04/19/1996 03:15 PM House L&C

 HB 363 - INTEREST ON MORTGAGE ESCROW ACCTS                                  
                                                                               
 Number 775                                                                    
                                                                               
 CHAIRMAN KOTT brought HB 363, "An Act requiring banks to pay                  
 interest on money in reserve accounts held in connection with                 
 mortgage loans," sponsored by Representative Bunde, before the                
 House Labor and Commerce Committee.                                           
                                                                               
 Number 795                                                                    
                                                                               
 PATTI SWENSON, Legislative Assistant to Representative Con Bunde,             
 Alaska State Legislature, came forward to give the sponsor                    
 statement for HB 363.  She indicated she would address CSHB
(STA).  This bill requires the banks to pay 3 percent interest             
 on any money held in an escrow account in the amount above the Real           
 Estate Settlement Procedures Act (RESPA) limit.  The interest will            
 be computed monthly.  Consumers may elect to have the interest                
 credited to the mortgage principal or paid directly to them.                  
 Yearly, information about each escrow account shall be given to the           
 borrower.  The information shall include the cost to administer the           
 account, the amount of money in the account at the end of each                
 month, the amount of interest earned on the account each month and            
 a schedule of payments made by the bank from the account.  Ms.                
 Swenson explained escrow accounts are profitable for banks.  The              
 accounts are also good services for individuals and municipalities.           
 However, mortgagors used deserve to have an accurate accounting of            
 their money as well as an amount of interest paid to them for the             
 use of their money.  She urged support for the bill.                          
                                                                               
 Number 897                                                                    
                                                                               
 LUCILLE STIETZ, National Bank of Alaska (NBA), was next to testify.           
 She said they have a couple of recommendations from the Credit                
 Union League, the Alaska Bankers Association and the Mortgage                 
 Bankers Association.  She noted she believes the committee has also           
 received a number of letters laying out their reasoning.  Ms.                 
 Stietz explained NBA is opposed to CSHB 363(STA) and they don't               
 feel it is necessary because the federal government's passage of              
 RESPA in 1995, has basically limited the amount the mortgage                  
 servicers can hold in customer's accounts.  It hasn't been tested             
 yet, but she believes most of the lenders have already switched               
 over to aggregate accounting.  Ms. Stietz said the bill, as it is             
 currently written, would limit the charge of interest on escrows to           
 banks.  It does not cover credit unions, mortgage companies and               
 other lenders.  Banks are only one small part of the total mortgage           
 picture, so it's an unlevel playing field.  Ms. Stietz pointed out            
 that Bank of America and Key Bank have recently moved their                   
 mortgage loan servicing operations outside of the state.  She said            
 when you mandate additional costs to be added to servicings for one           
 type of an institution and not for another, there will be a                   
 tendency to speak on a level playing field and that could adversely           
 affect jobs in Alaska.  She said she would be happy to answer                 
 questions the committee may have.                                             
                                                                               
 MS. SWENSON noted that banks are defined in statute as all of those           
 institutions.  "Bank" is used as a generic word.  So the playing              
 field Ms. Stietz was talking about is more even than she thinks.              
                                                                               
 Number 1038                                                                   
                                                                               
 STEVE CONN, Executive Director, Alaska Public Interest Research               
 Group (APIRG), testified via teleconference from Anchorage, in                
 support of HB 363.  He said his organization represents consumers             
 statewide.  Speaking on behalf of many people who have escrow                 
 accounts and who are obliged to pay fees for every aspect of the              
 usage of the services of financial institutions.  He said, "We                
 believe that the real level of playing field should be between                
 (indisc.) financial institutions and mortgage institutions and                
 ourselves."  Mr. Conn said nothing in this world is for free and              
 neither should the money that is kept in escrow, as is required by            
 the institutions and contracts, be used by those institutions for             
 free.  He said APIRG welcomes this bill.  It offers a modest return           
 for money held in escrow and it offer an opportunity to receive a             
 clear accounting of escrow accounts.  He urged support for the                
 bill.                                                                         
                                                                               
 Number 1126                                                                   
                                                                               
 LISA BELL, Senior Vice President and Chief Operating Officer                  
 Alaska Federal Savings Bank, came before the committee.  She                  
 explained Alaska Federal Savings Bank is the only federally                   
 chartered savings bank in Alaska, headquartered in Juneau, and has            
 five branches serving four Southeast Alaska communities.  Ms. Bell            
 said she is testifying on behalf of Alaska Federal Savings Bank and           
 the Alaska Bankers Association in opposition to HB 363.  At first             
 glance the bill would appear to be a good idea and good pro-                  
 consumer legislation.  She said she thinks the committee would                
 find, on closer inspection, that it is actually quite burdensome to           
 banks and of little benefit to the borrowers.  Alaska Federal                 
 Savings Bank, like other Alaskan banks that do servicing in state,            
 finds that the key word really is service.  She said they need to             
 be able to provide face-to-face opportunities for Alaskans to meet            
 with bankers to talk about local economic issues and other types of           
 conditions that may affect their loans or their abilities to repay            
 their loans.  That is important to customers; they like to be able            
 to walk in and talk to somebody.  She said the banks need to be               
 able to maintain that service.  Ms. Bell said she feels that                  
 passage of the bill would really hinder the ability to offer that             
 service.  She said her bank prepared a profitability analysis of              
 their Servicing Department in September of 1995, and they found it            
 to be marginally profitable - enough to allow them to continue.               
 Anything that would tip the balance, would probably force them to             
 sell off servicing.  That would mean that servicing might go out of           
 state.  The amount of interest that someone is likely to earn over            
 a year on an average escrow balance, it is probably quite small.              
 You may be talking about $25 or $30.  It obviously depends on how             
 much is being held in an account.  The average amount of money                
 wouldn't be very much.  She indicated there would be red tape that            
 both the customer and the banks would go through because there are            
 Internal Revenue Service reporting responsibilities.  The customer            
 would have to pay interest.  Ms. Bell continued to give testimony             
 against HB 363 and urged the committee not to move the bill.                  
                                                                               
 CHAIRMAN KOTT closed the public hearing.  He announced the                    
 committee would hold the bill.