Westchester mortgage banker David Wind will return to Washington, D.C., early next month to make the rounds of congressional offices as an advocate for his industry. The role is quite new to him, as is the federal threat he sees to his livelihood and company and to the community-based mortgage lenders whose cause he has joined.
Wind was 26, the youngest mortgage banker ever licensed by New York state, when in 1992 he formed Guaranteed Home Mortgage Co. Inc. in Manhattan. Starting with two mentoring employees, the former Citicorp Investment Bank analyst grew the business by drawing on his expertise in the co-op and condo market. By the mid-”˜90s, Guaranteed Home Mortgage opened its first branch office at Cross County Shopping Center in Yonkers.
“We began to open offices all over the country,” Wind, president of Guaranteed, said recently at his company”™s headquarters at 108 Corporate Park Drive in Harrison. “I realized I was a much better administrator than I was an originator.”
Today his company has approximately 350 employees and operates in 26 states. “We lend just south of $1 billion a year,” Wind said. “We consider ourselves to be a prime example of a middle-market mortgage banker.”
His company”™s geographic spread has enabled it to survive the national housing market”™s precipitous decline. Lending practices at Guaranteed spared it the fate of subprime and other mortgage lenders, whose failures and disappearance from the local business scene Wind sees reflected in Westchester”™s vacant office buildings. “This corridor, Westchester Avenue, used to be Mortgage Central,” he said. “It”™s been devastated.”
Moving last year from the Gannett Office Park to its 10,000-square-foot space in the nearby Normandy Real Estate Partners building, Guaranteed bought the furniture of American Home Mortgage, a Long Island-based lender that went bankrupt in the housing market collapse. More than furnishings, Wind said his company has benefited from an influx of talented professionals as major mortgage companies and banks have closed, consolidated or cut back retail lending.
Regarding subprime lending, Wind said, “There are no groups that were participants in any significant ways in that business that are still in business. We are the recipients of all the knee-jerk reactions to their activities ”¦ We have to be beyond reproach.”
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The reaction among federal lawmakers and regulators to the broader financial-sector meltdown prompted Wind”™s company and other independent mortgage lenders to join in forming the Community Mortgage Banking Project (CMBP). With separate financial reform legislation in the House and Senate and with new regulations proposed by the Federal Reserve Board, “Many of us recognized that our very livelihoods were in jeopardy,” he said. “It”™s the first time I”™ve been actively involved in trying to influence some level of legislation. The mortgage business in and of itself is an insignificant part of all of their proposals and yet they have a tremendous effect on how we operate.”
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A CMBP official last month warned Federal Reserve officials that proposed regulations affecting loan officer and mortgage broker compensation, while intended to address unfair or deceptive practices that make mortgage loans more costly for consumers and leave brokers more highly compensated, would impede the ability of independent mortgage banking companies to negotiate rates and terms with consumers and to match or beat competitive terms in the market. That could “severely curtail consumers”™ choices of lenders and significantly increase the cost of mortgage credit across the board,” they said.
Wind said the lobbying group is most concerned about risk retention provisions for lenders included in financial reform legislation. Those are included in the Wall Street Reform and Consumer Protection Act passed by the House in December and in a draft version of the Senate”™s Restoring American Financial Stability Act. As proposed in the Senate, any issuer of credit would be required to retain some percentage of the loan amount, possibly from 5 to 10 percent, on their books as a liability for default, Wind said.
“We would clearly give up the compensation issue to have the other item resolved,” he said. “The fait accompli is this risk retention issue. This risk retention bill will wipe out every private mortgage banking entity in the country. Risk retention is the pancreatic disease where you”™re gone in a very short time.” Community banks too would eventually be forced out of business, he said, and the cost of mortgage transactions could rise by 3 percent.
CMBP members are pushing in the Senate for a statutory exemption from the risk retention requirement for the low-risk, “plain vanilla” mortgages offered by their companies. The provisions, said Glen Corso, the lobbying group”™s managing director, after the House reform bill was passed, “could have the unintended effect of driving community-based mortgage banking companies out of business, allowing a handful of mega-banks and Wall Street lenders and servicers to dominate the industry. It would be a mistake to force this critically important lending channel for consumers to dry up at the very time liquidity is so badly needed in the market.”
In Congress, “The argument that 380-some people at my firm will be out of a job is not relevant to them,” said Wind. His group hopes to persuade lawmakers to back off from or scale down risk retention by emphasizing that independent mortgage bankers make about one-third of all residential mortgages and about half of all FHA loans.
“From an entrepreneurial standpoint, this is the first instance in my career when I face complete annihilation based on the whims of a few legislators,” said Wind. “We”™re withholding any significant investments or expansion until we get a sense of where this going to go.”
