WASHINGTON – Federal and state legislators, consumer groups and most lenders agree there is a national predatory lending problem, and they also concur something needs to be done about it. There is far less agreement though on whether the solution is federal legislation or state and local statutes. This disagreement has come to a head with the introduction of the first federally sponsored bill to address predatory lending practices. Reps. Robert Ney (R-Ohio) and Ken Lucas (D-Ky.) introduced the “Responsible Lending Act” Feb. 14, a bill designed “to combat unfair deceptive practices in the high-cost mortgage market, establish a consumer mortgage protection board, and establish licensing and minimum standards for mortgage brokers.,” the bill reads. At a news conference on Feb. 13, Ney described the bill as “sweeping legislation to combat predatory lending, protect consumers, promote homeownership and preserve a national mortgage marketplace.” But even before Ney and Lucas formally introduced the measure, when it was still a draft bill, it already elicited protests from consumer groups and strong objections from several credit union officials. Supporters of Ney’s national predatory lending bill, including the banking industry, have lauded it as being a solution to the myriad of individual states’ curbs on predatory lending, such as those passed in New York and Georgia. They argue that states’ laws will eventually disrupt the uniformity of rules used by companies that supply credit to homebuyers. Vocal opponents of the draft bill have accused Ney of catering to the subprime lenders. Ney’s bill would amend the Home Ownership and Equity Protection Act (HOEOA) and would preempt state and local consumer protection laws. The draft bill defines a high-cost mortgage as a “consumer credit transaction that is secured by a mortgage on the consumer’s principal dwelling and the annual percentage rate on the credit, at the consummation of the transaction, will exceed by more than 8 percentage points the yield on Treasury securities” with comparable period of maturity. It also extends the definition to loans with total points and fees that exceed 6% of the total loan amount for loans of $30,000 or more, and 7% for loans of less than $30,000. Excluded from the points and fees are pre-payment fees, yield spread premiums, and borrower credits. Included in the points and fees are “all items included in the finance charge (except interest and time differential) and all compensation paid directly to mortgage brokers by or on behalf of the consumer (other than borrower credits).” The draft bill also: establishes a Consumer Mortgage Protection Board within HUD that would oversee all federal housing counseling programs; a new database of mortgage originators; licensing of mortgage brokers; establishes a right to cure violations; and requires states to establish uniform licensing requirements for mortgage brokers. Lastly, the “Responsible Lending Act” removes most assignee liability, a sensitive issue in several states, especially Georgia which recently passed a Fair Lending Act that does not remove this liability – the law allows borrowers to sue the original lender as well as anyone who subsequently buys the mortgage. Georgia’s measure is considered by several experts to be the toughest anti-predatory lending law in the U.S. The provision caused the three major credit ratings agencies to stop rating mortgage-backed securities pools because of the potential open-ended liability. New York’s anti-predatory lending law also includes assignee liability. But it is exactly the absence of assignee liability from Ney’s bill and the bill’s preemption factor that has consumer groups and others riled over the measure. The U.S. Public Interest Research Group (U.S. PIRG) called Ney’s bill “nothing more than an industry-backed attempt to legalize predatory lending and overturn recent landmark consumer laws in several states, including PIRG-backed laws in New York, North Carolina and Georgia.” “Congress has failed to protect consumers from predatory lending practices, so states and cities have stepped in and enacted tough, but fair, laws to prevent consumers from losing their hard-earned homes to shifty lenders,” said Christopher Peterson, a consumer attorney with U.S. PIRG. “Now the chairman of the Housing Subcommittee wants to eliminate those laws and, even worse, roll back the remaining modest federal protections. That’s wrong.” Peterson released a letter from a broad coalition that includes the NAACP, the United Auto Workers (UAW), the Association of Community Organizations for Reform Now (ACORN), the National Community Reinvestment Coalition, and the National Consumer Law Center denouncing Ney’s bill. The bill “will exacerbate some of the predatory lending problems facing our nation” and “wipe out the only anti-predatory lending laws that exist at the present time,” they wrote. ACORN National President Maude Hurd said the bill, “is an outrageous attack on homeowners and on states’ right to protect their homeowners. Were Congress putting serious protections in place, the issue of preemption would never arise. This bill would not benefit anyone but predatory lenders, and any talk of compromise with it is absurd.” Jim Blaine, president/CEO of State Employees CU, Raleigh, N.C. was similarly outspoken on Ney’s bill, calling the working title of the bill – “Responsible Lending Act” – “an oxymoron.” Not mincing words, Blaine, who’s been one of the credit union industry’s staunchest advocates of consumer protection laws from predatory lending abuses said, “Rep. Ney is trying to repeal the 13th amendment to the constitution except this time he’s going to enslave us all. Predatory lending is financial slavery, and Ney’s bill make slaves of many of the people who are sucked into that practice. Does he really want to do that? If he doesn’t, he certainly should look at the repercussions of predatory lending on the average consumer in the U.S.,” said Blaine. “If this bill is passed, we’re confirming and legalizing predatory lending. Instead, we should be outlawing it and making it illegal. This bill should simply say it’s illegal to make a high cost loan. Start with the definition of high cost loan that Ney has in his bill, and then say everything above this is illegal. It’s that simple, but people just don’t get it,” said Blaine. Like the consumer groups, National Federation of Community Development Credit Unions Executive Director Cliff Rosenthal said his concern is that a national predatory lending law that preempted state and city laws would not recognize the advances in accountability by predatory lenders that community groups have achieved. At press time, Rosenthal said he hadn’t had a chance to closely review Ney’s bill and NFCDCU did not have an official position on the bill yet, although he was aware of it. Having said that, he added that, “The success of community groups in raising predatory lending issues and getting anti-predatory lending laws passed has alarmed some financial institutions.” Rosenthal said he shared consumer groups’ concerns that banks were trying to roll back some of the consumer predatory lending protections that consumer groups had achieved. He opined that some financials are pushing the bill “because they’re afraid local and state laws are more stringent (than Ney’s national law).” As for the credit union trade associations’ position on Ney’s bill, CUNA spokesman Pat Keefe said the association had no position on participlar bill yet. CUNA, said Keefe, “is looking at the issue of predatory lending in the whole and working with various committees though its Government Affairs Committee. We’ll be looking at parts of these bills as they come up and looking to set up guidelines for sections of bills that we would support, and as we develop those guidelines we’ll make decisions on which parts of specific bills we can and cannot support. That process is just beginning, and we expect it to turn in to high gear next week.” Keefe added that probably within next two to three weeks, CUNA intends to be able to develop what those guidelines are and what they mean for the various bills. NAFCU’s Senior Legislative Representative Murray Chanow, like Rosenthal hadn’t gone through the entire bill although he said he was aware of it. He said NAFCU’s legislative committee planned to meet the week of Feb. 17 and would likely take up a discussion of the bill. Chanow reiterated that NAFCU’s position on predatory lending is that credit unions are not involved in the practice and that any bills aimed at correcting the problem shouldn’t target at credit unions. Beyond that, Chanow said “we need to enforce laws that are out there rather than pass new laws.” -

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