NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates to House Bill 297

SOURCES OF INFORMATION

New Mexico Mortgage Finance Authority

LFC Files

SUMMARY

Synopsis of Bill

Senate Bill 142, introduced by the Legislative Finance Committee and for the Mortgage Finance Authority Oversight Committee, amends the Mortgage Finance Authority Act by changing the definition of "mortgage lender" and clarifying other definitions. Changing the definition of "mortgage lender" deletes the requirement that a mortgage lender in Mortgage Finance Authority (MFA) programs must have its principal office in New Mexico. The proposed changes would allow the MFA to purchase mortgage loans from licensed mortgage brokers, mortgage bankers and financial institutions that are branches of out-of state-bank holding companies.

Significant Issues

Since 1995-1996, United New Mexico Bank, Sunwest Bank and other local banks have been purchased by out-of-state bank holding companies. This consolidation has shifted mortgage lending from in-state bankers to out-of-state mortgage subsidiaries that have no ties to the local banks that share their company names. This shift has decreased the number of mortgage lenders outside of the Albuquerque metropolitan area, which has resulted in a dramatic decrease in the number of MFA loans originated outside the Albuquerque area, in particular, rural areas.

According to the MFA, there has been a 25 to 30 percent drop in loan activities in rural areas, even at a time of strong economic growth in the state. Senate Bill 142 will allow the MFA to purchase mortgage loans from financial institutions such as Norwest Mortgage, Bank of America Mortgage and Nations Bank Mortgage. All these companies have mortgage offices in rural New Mexico, which could substantially increase MFA production in those areas. The MFA will be encouraging more lender participation in rural areas generating economic development in smaller communities, and anticipates a 30 percent increase in rural production with the passage of Senate Bill 142.

Currently, mortgage lenders that do not have their principal office in New Mexico must either establish a correspondent relationship with an eligible mortgage lender, or do not participate in MFA programs. Some mortgage lenders have taken the option of establishing a correspondent relationship with an eligible mortgage lender, however, this has not increased MFA rural loan activities for two reasons. First, operations through a correspondent lender increase the cost to participate in MFA programs that cannot be passed on to borrowers, and second lenders claim that MFA loans are not profitable in rural areas.

FISCAL IMPLICATIONS

Senate Bill 142 has no fiscal impact to the general fund and will not cause a fiscal impact to the MFA fiscally or administratively.

DUPLICATION

Senate Bill 142 duplicates House Bill 297.

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