WASHINGTON – The Mortgage Bankers Association is citing a study of predatory lending law in New Jersey to buttress the MBA's call for a uniform national standard. The study, by University of Virginia Professor Richard F. DeMong, was sponsored by the National Home Equity Mortgage Association and the National Association of Mortgage Brokers. They asked DeMong to examine the impact of the New Jersey Home Ownership Security Act of 2002, which took effect November 27, 2003. When he reviewed replies from the 14 lenders and mortgage brokers who responded to his survey, DeMong found: * Eighty-four percent of the lenders and mortgage brokers indicated they have reduced certain types of subprime lending in New Jersey because of the law. * The dollar amount of credit lent for nonprime cash-out refinance loans in New Jersey dropped 57.5% from the volume recorded during the two months before the law took effect. DeMong came up with that figure by comparing the 67.2% drop in New Jersey with a much more modest 9.5% in neighboring Pennsylvania, a difference of 57.7%. * 40% of the lenders and mortgage brokers closed offices or cut staff. * Nonprime home-improvement loans dropped 75.4%. DeMong calculated the total dollar dip in subprime lending in New Jersey during the two months after the law went into effect was between $800 million and $1 billion just among the lenders and mortgage brokers responding to this survey. DeMong estimated the survey represented at least 50% of the subprime market share in New Jersey. He indicated the results are similar to, and "just as startling" as, the results of a telephone survey he conducted before the law went into effect. In that telephone inquiry, lenders indicated the vagueness of the law and the potential liability posed by the law's penalties would cause them to shy away from certain subprime loans. "Why does the drop in subprime lending matter?" DeMong wrote in the latest study. "It matters because there is obviously less credit available to potential, albeit higher risk, borrowers with less than perfect credit records. "It appears many of these potential New Jersey borrowers will now be unable to acquire credit even if they are willing to pay a higher interest rate than borrowers with a clean credit record." He concluded, "Although the intent of the law may have been the elimination of `predatory' lending, it appears that its unintended consequence was a significant reduction of legitimate lending to deserving nonprime potential borrowers in New Jersey." The MBA stated the study confirms the need to prevent the flight of capital from states such as New Jersey that have passed predatory lending laws. A state-by-state breakdown on the MBA Web site shows 16 states passed predatory lending laws in 2003. "The study confirms, yet again, what can happen in a state like New Jersey, which has the right intentions in crafting laws to eradicate predatory lending practices, but in reality fails consumers," said Robert M. Couch. MBA chairman. "What lenders and consumers alike need is a uniform national standard of laws that not only discourage abusive lending practices, but also encourage lenders and mortgage brokers to continue to make credit available to higher-risk borrowers who would benefit from the relatively low cost of mortgage financing." In March this year Teresa Bryce, member of the MBA's board of directors and vice president and general counsel of Nexstar Financial Corporation, testified before the House Financial Services Subcommittees on the need for national standards. "The continued availability and growth of the subprime market depends on mortgage lender and investor confidence, which is currently being eroded with a patchwork of confusing state and local laws," Bryce stated. According to the Federal Reserve, subprime mortgage originations grew seven-fold from 1994 to 2002. They now account for nearly 9% of all mortgage originations. -


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