By Tracey McCartney
National Fair Housing Advocate Online
(WASHINGTON, Feb. 14, 2003) -- State and local laws that seek to protect consumers from predatory mortgage lenders would be void under new legislation introduced in Congress.
The "Responsible Lending Act," sponsored by Rep. Bob Ney, R-Ohio and Ken Lucas, D-Ky., and introduced on Thursday, would establish a national standard for regulation of predatory lending. It would also require licensing of mortgage brokers, either under federal standards or under state laws that meet federal guidelines.
The bill also strengthens some protections already in the Truth in Lending Act by lowering the amount of fees lenders can charge before certain provisions apply to a loan.
But advocates for state laws that are stronger than both existing federal law and Ney's bill are afraid Congress will undo their hard work.
"It stinks. It's weak." said Malcolm White, the communications director for the Center for Responsible Lending, a North Carolina-based national policy group.
The Center was one of the organizations that pushed North Carolina's anti-predatory lending law. When it passed in 1999, it was the strongest law of its kind in the country.
That distinction now probably belongs to a recently passed law in Georgia, which allows investors and other buyers of mortgages to be sued if a loan violates the law. In most states and under current federal law, only the original lender is liable in most cases for illegal loans.
In a press conference Thursday, Ney said the bill was aimed at ending a "patchwork of hundreds of laws, all with different requirements, different degrees of consumer protections, and different definitions of compliance and liability." Ney said the state and local laws were threatening "our national mortgage marketplace."
White, however, doesn't buy the "patchwork" complaint. Instead, he said, the national bill is driven by large lenders' aversion to the stronger laws that states were passing.
"They sort of gave up the fight at the state level" and decided to pursue federal legislation, he said.
And while uniformity might seem like a good idea, regulation of predatory lending needs to take place "as close to the action as possible," White said.
In North Carolina, the arguments and fears that subprime lenders - lenders that specialize in lending to people with blemishes in their credit at higher interest rates - would flee the state have not come to pass, White said.
A 2001 study of North Carolina's lending market found that the state was still in the top 10 in volume of subprime lending, and the law's provisions "probably saved consumers $100 million," White said.
Georgia's law is considerably more controversial. Its provisions for "assignee liability," the ability to sue the buyers of bad loans, led Standard & Poors and other agencies to announce that they would no longer rate pools of mortgages that include loans covered by Georgia's new law. A New York law slated to take effect in April also includes assignee liability.
The Georgia legislature is debating changes to the assignee liability provision and other provisions of the law.
The Georgia legislation gave opponents of state and local laws ammunition, White said, and, because of Standard & Poors' action, is "the one where they (lenders) felt they had the most credible line of attack."
Advocates argue that laws against predatory lending are meaningless if investors can't be held accountable for bad loans; in most states, lenders who make bad loans can simply go out of business, leaving a remedy out of reach for homeowners facing foreclosure.
White said his attitude toward the political chances of Ney's legislation is "vigilance."
"No one takes anything for granted," he said.