WASHINGTON, March 16 /PRNewswire/ -- A new bill in Congress would demolish
many of the protections states and the federal government have carefully
erected against predatory lenders and would expose millions of homebuyers to
the loss of their savings and even their homes.
The bill by Congressmen Robert Ney of Ohio and Paul Kanjorski of
Pennsylvania would preempt state laws proven effective at curbing abusive
lending and replace them with a weak federal standard.
The Center for Responsible Lending, a nonprofit, nonpartisan policy and
research group, urges Congress to reject this bill in its current form, which
CRL regards as an attempt by lenders to get around strong predatory lending
laws.
Predatory lending robs homeowners of more than $9 billion a year, CRL
estimates, and threatens the poorest of homeowners: the elderly, minorities,
immigrants -- those least able to survive these scams with homes and savings
intact.
Predatory lenders, including some large financial institutions, threaten
entire neighborhoods as people lured into borrowing more than they can afford
at unconscionably high fees later lose their homes to foreclosure.
CRL urges Congress to instead support a bill by Congressmen Brad Miller and
Mel Watt of North Carolina and Barney Frank of Massachusetts modeled on a
North Carolina law proven to cut predatory loans while ensuring everyone can
still get a home loan. The Miller-Watt-Frank bill would eliminate loopholes in
federal law rather than create new ones.
"The numerous loopholes in this bill show a lack of understanding of how
predatory lending steals the home equity of thousands of American families
every year," said Mark Pearce, president of CRL. "We simply can't afford the
costs that come with it: The boarded-up houses in struggling neighborhoods,
the hard-earned gains of working-class people wiped out by predatory lenders.
At bottom, that is what this debate is all about."
Consumer groups joined CRL in opposing the bill.
"The bill's proposed evisceration of all effective remedies under federal
law for home mortgages, combined with the preemption of state protections,
completely negates any proposed improvements for consumers," said Margot
Saunders, managing attorney at the National Consumer Law Center in Washington,
D.C. "On behalf of our low-income clients, who are homeowners throughout the
U.S., we will oppose this bill."
Here are the holes in the Ney-Kanjorski bill:
* It fails to count fees, such as the penalties for paying off a loan
early that trap borrowers in expensive loans or the kickbacks to
brokers called yield spread premiums, in deciding whether a borrower is
protected by federal predatory lending law. Under the Ney-Kanjorski
bill, lenders can dodge the law by shifting their compensation to these
excluded fees. The Miller-Watt-Frank bill, in contrast, takes the
approach of numerous state laws by including these fees.
* It fails to stop abusive loan flipping - when lenders make repeated
loans to homeowners simply to generate fees. The Ney-Kanjorski bill
addresses flipping only for high-cost loans, allowing lenders to
repeatedly flip borrowers as long as the upfront fees are only 4.99% of
the loan each time. And the bill's exceptions create a road map for
abusive flips that would actually be permitted under the law. In
contrast, Miller-Watt- Frank follows the approach of North Carolina and
other states by prohibiting abusive flipping practices on all home
loans.
* The bill lets lenders strip borrowers of their equity by imposing high
upfront fees. In many high-cost loans, borrowers never realize the
significance of the exorbitant hidden fees on the loan because they
don't pay for them in cash but instead finance the points by rolling
them into the loan. The state of North Carolina and the Miller-Watt
Frank bill prohibit the financing of any fees on a high-cost loan. The
Miller-Watt-Frank bill and at least seven states, including Arkansas,
Georgia, Massachusetts, North Carolina, New Jersey, New Mexico, and
South Carolina also require counseling for loans that have an extremely
high interest rate or excessive points and fees so that borrowers know
what they're getting into. The Ney-Kanjorski bill does not.
* It fails to ban mandatory arbitration on all home loans. Being forced
into mandatory arbitration leaves homeowners cheated by their lenders
with no legal recourse. While the Ney-Kanjorski proposal bans mandatory
arbitration on high-cost home loans only, the Miller-Watt-Frank bill
prohibits the use of mandatory arbitration clauses in all home loans,
which is, in fact, the current standard for the mortgage industry.
* It fails to prevent abusive prepayment penalties on sub-prime loans, or
loans to people with less-than-perfect credit records. While the bill
limits prepayment penalties on all home loans to three years, it
permits lenders to charge a high prepayment fee, typically 4% to 5% of
the loan. These penalties often lock people into expensive loans.
* The bill would roll back provisions of federal law that protect
borrowers from abusive lenders after their loan has been sold to an
investor. Because most subprime loans are sold into this secondary
market, borrowers with predatory loans may be unable to defend their
home against foreclosure. In contrast, numerous states, including
Illinois, Massachusetts, New Mexico and North Carolina have found an
approach to liability that balances the ability of the secondary market
to purchase subprime loans and the need for borrowers to be able to
protect their home against abusive lenders.
* The bill razes state protections for homeowners. Rather than preserve
and strengthen state and federal protections for homeowners, the Ney-
Kanjorski bill wipes out state anti-predatory lending laws and
significantly weakens some protections now available under the federal
Home Ownership and Equity Protection Act.
* The bill includes numerous loopholes that undercut its stated purpose.
For instance, it encourages carving up high-cost loans into several
loans to avoid triggering protections for homeowners.
Among the groups joining CRL in opposing the Ney-Kanjorski bill in its
current form, introduced Tuesday, was U.S. PIRG in Washington, D.C.
"Data brokers like Choicepoint, air polluters, rent-to-own stores, car
rental companies and now predatory mortgage lenders are all seeking federal
safe harbors from strong and innovative state consumer and health
protections," said Ed Mierzwinski, consumer program director for the group.
"So we'll keep fighting to convince Congress to make federal laws floors, not
ceilings. Otherwise we cannot guarantee our citizens the protections they
deserve."
The Consumer Federation of America in Washington, D.C. also opposes the
bill in its current form. "It falls considerably short in key areas and does
not provide the necessary safeguards that would truly eliminate incentives for
lenders to make predatory loans nor does it preserve access for justice for
victims of abusive mortgage practices," said Allen J. Fishbein, director of
housing and credit policy. "Consumers require protections beyond what is
provided for in this bill."
The chart below compares the two predatory lending bills.
Miller-Watt-Frank Ney-Kanjorski
Points and fees 5%, includes prepayment 5%, but fails to cover
definition for penalties and yield most prepayment
purposes of spread premiums in penalties and appears
triggering addition to other to exclude yield
protections for origination fees. spread premiums.
"high-cost"
loans
Flipping Requires reasonable Requires reasonable
tangible net benefit on tangible benefit only on
all home loans. high-cost loans. Allows
numerous exceptions and
only applies if refinance
is within two years of
original loan.
Protections against Prohibits financing any Allows lenders to
high-cost abuses. fees on a high-cost finance up to 5% of
loan. a high-cost loan
(loans with upfront fees
Requires counseling above 5% or high interest
prior to obtaining rates).
a high-cost loan
Does not require any
counseling prior to
obtaining a high-cost
loan.
Prepayment Penalties Includes prepayment Does not include
penalties in points and prepayment penalties in
fees. points and fees, unless
the lender is refinancing
its own loan.
Prepayment penalties in Bans prepayment
excess of 2% of the penalties on all
loan amount, or longer home loans that
than 2 1/2 years, would extend beyond 3
trigger high-cost years from origination.
loan protections.
Bans prepayment Permits large prepayment
penalties for penalties (e.g. 4%-5% of
high-cost loans loan amount) by allowing
whose size is lenders to calculate
beneath Federal penalty based on monthly
Housing Authority interest payments rather
mortgage limits. than on the amount
prepaid. Such
calculation penalizes
borrowers with higher
interest rates.
Mandatory Arbitration Bans mandatory Bans mandatory
arbitration on arbitration only on high-
all home loans. cost loans. Falls short
of industry's best
practices.
Assignee Liability Maintains existing Rolls back current
protections under the federal law protections
Home Ownership and for borrowers whose loan
Equity Protection Act has been sold on the
of 1994 (HOEPA). secondary market. Limits
ability of borrowers with
predatory loans to defend
home from foreclosure.
Preemption Sets a floor for Wipes out successful
minimum standards. state protections for
Retains right of homeowners.
states to address
mortgage lending
abuses.
For a more detailed analysis of both bills, please go to CRL's website,
http://www.responsiblelending.org.
CRL is a nonprofit, nonpartisan research and policy organization dedicated
to protecting homeownership and family wealth by working to eliminate abusive
financial practices. CRL is affiliated with Self-Help, one of the nation's
largest community development financial institutions. Both are based in
Durham, N.C. CRL helped write the North Carolina predatory lending statute,
the first such law in the nation.
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