Interview: Rep. Paul E. Kanjorski

Mortgage Banking, Dec, 2007 by Charles Wisniowski

In just about any other place on Earth, knowledge is power and experience can be worth its weight in gold. But in the halls of Congress, the duration of one's term of service or "seniority" is a near-priceless currency that can mean the difference between having the power to move a prized piece of legislation or not.

First elected to the House of Representatives in 1984, Rep. Paul E. Kanjorski (D-Pennsylvania) ranks 43rd in seniority out of 435 House members. As chairman of the House Financial Services Subcommittee on Capital Markets--with jurisdiction over securities, exchanges and most insurance matters--he is also the second-most senior member of the committee after Chairman Barney Frank (D-Massachusetts).

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The combination of those two attributes means Kanjorski's calls get answered and his legislative priorities receive serious consideration. In his official bio, Kanjorski lists "investor protection" as a top priority for the 110th Congress, followed by "promoting the American dream of homeownership, keeping our economy globally competitive and encouraging financial literacy."

To that end, in the fall Kanjorski introduced the Escrow, Appraisal and Mortgage Servicing Improvements Act (H.R. 3837). The bill establishes enforceable national appraisal independence standards with tough penalties, improves federal oversight of state appraisal regulators and strengthens appraiser licensing and education standards. It also aims to enhance borrower protections by improving mortgage servicing and requiring escrows for individuals more likely to experience difficulty with repayment.

Prior to his election to Congress, Kanjorski worked as a trial attorney in Northeastern Pennsylvania. He is a graduate of Temple University, Philadelphia, and the Pennsylvania State University's Dickinson School of Law, Carlisle, Pennsylvania.

Mortgage Banking recently interviewed Kanjorski about his new bill, his priorities for 2008 and other legislative trends.

Q: How would you handicap the chances of the Escrow, Appraisal and Mortgage Servicing Improvements Act [H.R. 3837] clearing committee and making it to the House floor for a vote substantially intact? Also, is there a companion bill in the Senate?

A: I expect the bill to make it to the House floor fairly intact, though I expect to make changes to it to address operational concerns raised by the industry, regulators and others.

There is not a companion bill in the Senate yet, although some senators have expressed interest in the bill. On the Senate Committee on Banking, Sen. [Charles] Schumer [D-New York] is working to improve appraisal independence standards and escrows with his bill, and [Senate Banking Committee Chairman Christopher] Dodd [D-Connecticut] addressed many of the issues in my bill in his outline for mortgage lending reform in September--including mandating escrows for subprime borrowers, enhancing appraisal independence and reforming mortgage servicing, such as the circumstances for the forced placement of insurance and the prompt crediting of payments.

Q: What major aspect of the bill, if forced to choose, do you consider most vital--the mortgage servicing reforms or appraisal improvements?

A: These are both vital parts of the bill. Appraisal independence is necessary to protect borrowers and the stability of our financial system. Mortgage servicing creates many borrower protections, including mandatory escrow payments for those homeowners who are more likely to encounter repayment difficulties.

Q: On appraisal reform: H.R. 3837 would create federal appraisal independence standards within the Truth in Lending Act [TILA] and the Financial Institutions Reform, Recovery and Enforcement Act [FIRREA] while strengthening regulatory authority and establishing penalties on those who attempt to unduly influence an appraisal. How did you conclude current regulatory powers were insufficient and required strengthening--did the agencies request more authority? Also, what agency would regulate appraisals under the bill, and would penalties be civil or criminal in nature?

A: The process to take action on these issues took several years. I determined that regulatory powers needed strengthening because of a dramatic increase in foreclosures in Monroe County, Pennsylvania, at the start of the decade, which resulted from unaffordable mortgages, appraisal inflation, poor servicing and fraudulent actions, among other [things].

The regulator was slow to take action to protect appraisal independence. With the current subprime lending problems affecting the national market, the need to enact this reform package is even greater. Additionally, more than 60 percent of states are in noncompliance with FIRREA's standards.

For the FIRREA and TILA appraisal independence standards, federal banking agencies would continue to oversee those parties that they regulate now, but they would apply the new law in doing so. The Federal Trade Commission [FTC] would oversee appraisal independence for non-federally regulated entities under TILA.