PREDATORY LENDING HEATS UP.LEGISLATION AIMED AT ELIMINATING lending abuses lumped under the name "predatory lending" has spread like wild fire this year in many states, in some city councils--and certainly in the U.S. Congress. But due to the dogged efforts of many state and local trade groups and their industry lobbyists, many of the legislative proposals this year have been defeated or at least postponed. Even so, the atmosphere has been charged and the headlines wildly emotional. Not a good environment for crafting rational legislation.
The experience has left many in the industry wary about what lies ahead. And the industry is clearly pondering pon·der
v. pon·dered, pon·der·ing, pon·ders
To weigh in the mind with thoroughness and care.
To reflect or consider with thoroughness and care. what is the best way to responsibly address this troublesome issue that shows no sign of going away.
Clearly a lot is at stake for everyone who makes a living in mortgage lending. It is absolutely essential that those guilty of abusive lending practices be isolated and exposed--and legally prevented from wreaking havoc on unsuspecting homeowners and unsophisticated borrowers. But the key question is how best to do it.
Should there be new legislation that spells out the abuses in fine detail in a separate law, or are these practices currently prohibited under current laws and simply require better enforcement to prevent them? Or perhaps there's a need for some other approach entirely? Perhaps one built around better and more widely available consumer education?
As a raft of new bills emerged in state after state this year, state mortgage bankers Mortgage Banker
A company, individual or institution that originates, sells and services mortgage loans.
Don't confuse a mortgage banker with a mortgage broker. associations and their members wrestled with this question. This article casts a spotlight on some of the states where these legislative battles were occurring.
We interviewed several state mortgage bankers association (MBA MBA
Master of Business Administration
Noun 1. MBA - a master's degree in business
Master in Business, Master in Business Administration ) lobbyists about what it's been like trying to head off this tidal wave tidal wave, term properly applied to the crest of a tide as it moves around the earth. The wavelike upstream rush of water caused by the incoming tide in some locations is known as a tidal bore. of legislation. A sampling of state MBA officials share their thoughts on the attention being given to predatory lending by their local lawmakers. Many expect new legislation to be introduced all over again in upcoming sessions in their states--and in many other states--once the new sessions begin. The action could begin as early as this fall, but for many states it will be next January.
Meanwhile, many of the lobbyists and other state MBA leaders are working with legislators, state regulators and other banking groups to provide background information, if not specific legislative proposals, so that any legislation will prevent only genuine predatory lending and not unintentionally harm legitimate subprime lenders.
Significantly, the national Mortgage Bankers Association of America (MBA) took a markedly different tack than those focused on the day-to-day skirmishing over this or that provision in a specific bill. The MBA took the long view, after pausing to think about what allows this kind of thing to happen even though Congress after Congress has introduced reams of consumer protections surrounding the mortgage process.
This led them to conclude that much broader reforms to the federal mortgage disclosure process is the one solid thing that would allow consumers to judge for themselves whether they are being taken for a ride. The broad-scale reforms to the key federal disclosure statutes the industry has been seeking for years emerged as the answer in the eyes of the MBA's leadership. The statutes known as the Truth in Lending Act The Truth in Lending Act is contained in Title I of the Consumer Credit Protection Act (15 U.S.C.A. § 1601 et seq.). The CCPA is designed to assure that every customer who needs Consumer Credit is given meaningful information concerning the cost of such credit. (TILA TILA Truth In Lending Act ) and the Real Estate Settlement Procedures Act The Real Estate Settlement Procedures Act, (known as "RESPA"), was an Act passed by the United States Congress in 1974. It is codified at Title 12, Chapter 27 of the United States Code, 12 U.S.C. 2601-2617. (RESPA RESPA Real Estate Settlement Procedure Act ) are what the MBA says need to be reformed extensively to turn consumers into their own watchdogs against abusive lending. (See sidebars for details about the MBA's mortgage reform proposal and its state and local legislative efforts.)
Nevertheless, the states were dealing with dire stuff right on their front door steps, which led them in most instances to take a more pragmatic approach. What follows are some comments from those fighting on the front lines to protect the nonconforming lending industry while fighting to prevent abusive lending practices.
Fear of copycat legislation patterned after North Carolina's broadly detailed and restrictive new antipredatory lending law--an amendment to the state's general statutes that was signed into law on July 22, 1999--is driving much of this action. But as predatory lending grows as an issue in the press and with lawmakers, additional fears are surfacing.
Action in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
In New York, two bills--A. 4744 and S. 7047--addressing predatory lending failed to pass during the last general assembly that ended on June 23, but they could be reintroduced during the next session that starts in January, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. David Fleming
David Fleming , lobbyist for the Empire State MBA.
Meanwhile, the New York State banking board released on June 28 revised "restrictions and limitations on high-cost home loans," which had first been issued for comment in July 1999.
Those regulations, which amend the banking board's general regulations, apply to loans whose rate exceeds by more than 800 basis points the yield on comparable Treasuries, or whose total points and fees exceed 5 percent of the total loan amount. The regulations, scheduled for implementation on Oct. 1, prohibit call provisions, balloon payments The final installment of a loan to be paid in an amount that is disproportionately larger than the regular installment.
When a loan is made, repayment of the principal, which is the amount of the loan, plus the interest that is owed on it, is divided into installments due at , negative amortization, increased interest rates after defaults, oppressive mandatory arbitration Mandatory arbitration is a contract policy that prevents a conflict from receiving judicial attention. In a mandatory arbitration, liability for damages must be determined as a result of an arbitration process before a civil lawsuit can be filed in the court system. clauses, advance payments, modification or deferral deferral - Waiting for quiet on the Ethernet. fees, financing of points, fees or charges and lending without counseling disclosure or without due regard to repayment ability. And the regulations contain other provisions that establish permitted and prohibited practices.
The Empire State MBA, Fleming says, was able to win removal from the initial version of the regulations a provision that would have classified and banned as high-cost loans FHA See Federal Housing Administration.
See Federal Housing Administration (FHA). and VA loans because of their high APR APR
See: Annual Percentage Rate after allowing for the inclusion of government mortgage insurance.
Among the practices that demonstrate a lender lacks the character and fitness to be licensed or registered is charging for services "for which the fees bear no reasonable relationship to the value of the services actually performed."
Bob Levy The name Bob Levy may refer to:
"We're very concerned that some legislator LEGISLATOR. One who makes laws.
2. In order to make good laws, it is necessary to understand those which are in force; the legislator ought therefore, to be thoroughly imbued with a knowledge of the laws of his country, their advantages and defects; to in New Jersey will say that sounds like a good provision and that we ought to have lenders price loans on the value of services," Levy says. "If this ever spreads around the country, the restrictions and criteria on subprime could become the restrictions and criteria on prime lending."
Meanwhile, Levy and the state MBA board of governors are reviewing the proposed draft of a bill on high-cost mortgage loans (with many provisions similar to the North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures
Area, 52,586 sq mi (136,198 sq km). Pop. law) that its author hopes to introduce in the New Jersey House. After reviewing the draft bill, the group along with Levy will meet with legislators to make their own recommendations.
Battling legislation in other states
In Pennsylvania, the state MBA, for which Levy also acts as legislative counsel, is studying a similar draft. "Hopefully, we'll keep it [the draft legislation as written] from becoming a bill," he says.
In Illinois, a bill similar to the North Carolina statute, H.B. 3007, never came up for a vote during the last session. Instead, the speaker of the house put together a task force of trade associations, community organizations, enforcement agencies, regulators and legislators to develop an alternative to the proposed legislation. The task force's suggestions led to legislation (S.B. 355) that was approved on the day of adjournment A putting off or postponing of proceedings; an ending or dismissal of further business by a court, legislature, or public official—either temporarily or permanently. . That legislation strengthens the Illinois Consumer Installment Loan Noun 1. installment loan - a loan repaid with interest in equal periodic payments
consumer credit - a line of credit extended for personal or household use
loan - the temporary provision of money (usually at interest) Act and also gives more power to the state's Department of Financial Institutions and the Office of Banks and Real Estate for the creation of additional rules and regulations, subject to hearings and comments.
One bill that died, H.B. 3007, applied primarily to the category of loans covered by the federal Home Ownership and Equity Protection Act (HOEPA HOEPA Home Ownership and Equity Protection Act ). The bill would have added further restrictions to them, according to Brian Israel, a vice president at Chicago-based Harris Trust & Savings Bank savings bank, financial institution that, until recently, performed only the following functions: receiving savings deposits of individuals, investing them, and providing a modest return to its depositors in the form of interest. who is president of the Illinois MBA and served on the task force.
In South Carolina South Carolina, state of the SE United States. It is bordered by North Carolina (N), the Atlantic Ocean (SE), and Georgia (SW). Facts and Figures
Area, 31,055 sq mi (80,432 sq km). Pop. (2000) 4,012,012, a 15. , after a bill (S.B. 996) similar to the North Carolina law failed, the state Senate approved the appointment of a committee to study predatory lending. The study group is scheduled to report back when the next session begins in January, says Alan Verch, who is in his 10th year as South Carolina legislative chairman for the MBA of the Carolinas.
"This resolution was presented so that the Senate would take a more thorough look at predatory lending in the upcoming session in 2001," says Verch, who is also a past president of the MBA of the Carolinas and executive vice president of Columbia, South Carolina--based Carolina First Mortgage Co. "I don't expect much will come from it. So I suspect that this coming year, predatory lending is going to be the hot topic in South Carolina."
Some of the new legislative proposals in South Carolina, Verch predicts, will again be patterned after North Carolina's law, as was the bill that failed in the last session. "The North Carolina [law] has taken on a life of its own Memory Burn A Life Of Its Own was released by Noise Kontrol in 2002. Memory Burn is made up of several high profile musicians who came together to create this special work. ," he says.
In Missouri, three bills (S.B. 786, H.B. 2096 and H.B. 1144)--two of them similar to the North Carolina law and the failed Illinois bill--failed last session, one without even getting to a hearing, according to Harry Gallagher, executive director and lobbyist for the MBA of Missouri. The bill that the state MBA drafted died at adjournment. "We expect that bills identical to those three will be reintroduced in the next session, which starts in January," Gallagher says.
It's not over yet
In Maryland, where an antipredatory lending bill (S.B. 872 in the Senate and H.B. 1332 in the House) died last year, Michael Sterner, legislative chair for the Maryland MBA, says, "We'll see it again next year, because this was certainly an issue in the last general assembly. It will be an active year again, believe me."
A predatory lending proposal introduced toward the end of Minnesota's biennial biennial, plant requiring two years to complete its life cycle, as distinguished from an annual or a perennial. In the first year a biennial usually produces a rosette of leaves (e.g., the cabbage) and a fleshy root, which acts as a food reserve over the winter. session in February went nowhere. "It was perceived to be one of the harshest predatory lending proposals," says Dan Hardy, executive vice president for the MBA of Minnesota. However, the Senate sponsors intend to reintroduce Re`in`tro`duce´
v. t. 1. To introduce again.
Verb 1. reintroduce - introduce anew; "We haven't met in a long time, so let me reintroduce myself"
re-introduce the identical bill next year, he says. "But they've indicated they're willing to work with industry trade associations, including our association, to make the bill a meaningful one--and one that is not overly burdensome on the mortgage industry."
Working alongside the state MBA will be the Minnesota Bankers Association and the Independent Banks Association, the Association of Mortgage Brokers and consumer finance companies, according to Hardy. But he expects that the Association of Community Organizations for Reform Now “ACORN” redirects here. For the fruit of the oak tree, see Acorn.
“ACORN” redirects here. For the social classification, see ACORN (demographics).
ACORN, the Association of Community Organizations for Reform Now (ACORN), which is active in the state, will also want to be included in any negotiations with legislators.
But what, if anything, gets passed depends partly on whether Democrats, who are expected to continue their control of the Senate, win control of the Minnesota House in the November election.
North Carolina looks at several issues
The North Carolina legislature, in last spring's short session, clarified some provisions of the antipredatory lending legislation that had been approved in the previous full session. Among the matters addressed were what charges make a loan a high-cost loan and what insurance charges can be included in closing costs Closing Costs
The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, and monthly mortgage payments-but still leaving single-premium credit life insurance banned, says George Teague George Theo Teague (born February 18, 1971 in Lansing, Michigan) is a former American football player in the National Football League.
He is famous for an incident in a game against the San Francisco 49ers on September 24, 2000 when he was a safety for the Dallas Cowboys. , legislative counsel and lobbyist for the MBA of the Carolinas since 1987.
A bill that would have replaced the registration of mortgage bankers and mortgage brokers with a more strict licensing provision, Teague says, "did not go anywhere. But we fully expect it will come up again when the legislature reconvenes in January. We anticipate that's going to be a hot issue.
"[The MBA of the Carolinas] would support reasonable licensing standards, and we intend to work with the banking commissioner to come up with a reasonable licensure licensure
(lī´snsh scheme. But we don't want to create duplicative regulations that would increase transaction costs Transaction Costs
Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). ," says Teague, who is also a partner in the law firm of Moore and Van Allen Noun 1. Van Allen - United States physicist who discovered two belts of charged particles from the solar wind trapped by the Earth's magnetic field (born in 1914)
James Alfred Van Allen .
"I'm also convinced," he adds, "that the consumer advocates will be trying to strengthen the predatory lending bill. It would not surprise me to see them attempt to limit or prohibit yield spread premiums The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. to the brokers. That is left alone in the current law."
Teague also expects moves to give the state banking commissioner the greater enforcement and oversight powers over lenders that he has been seeking.
In Georgia, where no antipredatory lending legislation was introduced last session, three state senators Noun 1. state senator - a member of a state senate
senator - a member of a senate have implied they're going to introduce legislation that would restrict or ban excessive fees and interest rates and other practices linked to predatory lending, according to Mo Thrash thrash - To move wildly or violently, without accomplishing anything useful. Paging or swapping systems that are overloaded waste most of their time moving data into and out of core (rather than performing useful computation) and are therefore said to thrash. , lobbyist for the Georgia MBA.
No predatory lending legislation has been pending in Ohio, says George Gummer, lobbyist and executive vice president of the Ohio MBA. "Who is it that you're going to legislate To enact laws or pass resolutions by the lawmaking process, in contrast to law that is derived from principles espoused by courts in decisions. ?" he asks, pointing to a predatory lending incident in Toledo that began with a minister who set up an elderly woman parishioner with a corrupt contractor and ended up with a lender foreclosing on her house. "Are you going to start with ministers and work your way all the way through to contractors, appraisers, lenders? That's an awful lot to regulate. I don't know Don't know (DK, DKed)
"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. how you can regulate that."
However, tranquility on predatory lending is expected to continue in the Alabama legislature The Alabama Legislature is the legislative branch of the state government of Alabama. It is a bicameral body composed of the Alabama House of Representatives, with 105 members, and the Alabama Senate, with 35 members. , according to Michael O'Connor Michael O'Connor can refer to more than one person:
"In Alabama, when someone feels they got cheated based on predatory lending practices," O'Connor says, "they will file a lawsuit alleging fraud. Plaintiff lawyers are active and encourage lawsuits. You don't see much regulatory oversight."
A broker licensing law, with some net worth requirements and an in-state office requirement but with exemptions for most lenders, died in the waning days of the last legislative session. "The brokers supported the bill," O'Connor says. "But it may have been an attempt on their part to stop Internet lending.
"We were lucky this time," O'Connor says, referring to the lack of bills targeting predatory lending. "I don't know whether it will stir around the next legislative session. There's no talk of it at this point. But that doesn't mean it couldn't pop up pretty quick."
Enforcing existing laws as an antidote antidote
Remedy to counteract the effects of a poison or toxin. Administered by mouth, intravenously, or sometimes on the skin, it may work by directly neutralizing the poison; causing an opposite effect in the body; binding to the poison to prevent its absorption,
Some state MBA leaders and lobbyists are urging that, instead of approving new legislation, existing fraud-related laws should be enforced more strictly and, in some cases, expanded. The South Carolina legislature, for one, approved more power and funding for doing just that.
In South Carolina, Verch says, "a clone clone, group of organisms, all of which are descended from a single individual through asexual reproduction, as in a pure cell culture of bacteria. Except for changes in the hereditary material that come about by mutation, all members of a clone are genetically of the North Carolina bill went nowhere" because the state MBA lobbyist "convinced legislators we already have legislation that protects consumers against predatory lenders. South Carolina has a lot of consumer laws. Consumer lending Consumer lending or consumer loans refers to any type of loan product that is not a mortgage; such as a car, boat, manufactured home, home equity loan, home equity line of credit, signature loan, signature line of credit, recreational vehicle, or Certificate of Deposit loans. laws are pretty strong here. They protect consumers against exorbitant interest rates [and other issues]. It's just a matter of that legislation being enforced," he says.
"In fact, the Department of Consumer Affairs-not the Financial Institutions Board-regulates mortgage brokers," Verch says. "Mortgage brokers were trying this year to pass a bill to get out from under this regulation. But that didn't happen."
"Some legislation [H.B. 727, Investigative and Enforcement Powers] was passed in the general assembly that ended in April that provided for additional funding for the Department of Regulation to fund a larger staff so they could be proactive rather than reactive to complaints," says the Maryland MBA's Sterner, who is also president of Susquehanna Mortgage, Baltimore. "It also increased the teeth the regulator has over the industry by making the penalties much greater. Our commissioner basically told the lawmakers that new legislation wasn't required, just enforcement [was], and she wanted more enforcement power."
And this, Sterner says, is the basic position of the Maryland MBA--that enforcement of antifraud laws, not the adoption of new legislation specifically targeting predatory lending, is the way to go.
According to Hardy, Minnesota's new licensing law, which took effect August 1, 1999, lists 22 standards of conduct, including not making false or misleading statements; not making or assisting in making a loan with the intent that the borrower is not able to repay that loan and with the intent to foreclose fore·close
v. fore·closed, fore·clos·ing, fore·clos·es
a. To deprive (a mortgagor) of the right to redeem mortgaged property, as when payments have not been made.
b. or obtain title to the property; and not putting someone in B or C paper if he or she qualifies for a higher investment-grade mortgage product.
"We believe many of those standards can be used to address predatory lending concerns," says Hardy, "if the regulatory agency regulatory agency
Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. that administers that law enforces those standards aggressively."
If those standards turn out to be deficient de·fi·cient
1. Lacking an essential quality or element.
2. Inadequate in amount or degree; insufficient.
a state of being in deficit. , Hard says, then the state MBA would probably support adding t those standards to cure those deficiencies, rather than creating an entirely new, separate, freestanding free·stand·ing
Standing or operating independently of anything else: a freestanding bell tower; a freestanding maternity clinic. law.
Existing laws are sufficient
"Virginia has a pretty strong regulatory environment for mortgage banking," says David H. Hallock Jr., legislative counsel for the MBA of Virginia. "Consumer protections already exist, so there's not much of a need for any predatory lending legislation."
"There are existing laws in both Pennsylvania and New Jersey," says Levy, "that can be enforced to deal with many of the predatory lending issues. For that reason, we do not think it's appropriate to create new laws New Laws: see Las Casas, Bartolomé de. until we see where there are voids or gaps in existing law, which can then be filled by amendatory a·men·da·to·ry
Serving or tending to amend; corrective.
Adj. 1. amendatory - effecting amendment; "added amendatory phrases to the text"
bettering - changing for the better legislation."
The Ohio MBXs Gummer maintains that predatory lending and other exploitative actions against homeowners and other consumers should be prosecuted under antifraud laws. "We've had legislation on the books for years for fraud," he says. "So we need to enforce the laws we presently have on the books."
Still, Gummer wonders how effective that would be in totally eliminating predatory lending. "You can't really legislate morality," he says.
Cities getting involved
Meanwhile, some cities are taking or contemplating action, and more might soon be acting. In Chicago, Mayor Richard M. Daley Richard Michael Daley (born April 24, 1942) is a United States politician, member of the national and local Democratic Party and current mayor of Chicago, Illinois. He was elected mayor in 1989 and reelected in 1991, 1995, 1999, 2003, and 2007. , spurred by foreclosure foreclosure
Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. and abandonment problems frequently linked to predatory lending, has pushed for enforcement of security requirements on vacant properties. He is also pushing for the revocation The recall of some power or authority that has been granted.
Revocation by the act of a party is intentional and voluntary, such as when a person cancels a Power of Attorney that he has given or a will that he has written. of the city licenses of contractors linked to predatory lenders and the banning of city deposit and credit business with financial institutions linked to predatory lending.
Predatory lending, as defined by city officials, includes loans made at 600 basis points more than comparable U.S. securities or 5 percent in total fees if the loan is more than $16,000, according to Israel, who says the Illinois MBA and Illinois Bankers Association have been able to get some modification of these definitions.
"The mayor feels very strongly about this," Israel says. "He feels that predatory lending practices undermine the redevelopment and revitalization re·vi·tal·ize
tr.v. re·vi·tal·ized, re·vi·tal·iz·ing, re·vi·tal·iz·es
To impart new life or vigor to: plans to revitalize inner-city neighborhoods; tried to revitalize a flagging economy. he's tried to achieve in the neighborhoods."
Following the death of state legislation that he backed, Mayor Daley is now pushing for city action, according to Israel. "Chicago will have an ordinance A law, statute, or regulation enacted by a Municipal Corporation.
An ordinance is a law passed by a municipal government. A municipality, such as a city, town, village, or borough, is a political subdivision of a state within which a municipal corporation has been and it will be meaningful and it will impact a lot of lenders," says Israel, who fears this could drive legitimate lenders out of subprime lending This article or section may deal primarily with the U.S. and may not present a worldwide view. , leaving this market wide open to "irresponsible entities who don't do business with the city government."
Meanwhile, a similar ordinance has been proposed at the county level by the chair of the Cook County board. And Daley, speaking at the U.S. Conference of Mayors last spring, pushed his proposed actions targeting predatory lenders.
"Some of our mayors went to the national mayors conference and heard Daley push the action)," says the Alabama MBA's O'Connor. "They might be thinking about it, but there's been no public pronouncements about it as of yet."
"We don't want that to happen here," says the Missouri MBXs Gallagher speaking of initial fears about the outcome after the Kansas City Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). mayor appointed a task force to study predatory lending and make recommendations. "That task force initially had us concerned," he says, about worries that most B&C lenders could be barred from doing business with the city or that city licensing of loan officers could be instituted, "putting us on three levels of regulation instead of the two we have now." But Gallagher noted that the city appears to have come around to a more reasonable position, "without a lot of nudging."
Illinois and Missouri are not alone in seeing municipalities taking action. "Actions are being taken in different cities across Georgia," says Mo Thrash, lobbyist for the Georgia MBA. "Each municipality MUNICIPALITY. The body of officers, taken collectively, belonging to a city, who are appointed to manage its affairs and defend its interests. has its own policies as to what it can do with abandoned properties.
In the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). , still another measure on predatory lending was introduced in midsummer. Legislation titled "Predatory Lending Protections and Mortgage Foreclosure Improvement Act of 2000" was introduced by D.C. Council Chairperson chairperson Chairman The head of an academic department. See 'Chair.', Cf Chief. Linda Cropp at the request of Mayor Anthony Williams Anthony Williams or Tony Williams is the name of several well-known persons named :
According to a source who has reviewed the bill, the legislation has a section dealing with predatory lending that sets out some prohibited practices in making a mortgage loan. The prohibited practices include making a loan where there is clearly insufficient repayment ability; prohibition on single premium credit insurance; flipping; encouraging default; steering/using credit scores inaccurately or improperly; unusual charges; increases in interest rate upon default and charges in bad faith. The legislation (Bill 13-800) has been referred to the Committee on Economic Development. In a letter, Mayor Williams urged the "Council to take prompt and favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. action on this important matter."
The home improvement issue
One aspect of predatory lending that is attracting attention is the connection with home improvement contractors that underlies some of the more blatant examples of abusive lending.
"There's a legitimate concern," says the Illinois MBA's Israel, "that in some percentage of the loans that go bad there is an unhealthy close connection between the lender or mortgage broker and these home-improvement contractors where payments are made without the authorization of the borrowers. [Chicago city officials] believe that dramatically increases the likelihood of delinquency and default, so they're trying to crack down on that."
"We want heavy restrictions on home-improvement contracts," says Georgia MBA's Thrash. "There's sort of a referral network with home-improvement companies and different lenders. We're going to try to put a stop to some of that...by saying a lender can't pay a contractor from the proceeds of a high-cost loan other than to the borrower or jointly to the b borrower and the contractor and through a third-party escrow agent escrow agent n. a person or entity holding documents and funds in a transfer of real property, acting for both parties pursuant to instructions. Typically the agent is a person (commonly an attorney), escrow company or title company, depending on local practice. (See: escrow) ."
"We're finding that almost all the complaints," echoes the Missouri MBA's Gallagher, "are on home-improvement loans, generally originated by some contractor or a salesman for a contractor who goes to elderly homeowners and signs them up for roof or gutter In typography, the space between two columns. repairs and then the note is discounted to a lender or a lender is already involved."
Although the problems created by predatory lending have become a national issue, legislative action seems to tied more to reports of predatory lending within a state or city, or to the work of predatory lending study groups, than any national trend. But state MBA lobbyists are unsure as to whether this situation will continue.
An uneasy quiet
"There have been no complaints of predatory lending in Virginia," says Hallock. "That's one of the reasons we didn't see anything last session. There hasn't been the problems, hasn't been an issue of public concern in Virginia.
"But I would not be surprised," Hallock adds, "if there was a legislator out of the 140 legislators who seized on the issue and introduced a bill."
Similarly, although it's been "pretty quiet" in 14 Hawaii, where "nothing was brought up during the last sessions" and nothing has appeared in the press about predatory lending in the island state, Vernon Omori, past president and a current board member of the MBA of Hawaii and an active member of its legislative committee, says, "I imagine something will probably be brought up later. Sometimes state legislators react to what's happening on the national scene. So who knows what might happen."
"The topic is still hot enough and certainly visible enough in the paper," says the Maryland MBA's Sterner. "We haven't seen the end of generic antipredatory lending regulation. The [Baltimore] Sun papers have uncovered a myriad of problems by the bad guys. That certainly is something that every legitimate mortgage banker in the state is concerned about. As an industry we're not proud of them, and we want those folks out of the business and punished."
The Department of Housing and Urban Development (HUD Hud (hd), a pre-Qur'anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God. ) has also been focusing a good deal of antipredatory lending and antiloan-flipping attention on the Baltimore market, according to Sterner.
"The whole issue of predatory lending has gotten blown out of all proportion," says the Minnesota MBA's Hardy. "It's politically a sexy issue and one that's very easy for politicians to jump on the bandwagon band·wag·on
1. An elaborately decorated wagon used to transport musicians in a parade.
2. Informal A cause or party that attracts increasing numbers of adherents: .
"But in my opinion, predatory lending is not a serious problem in Minnesota. I have not heard of any instances of abusive lending for four or five months now," Hardy says. "If that continues, we'll be in a position to say those practices simply don't appear to exist anymore.
"The continued focus on the problems of predatory lending by The New York Times and other negative press have had an adverse impact on the negotiations [with officials and legislators] on these issues," says the Empire State MBA's Fleming.
In states, where the action had not yet heated up during the last session, industry officials are bracing bracing,
n a resistance to the horizontal components of masticatory force. for a hard ride in the upcoming legislative sessions.
"In Georgia, we have not had any legislation concerning predatory lending," says Thrash. "But we do expect numerous drafts of legislation having to do with predatory lending during our next legislative session, which begins on January 2, because there's a lot of public hearings taking place across the state."
The MBA of Georgia has even put together a task force that has been holding twice-monthly meetings on the issue, and it will be proposing its own legislation, according to Thrash. "We realize there is a perceived problem here in Georgia, as there is in other states. So we're going to step forward and try to be the leader for reform on predatory lending," he says.
"We're putting a coalition together with the Georgia Bankers Association, our community bankers association, the mortgage brokers, the Legal Aid Society of Georgia--which has taken the lead for community and housing groups in the past--and other groups, and [we are going to] be proactive rather than reactive," says Thrash. "There's no sense sitting back and waiting.
"We want to have some meat in our legislations," says Thrash, "but at the same time be very fair to both the lending community and consumers, controlling the abuses that are taking place in our state."
In preparing its proposed legislation, the Georgia MBA is looking at dealing with excessive fees, limitations on fees, prepayment penalties Prepayment penalty
A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. , balloon payments, negative amortization, credit life insurance, home-improvement contracts, call provisions and homeownership counseling. Other state mortgage bankers associations are taking similar approaches, seeking to influence legislators and regulators, if not actually drafting their own proposed legislation.
Emphasis is also being placed on counseling programs as an important element--if not the most important element--in stemming, if not halting halt·ing
1. Hesitant or wavering: a halting voice.
2. Imperfect; defective: halting verse.
3. Limping; lame. , predatory lending. The national MBA, too, recognizes that education is a key piece of a potential solution to the predatory lending problem. The MBA of America announced a partnership earlier this year with the National Council on Economic Education The National Council on Economic Education (NCEE) is a nationwide non-profit organization that leads in promoting economic and financial literacy kindergarten through 12th grade students and their teachers. External links
NCEE National Center on Education and the Economy
NCEE National Center for Education Evaluation and Regional Assistance (US Department of Education)
NCEE National College Entrance Examination ) and state MBAs in Virginia, Massachusetts, Illinois, Alabama and California.
"[Lack of] consumer education," says the Missouri MBA's Gallagher, "is probably the biggest problem with the people who allegedly are being defrauded, signed up for contracts that gouge gouge (gouj) a hollow chisel for cutting and removing bone.
A strong curved chisel used in bone surgery.
a hollow chisel for cutting and removing bone. them a little or a lot."
Still, Gallagher opposed a provision requiring HUD-certified credit counselors as contained in one of his state's failed bills. "Our concerns are many in that case, because that brings another real estate professional to the closing table and raises closing costs," he says. "Also, there's not enough HUD-certified counselors to go around."
"We're trying to provide education," says the Ohio MBA's Gummer. "The Ohio MBA, in conjunction with the Ohio Homeownership Alliance, was just recognized [by the national MBA] for our efforts in trying to educate the consuming public to make them more informed about predatory lending practices."
Those efforts, says Gummer, are aimed at educating Realtors, home builders, credit counselors and not-for-profit organizations that come in contact with and thus are in positions to educate consumers.
"Legislation is such an impractical im·prac·ti·cal
1. Unwise to implement or maintain in practice: Refloating the sunken ship proved impractical because of the great expense.
2. solution. The best thing to do," Gummer says, "is to educate the consuming public so they don't fall victim to these come-ons."
"There are borrowers who have a lot of equity, very little income, a history of some credit problems, a tendency to trust somebody who goes door to door and a lack of sophistication so·phis·ti·cate
v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates
1. To cause to become less natural, especially to make less naive and more worldly.
2. about financing terms," says the Illinois MBA's Israel. "There needs to be sufficient, meaningful counseling and education available, so that people--early on--can get on the right path financially in terms of good debt-management skills and habits and also make informed decisions later on."
Jerry DeMuth is a Chicago-based freelance writer who frequently covers the mortgage industry.
MBA PROPOSES REFORM PLAN
AT A PRESS CONFERENCE IN MID-JUNE, amid weekly press reports about predatory lending abuses, the president-elect of the Mortgage Bankers Association of America (MBA) calmly laid out a comprehensive plan to get to the heart of the problem. Andrew Woodward, chairman of Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. Mortgage, Charlotte, North Carolina “Charlotte” redirects here. For other uses, see Charlotte (disambiguation).
Charlotte is the largest city in the state of North Carolina and the 20th largest city in the United States. , spoke on behalf of the MBA, which has been pushing for comprehensive mortgage reforms for several years to simplify and make sense out of the current pile of consumer disclosures received at application. Two federal laws govern most of these required consumer protections: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
The MBA has been pushing for major reforms to simplify and streamline the main consumer disclosure and protection laws for some time--independent of the current outcry over predatory lending. The feeling is that if the current required information these mortgage applicants are getting up front is so muddled mud·dle
v. mud·dled, mud·dling, mud·dles
1. To make turbid or muddy.
2. To mix confusedly; jumble.
3. To confuse or befuddle (the mind), as with alcohol. and incomprehensible, there is no hope that giving them more will do anything to genuinely protect them. Further, the idea is that an educated consumer is the best customer--whether in mortgages or car tires.
Against that backdrop, Woodward briefed the press on the MBA seven-point plan to combat abusive lending--not just the current outbreaks tied to subprime or renovation lending. The thrust of the plan is to arm all mortgage consumers with the tools they need to detect a raw deal on a loan.
Woodward used the press conference to condemn abusive lending in no uncertain terms. "We condemn abusive lending practices in the strongest possible terms," he said. "They literally harm all of us. It harms lenders because we suffer guilt by association Noun 1. guilt by association - the attribution of guilt (without proof) to individuals because the people they associate with are guilty
guilt, guiltiness - the state of having committed an offense ."
The seven-point plan was approved in June by the MBA board of directors, and Woodward said that pursuing the comprehensive solution was a "major priority of MBA." The mortgage reform plan would include the following:
* Legislation to establish a closing-cost guarantee program for borrowers to give them an upfront single dollar figure that covers the costs to close the loan. This closing cost figure would be given prior to making an application, so the borrower could better shop prices at other lenders. The dollar amount would be guaranteed up through closing. Lenders participating in this closing-cost guarantee program would be subject to reformed disclosure requirements to replace TILA notices and upfront disclosures under RESPA.
* Increased disclosures to consumers, including a mortgage information booklet and a closing-costs document that would include current rates and points, the guaranteed lender settlement costs and an estimate of third-party costs.
* Vigorous enforcement of current federal and state consumer protection laws consumer protection laws n. almost all states and the federal government have enacted laws and set up agencies to protect the consumer (the retail purchasers of goods and services) from inferior, adulterated, hazardous and deceptively advertised products, and .
* Legislation prohibiting a list of clearly improper practices and to impose penalties for engaging in those practices. The plan also calls for a new system of remedies for consumers involved in mortgage transactions, including nationwide foreclosure reform.
* An expansion of counseling programs for mortgage consumers. The MBA wants the Federal Reserve Board and HUD to develop and support a uniform counseling program in conjunction with industry and consumer groups.
* More consumer education for the public about the use of credit and financial management skills. The MBA and the National Council on Economic Education (NCEE) have produced classroom curriculum for schoolchildren schoolchildren school npl → écoliers mpl;
(at secondary school) → collégiens mpl; lycéens mpl
schoolchildren school about credit and to help foster sound financial planning Financial planning
Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against and management.
* Promotion of fairness and integrity in the mortgage process by lenders, by vigorously encouraging adherence to the MBA's best practices guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. and support of HUD's fair lending initiatives.
Also present at the press conference was Henry Cunningham Jr., the member of the MBA's board who represents the state and local associations, and president of Cunningham & Co. Cunningham said, "This plan is a template for national standards that will protect consumers." He said the hope is that a comprehensive plan for predatory lending reform will "eliminate the patchwork of existing state regulation" and replace it with uniform rules for the entire industry to live by. He called it a "win-win situation" for both consumers and lenders.
John Courson, chief executive officer of Central Pacific Mortgage Co., and vice president-elect of the MBA, has been pushing for comprehensive mortgage reform legislation for quite some time on behalf of the industry. He is well acquainted with the inertia inertia (ĭnûr`shə), in physics, the resistance of a body to any alteration in its state of motion, i.e., the resistance of a body at rest to being set in motion or of a body in motion to any change of speed or change in direction of in Washington that has dogged this issue. His forecast for legislative action on the seven-point plan: "I don't think we envision that legislation is going to happen this year," but it will be one of the key issues for next session.
EYE ON STATE AND LOCAL
A STRATEGIC PLAN FORMED A BATTLE PLAN
for making a national trade group more responsive to its members. Who would have thought that one of the recommendations would be so needed, so quickly, by so many member companies?
This is exactly what happened with the item in the strategic plank that urged the Mortgage Bankers Association of America (MBA) to be more engaged with the battles and issues faced by its member companies at the state and local level. This year, state and local is where the action is in terms of threats of harmful and conflicting overregulation tied to the predatory lending scare. The state-by-state patchwork of legislative responses to abusive lending is a business threat of major proportions to the industry. The MBA has responded with its own proposed uniform plan to standardize stan·dard·ize
1. To cause to conform to a standard.
2. To evaluate by comparing with a standard. the rules and curb the abuses without allowing 50 states to pass 50 different sets of rules.
MBA President Christopher J. Sumner is well acquainted with the strategic plan, having been one of the architects that guided its development. His presidency has been deeply caught up in orchestrating the outreach to the state and local mortgage lending associations.
There are many examples of the fruits of these labors, but one is a briefing of top regulators from Virginia, Maryland and the District of Columbia by representatives of state MBAs from those areas on the topic of predatory lending. Sumner spoke to the group, which included senior regulators such as Virginia's Commissioner E. Joseph Face Jr., Maryland's Commissioner Mary Louise Preis and D.C. Commissioner S. Kathryn Allen.
Another example of how MBA national is playing the go-between in fostering dialogue between state associations on important regulatory and legislative issues is a summit the MBA held in Chicago on April 27. The predatory lending summit gathered industry representatives from 22 states and the District of Columbia to talk about legislation and regulatory proposals they face to curb predatory lending.
The MBA has also devoted time and effort to underscoring the message that better counseling and borrower education is a powerful antidote to the potential for abusive lending. MBA national presented its first President's Award The President's Award may mean:
In June, the MBA's Sumner awarded to the MBA of Maine and the statewide hoMEwork's partnership another President's Award for innovative efforts to educate consumers about the mortgage process. The hoMEworks program was founded in January 1998 as the Maine Homeownership Education Advisory Council. It provides neutral, nonpartisan non·par·ti·san
Based on, influenced by, affiliated with, or supporting the interests or policies of no single political party: a nonpartisan commission; nonpartisan opinions. education for current and potential homeowners in Maine.
Promoting education on a larger front, MBA national held a Capitol Hill news conference in July announcing it is joining forces with the National Council on Economic Education (NCEE) to launch a new pilot consumer education program. The groups said they will pursue a program called Homebuyer home·buy·er
One who is in the process of buying a home. Education and Learning Partnership (HELP), which will target both adults and students in five states and D.C. The program will "educate potential homebuyers about unfair credit practices that can harm borrowers and rob them of the equity that they need to realize the dream of homeownership. Adults and students will learn how to recognize the signs of abusive lending practices and how to avoid entering a deceitful cycle of debt," stated a joint press release issued by the groups.
Furthering the joint efforts with the states to combat predatory lending, on July 20, the national MBA joined the Arizona Mortgage Lenders Association and HUD, Fannie Mae Fannie Mae: see Federal National Mortgage Association. , the state banking department and the Attorney General's Office at a forum on predatory lending in Arizona.
These are some of the efforts that have helped glue the state and locals' interests more closely to the national MBA. But come January, it will be more crucial than ever to have a key point person at the national MBA who follows state legislation as it starts to barrel down the road in statehouses around the country. Predatory lending bills are hot, and they will be moving come early next year. So a new person has joined the MBA staff, whose political and legislative lobbying skills are well developed.
The new staff person to join the national MBA's state and local division is Renee Rappaport, a lobbying pro with both on and off-Hill experience who has worked for both a U.S. congressman and a U.S. senator. She comes to the MBA from the National Association of Home Builders The National Association of Home Builders (NAHB) is one of the largest trade associations in the United States. Headquartered in Washington, DC, the association organizes one of the largest conventions in North America, The International Builders' Show, which draws more than , where she was legislative director for housing and budget for five years. Gerald Aust, MBA senior director, state and local division, said this about her addition to the staff: "In keeping with the MBA's state and local outreach initiatives, it is critical that we not only continue to commit appropriate resources to state-specific legislative and regulatory issues, but that we decidedly enhance the MBA's support of the interests of the state associations. We consciously sought exemplary representation to meet that objective. Renee's experience and acumen acumen Astuteness, perception, perspicacity afford the MBA the opportunity to better support the interests of the state associations."
Rappaport says, "It is a unique opportunity to combine my federal legislative and lobbying experience with the pressing state and local issues and assess their impact on the mortgage banking industry. I look forward to rolling up my sleeves in this role and reaching out to the state and local associations to work together to address the concerns of the member institutions and their relationships with their local, state and federal lawmakers."