Groups testify to House subcommittee
By COCO SALAZAR
5/26/2005

A number of groups with competing interests each presented their cases for or against preemptive national predatory legislation to congressional subcommittees this week.

While there was agreement that predatory lending causes foreclosures due to high payments and additional fees, there was imbalance on whether a national standard would curb such abuses, according to the prepared testimonies of mortgage industry officials who testified Tuesday before the Subcommittees on Financial Institutions and Consumer Credit and Housing and Community Opportunity.

Since 1999, beginning in North Carolina, at least 30 state and 17 local laws to combat abusive practices have been passed, according to a transcript of testimony from Regina Lowrie, chairwoman-elect of the Mortgage Bankers Association. "While well-intended, this proliferation of diverse laws has created enormous compliance burdens for lenders, costs which are necessarily passed on to borrowers, increasing the costs of credit," she said.

Lowrie, who made her comments at the "Joint Hearing on Legislative Solutions to Abusive Mortgage Lending Practices," noted nonprime and Alt-A sectors made up one-third of the mortgage market last year -- compared to only one-twentieth a decade ago.

"In the worst case, they chase legitimate lenders out of the jurisdiction altogether, reducing access to capital," Lowrie added. "The evidence of the detrimental impact of these laws has been growing in recent years."

In March, congressmen Robert Ney and Paul Kanjorski introduced the Responsible Lending Act, which seeks, among other provisions, to establish a uniform national standard for combating predatory lending.

"While it is a tough bill," Lowrie said, "it strikes the right balance between providing strong consumer protections and ensuring clear, objective compliance standards to facilitate market competition."

Lowrie, who founded and runs Gateway Funding Diversified Mortgage Services in Fort Washington, Pa., said the uniform national standard would protect borrowers from excessive loan flipping and equity stripping without preventing them from accessing needed credit. She warned, however, that the bill would impose "significant new risks and obligations on servicers, including shorter timelines for responding to qualified written requests and recording lien releases, mandatory escrowing and new disclosure obligations."

Joseph Smith, the North Carolina Commissioner of Banks, testified that "abuses that are immaterial from a global or national perspective are very material from a local one," and thus have been motive for state laws, which "have acted with regard to predatory lending because federal laws and regulations did not protect their citizens from loan terms and lender conduct that they found to be unconscionable."

The spotlight was also on the bill sponsored by congressmen Brad Miller and Mel Watt, both of North Carolina. The Prohibit Predatory Lending Act would establish the North Carolina law as the national model.

But Lowrie said such a bill fails to take into account the operation of the mortgage market and the need for uniformity and adds a new set of federal requirements with broader HOEPA triggers that would hurt competition among legitimate lenders.

Smith, the state banking commissioner, noted that about two-thirds of the 1,500 consumer complaints he receives each year involve mortgage lending, but "do not involve denials of credit; rather, they involve issues that arise when consumers do get credit."

Micah Green, president of the Bond Market Association, supported the Ney-Kanjorski bill -- noting that the terms and volume of "varying and often conflicting" state and local laws "impose unreasonable burdens on the secondary market."

"Maintaining the expertise needed to comply with varied statutes in an array of jurisdictions adds unnecessary levels of complexity cost and risk to the subprime securitization process," Green said.

"More importantly, whether a given loan may be regarded as 'predatory' under various state and local laws often requires subjective judgments and knowledge of facts that are beyond the reach of secondary market purchasers and assignees," he added. "In these circumstances, no amount of loan review or investigation performed by secondary market purchasers can determine the presence of absence of lending violations, thus presenting economic, reputational and other risks that cannot be managed."

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