Home Mortgage Lending: Three Decades of Transformation
“Legal turbulence” characterizes the past three decades of home mortgage lending, encompassing the transformation of loan products, their distribution, and industry regulation. The regulatory aspects of this transformation are the subject of my treatise, Residential Mortgage Lending: State Regulation Manual, now in its 30th year of publication.
In the 1970s, some institutional lenders turned away from home mortgages as inflation reduced their profitability vis-a-vis commercial loans. Mortgage securitization and adjustable rate home loans emerged in the 1980s, changing everything. In a perfect storm of opportunity, consumers had more product choices and lenders returned to the residential mortgage market with loans that could be packaged and sold. Securitization of mortgages created investment products and fee opportunities for bankers. Technology developments made it easier for lenders to reach loan brokers and borrowers and more efficient to process applications and service loans.
Working in the eye of this perfect storm as counsel for a mortgage company in 1985, I fielded questions like these: What loan fees and interest rates are permitted? What are the documentation and recording formalities? What consumer disclosures are necessary, in what form are they given, and when? Are mortgage companies and loan officers licensed? Is noncompliance fatal to the lender’s security interest? What are the foreclosure prerequisites and processes?
Thirty years ago, most home mortgages had fixed rates, residential mortgage fraud was rare, and mortgage bankers were largely unregulated. State licensing was a non-uniform patchwork affair. Legal noncompliance usually did not invalidate mortgages. This casual regulatory environment began to shift when states adopted licensing laws, some with built-in disclosure and recordkeeping requirements, lists of prohibited practices, and civil and criminal penalties.
Lenders and lawyers needed to understand the comparative state law of mortgage lending, but a comprehensive compliance manual didn’t exist. So along with co-authors John P. Kromer, JD, and Mary M. Pfaff, I set out to create one, leading to the 1989 publication of the 6-volume Residential Mortgage Lending: State Regulation Manual.
Our timing was fortuitous. The mid-1980s to mid-90s were a regulatory on-ramp, with lenders mostly oblivious to legal concerns. In the mid-90s, the industry and its bankers turned creative — if not unbridled — in the quest for market share and profits. Non-traditional loans and novel mortgage investment options emerged, based on the fantasy that housing markets move only upward. The 2008 mortgage crisis and Dodd-Frank aftermath sobered up lenders and the formerly freewheeling industry pivoted toward safety. The Consumer Financial Protection Bureau, multiple government investigations, class action litigation and big money settlements, combined with a cautious borrower base, resulted in a return to fixed-rate loans and documented repayment ability.
As I review these changes, my rearview mirror reveals the cautious 1980s, cocky 1990s and a chastened post-2008 decade.
Documenting the legal and regulatory transformation in the mortgage industry for 30 years has been challenging — and a privilege. I thank our readers and anticipate illuminating future changes.
Residential Mortgage Lending: State Regulation Manual covers the state laws affecting mortgage lending and mortgage brokerage, adding and expanding topics as needed. For example, foreclosure mediation law, rare in the 1980s, has been included since 2008. Electronic signature laws, social media advertising, mortgage fraud, foreclosure rescue, condominium superlien laws, and multilingual consumer disclosure rules are now included. Relevant case summaries link to Westlaw. Important federal developments like the SAFE Act’s NMLS registration of mortgage brokers are discussed.
Use Westlaw database RMLSRM for plain-language summaries of state mortgage laws and regulations, organized into state chapters, with 41 topic entries for each state plus primary source documents and official forms. Six to 10 state chapters are compiled in regional volumes.
Andrea Lee Negroni is a mortgage regulatory, consumer finance and real estate attorney, and an Adjunct Associate Professor of Law at American University’s Washington College of Law. She was a founding partner of Negroni & Kromer and was a partner at Goodwin Procter. She was of counsel with BuckleySandler LLP, from which she retired in 2015. She is the author of Residential Mortgage Lending: State Regulation Manual.