Responsible Lending Act introduced by U.S. Reps
By COCO SALAZAR
3/21/2005

National predatory legislation introduced last week has found plenty of support -- and opposition.

U.S. Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Penn., reportedly introduced Tuesday the Responsible Lending Act in the House of Representatives.

The Mortgage Bankers Association commended the action, saying that "the bill is a solid step toward achieving the twin goals of protecting consumers from fraud and enhancing homeownership opportunities -- objectives shared by those on both sides of the debate," according to an announcement.

The group noted that attempts to fight predatory lending nationwide have resulted in a "bewildering regulatory landscape" due to the proliferation of state and local laws on the issue that are "both difficult and costly to decipher. Consumers, unfortunately, are being forced to pay the price, with fewer credit options and more expensive mortgages."

The bill will now be referred to the Committee on Financial Services where hearings are expected some time this year, MBA said.

"This appears to be a challenging bill for the mortgage industry to live up to, but it is a welcome addition to the discussion, particularly because of the open, deliberative and bipartisan discussions between Congressman Ney and Congressman Kanjorski that led to the bill's introduction," said MBA government affairs executive Kurt Pfotenhauer.

The Appraisal Institute, which says it is the nation's largest professional appraisal organization, also commended the congressmen's action.

"For the appraisal community this bill addresses the toughest issues we have raised over the last several years," said Institute spokesman Don Kelly in an announcement. "We have been calling upon Congress to take up the serious problem of client pressure on appraisers and enhancement of state regulatory bodies and this bill goes right to the heart of the problem."

Also in support of the Ney-Kanjorski bill was the Coalition for Fair and Affordable Lending, which says it represents many of the leading nonprime mortgage lenders, including Option One Mortgage and New Century Financial.

The new bill "appears to equal or exceed the safeguards in most state laws and earlier legislative proposals, and provides the most comprehensive set of solutions we have seen to stop improper lending," Coalition chairman Steve Nardon said in a written statement.

The group said it has advocated passage of legislation creating uniform federal standards in an effort to protect all mortgage borrowers, regardless of where they reside or who regulates their loan originator, from improper practices by unscrupulous mortgage brokers and lenders.

"This new bipartisan bill should be the legislative vehicle on which action is taken," Coalition vice chairman Terry Theologides commented. "Accordingly, we urge the House Financial Services Committee to hold hearings promptly and then to act favorably on this important bill."

In addition to believing the bill meets such needs, the Coalition said it was pleased the bill contained provisions to improve borrowers' financial education and counseling opportunities.

"After more carefully studying the bill's text, [the Coalition], consumer advocacy groups and others will undoubtedly suggest some refinements, but the time has come for Congress to act on these issues," Theologides added.

One group that has already expressed its opposition and urges Congress to reject the bill is the Center for Responsible Lending, as it believes a federal standard would weaken predatory lending protection for consumers.

Self-described as a nonprofit, nonpartisan policy and research group, the Center said it regards the legislation as an attempt by lenders to get around "strong" state laws proven effective at curbing abusive lending and believes passage of such would expose millions of homebuyers to the loss of their savings and possibly their homes.

Instead, the Center urges Congress to support a bill by congressmen Brad Miller and Mel Watt of North Carolina and Barney Frank of Massachusetts modeled on a North Carolina law "proven to cut predatory loans while ensuring everyone can still get a home loan," it said -- adding that "the Miller-Watt-Frank bill would eliminate loopholes in federal law rather than create new ones."

The MBA recently announced that a study on the effects of the 1999 North Carolina anti-predatory law showed that, since the law's inception, mortgage lending had declined 1.2% in predominately minority and low-income neighborhoods, compared to an increase of 5.2% in similar areas of neighboring states. It was reportedly also found that the law had crunched the availability of credit for all income and racial groups.

Mark Pearce, president of the Center, commented that the numerous loopholes in the Ney-Kanjorski bill showed "a lack of understanding of how predatory lending steals the home equity of thousands of American families every year."

"We simply can't afford the costs that come with it: The boarded-up houses in struggling neighborhoods, the hard-earned gains of working-class people wiped out by predatory lenders," he added. "At bottom, that is what this debate is all about."

The Center compared several components in each of the bills.

For example, the points and fees definition for purposes of triggering protections for "high-cost" loans in the Miller-Watt-Frank bill of 5%, includes prepayment penalties and yield spread premiums and other origination fees, while the Ney-Kanjorski legislation also lists 5%, but fails to cover most prepayment penalties and appears to exclude YSPs, the Center said.

In the example outlined for flipping, the Center said the North Carolinan-modeled bill requires reasonable tangible net benefit on all home loans, while the Ney-Koranjski legislation requires reasonable tangible benefit only on high-cost loans, allows numerous exceptions and only applies if refinance is within two years of the original loan.

Among the consumer advocacy groups that share the Center's view were the National Consumer Law Center, the Consumer Federation of America and U.S. PIRG.

"Data brokers like Choicepoint, air polluters, rent-to-own stores, car rental companies and now predatory mortgage lenders are all seeking federal safe harbors from strong and innovative state consumer and health protections," said Ed Mierzwinski, a PIRG director. "So we'll keep fighting to convince Congress to make federal laws floors, not ceilings."

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