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 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 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) lobbyists about what it's been like trying to head off this tidal wave 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 (TILA) and the Real Estate Settlement Procedures Act (RESPA) 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 

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 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, negative amortization, increased interest rates after defaults, oppressive mandatory arbitration clauses, advance payments, modification or deferral 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 and VA loans because of their high APR 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, executive director and counsel of the MBA of New Jersey, many of whose members are also licensed in New York, views this criterion as applying "a services-performed test to lenders." He says that it could mean loan pricing--interest rates, fees, points and other charges--will have to be based only on the value of services rendered, and not on risks, profit margins and secondary market considerations.

"We're very concerned that some legislator 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 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. That legislation strengthens the Illinois Consumer Installment Loan 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). The bill would have added further restrictions to them, according to Brian Israel, a vice president at Chicago-based Harris Trust & Savings Bank who is president of the Illinois MBA and served on the task force.

In South Carolina, 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," 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 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 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), 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 and monthly mortgage payments-but still leaving single-premium credit life insurance banned, says George Teague, 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 scheme. But we don't want to create duplicative regulations that would increase transaction costs," says Teague, who is also a partner in the law firm of Moore and 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 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 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, 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?" 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 how you can regulate that."

However, tranquility on predatory lending is expected to continue in the Alabama legislature, according to Michael O'Connor, lobbyist and executive vice president of that state's MBA. Instead, he expects actions against predatory lending to continue to be in the form that Alabamans seem to prefer-lawsuits.

"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 

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 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 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 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 that administers that law enforces those standards aggressively."

If those standards turn out to be deficient, 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 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 until we see where there are voids or gaps in existing law, which can then be filled by amendatory 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, spurred by foreclosure 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 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 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 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, 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 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 has its own policies as to what it can do with abandoned properties.

In the District of Columbia, 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 Linda Cropp at the request of Mayor Anthony Williams on July 11.

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 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."

"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 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) 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.

"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 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, 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, 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 (NCEE) 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 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 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 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 Mortgage, Charlotte, North Carolina, 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 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."

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.

* 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 about credit and to help foster sound financial planning and management.

* Promotion of fairness and integrity in the mortgage process by lenders, by vigorously encouraging adherence to the MBA's best practices guidelines 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 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 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 to the Ohio MBA and the Ohio Alliance for Homeownership for their work promoting educational programs to curb abusive lending in the state.

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 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 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, 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, 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 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."