face liquidity and balance sheet constraints that will limit their lending capabilities. Together, these locally-based companies are critical to our nation's mortgage supply chain but simply are not structured to hold on balance sheet the cumulative layers of credit risk over multiple origination cycles required under the bill. A poorly designed risk retention standard could eliminate local market competitors and accelerate the consolidation of the market into the hands of a few major lenders. This is an ironic result in a bill that is trying to mitigate systemic risk and too-big-to-fail concerns.

There are many good mortgage products that have been originated and securitized for decades without encouraging undue risk-taking. The undersigned companies urge the committee to create a securitization framework that establishes a statutory exemption for low risk "qualified mortgages" with strong underwriting and documentation standards and safe product designs. For products that don't meet these standards, regulators should have the authority to require a range of risk retention on creditors or issuers based on the risks of the products involved.

We appreciate your consideration of our concerns and look forward to working with you on these important matters. If you need additional information on this issue, please contact Glen Corso of the Community Mortgage Banking Project at 571-357-1034, and Scott Stern of the Community Mortgage Lenders of America at 314-506-0079.

for Lenders One
Charlyne H. McWilliams/Megan Ard
301-933-5567/678-781-7223