Mortgage associations join forces in support of federal preemption
By MICHAEL PATRICK CARNEY
4/14/2004

The nation's largest mortgage groups called on Congress this week to scrap state and local laws against predatory lending, saying that a uniform federal framework would better protect borrowers from unscrupulous lenders and help foster competition within the industry. If the move is successful, mortgage brokers may be required to obtain federal licensing.

In an open letter to lawmakers, the trade groups argued that the current patchwork of regional rules and regulations hindered competition without discouraging abusive lenders, many of whom just set up shop in areas with weak consumer laws. By preempting state and local laws, the lenders said that Congress could extend protections from abusive lending to all consumers while helping their increasingly balkanized industry develop a national mortgage market.

"At a time when the government and financial community should be focusing on expanding access to mortgage credit, states and cities are passing laws that are making mortgages more expensive and harder to get," said Mitch Feinstein, head of the National Home Equity Mortgage Association, which represents about 250 lenders responsible for more than $250 billion in subprime loans. "Across the country, from New Jersey to Georgia to New Mexico, well meaning laws have had the perverse effect of putting the dream of homeownership out of reach for thousands of Americans."

The groups said that their members have been pulling out of areas with particularly strict anti-predatory lending laws, including New Jersey and Georgia. This has limited the pool of funds available to homebuyers with poor credit or limited financial resources, they said.

"Unfortunately, these new laws can have the unintended consequence of denying deserving consumers access to much needed credit and their ability to purchase a home," said A.W. Pickel III, president of the National Association of Mortgage Brokers.

The answer to this problem, he said, was "The Responsible Lending Act."

Introduced last winter by Rep. Bob Ney (R-Ohio), the House bill would tighten some provisions of the Truth in Lending Act by prohibiting single-premium credit insurance, prepayment penalties after fours years and loans that don't take into account the ability to pay. It would limit the ability of lenders to refinance low-interest or zero-interest loans for the first 10 years and establish a mortgage oversight board within the Department of Housing and Urban Development.

Mortgage brokers would also have to meet tough new federal guidelines before they received a license to lend and outside investors would be exempt from liability for abusive loans, thereby alleviating concerns in some segments of the mortgage securities market that followed the enactment of a tough anti-predatory lending law in Georgia.

It was this and other pro-industry provisions that prompted consumer groups like the National Community Reinvestment Coalition to voice concerns about a watered-down federal version of strong local lending laws, pointing to a decision last year by the Office of the Comptroller of the Currency to adopt a rule preempting state consumer-protection laws as applied to national banks and mortgage companies.

The lenders, citing this as a positive example of preemption, want the Senate to consider preemption legislation like the Ney bill instead of a more consumer-friendly proposal introduced by Sen. Paul Sarbanes (D-Md.). Other signatories to the letter included the American Bankers Association, America's Community Bankers, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable and the Mortgage Bankers Association of America.

Ney, who oversees HUD as chairman of the housing subcommittee, has received more than $270,000 in campaign contributions from the financial and real estate industries during the current election cycle, according to data analyzed by the Center for Responsive Politics.

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