Maine predatory lending report
By MortgageDaily.com staff
3/2/2006

Predatory lending is set to balloon in Maine, according to a pro-consumer group's report which also suggests the state's borrowers are better off with banks than brokers.

The recent study, by the Center for Responsible Lending and Coastal Enterprises Inc., reportedly found that conditions provide for predatory lending practices to flourish in Maine.

"There is real risk here to whole communities and to the state when people lose their homes and their savings," said Uriah King, policy associate at the Center and one of the study's authors. "And all the evidence from our study points to the probability it's only going to get worse."

According to the study, "Maine's high homeownership rate and aging population, combined with declining economies and escalating housing prices in many parts of the state," as well as key trends in its subprime market, suggest vulnerability to abuse.

Predatory lending already affects about 1,000 Maine families each year. In 2000 alone, estimated equity losses from predatory lending exceeded $23 million, according to the report.

Furthermore, although subprime lending plays an important role in access to credit -- this market has grown from nearly $0.2 billion in 2000 to $1.04 billion in 2004 -- predatory practices are significant within this industry.

The main characteristic in predatory loans is that borrowers pay excessive costs. Prepayment penalties of over two years, steering and excessive total broker compensation are among the contributors to predatory practices in Maine.

The study reportedly found that a quarter of people in foreclosure in four Maine counties had mortgages with at least one predatory characteristic.

And not only do a disproportionate number of predatory loans go to rural areas and minorities, as many as 15 percent of all subprime borrowers qualified for cheaper loans than they actually got, according an announcement of the study.

"Our findings are not about the Maine banks and credit unions that serve our communities," Coastal President Ron Phillips said in the announcement. "Rather, it's about the aggressive and exploitative practices of a segment of the fast-changing mortgage industry that's causing the problem."

The segment of out-of-state lenders and brokers dominate Maine's subprime mortgage market, the authors stated, noting that these originators are subject to fewer regulations than Maine banks.

"Maine's law provides fewer protections from predatory lending for fewer borrowers than do laws in many other states," the authors wrote. "This report arises from concerns that Maine citizens are not receiving the same protections against predatory lending practices that are available in other states such as Massachusetts, New Mexico and North Carolina."

The study recommends strengthening a 2003 state law by, for example, having consumer protections apply when the lender's points and fees reach 5 percent of the loan, instead of the current threshold of 8 percent, according to the announcement.

Among other suggestions, the report says Maine should prohibit all flips, as is done in North Carolina and New Mexico, rather than barring flipping in only a small percentage of loans.

"Thanks to the work of [Coastal] and [the Center] in producing this report, we now have a much better understanding of the size and nature of this problem," Maine Attorney General Steven Rowe said in the announcement. "Hopefully the report's conclusions and recommendations will result in stronger protections against these unfair and deceptive consumer practices."

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