- The Washington Times - Wednesday, December 6, 2000

The D.C. Council unanimously passed a bill yesterday to rewrite the city's 99-year-old real-estate financing laws and to discourage "predatory" lending practices.

The measures against abusive lending, among the strictest in the nation, outline what constitutes predatory lending in the subprime, or relatively high-cost, loan market. The provisions also would give consumers new legal remedies to deal with the problem.

Consumer groups say predatory lenders target the elderly and minorities with a pattern of deception and fraud, charging high points and fees or using unfair terms and conditions without adequately notifying borrowers.

"It's a great day for consumers in D.C.," said Stacy Canan, a senior attorney with AARP Foundation Litigation who served on a task force to develop the new legislation.

The bill awaits Mayor Anthony A. Williams' signature and must come under congressional review next session. In the meantime, the District Office of Banking and Financial Institutions will write regulations to enact the legislation.

Critics say the bill will scare legitimate lenders out of the city.

"The bill is still very broad and the definitions are very unclear," said Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents eight national mortgage lenders.

According to the bill, predatory lending can be identified by a number of factors, including a lender's knowledge that the borrower cannot repay the loan; "unconscionable" charges; and steering borrowers into subprime loans when they may be eligible for the prime market.

The legislation covers refinancing, additional financing and home improvement loans, but not new-home loans.

Under the bill, when foreclosure proceedings begin, borrowers would have the option to ask for a judicial review if they believe they have been victims of predatory lending. The court then could rewrite the terms of the loan if need be.

D.C. laws have not been comprehensive enough to protect borrowers, said John Hagner, a commercial real-estate lawyer who helped write the legislation. In some cases, homeowners did not reach attorneys or consumer advocates until after eviction or foreclosure, when remedies are few.

Mr. Hagner said that problem would be alleviated by judicial review and the requirement that lenders preparing to foreclose on a home must send five notices to the homeowner two of them by regular mail, two by certified mail, and one served in person at least 40 days before the foreclosure sale. The notices would include instructions on how to request a judicial review.

The bill would eliminate a standard pre-foreclosure plea and title hearing, except for seniors and people with limited mental capacities.

All foreclosure sales would be audited for procedural compliance, fraud and error, and an auditor would determine which creditors get the proceeds.

Consumer groups applauded the legislation. In the past year, they have called for federal agencies, Congress and local jurisdictions to act on what they say is a growing problem. Federal Reserve Chairman Alan Greenspan has been one of a number of agency chiefs to address the issue.

"With the exception of a few other cities, [D.C. is] ahead of the country," said John Taylor, president and chief executive officer of the National Community Reinvestment Coalition.

But he was uncertain of the effect a last-minute amendment would have on the legislation, exempting loans sold to government-sponsored enterprises Fannie Mae and Freddie Mac from predatory-lending examination.

Fe Morales Marks, vice president of the national housing impact division for Fannie Mae, said the exemption clarified which lenders would be affected by the laws.

"When you have over-regulation, lenders tend to be driven away because the uncertainty makes them nervous," she said.

The lowest-rated loans that Fannie Mae handles are at the bottom of the prime market, so they likely would not be subject to examination in any case. But she said the terminology in the text of the bill was not clear to lenders.

Lenders, for their part, are worried by the legislation.

"It will make it very, very difficult for lenders to refinance both prime and subprime loans in the District of Columbia," said Ms. Canfield of the Consumer Mortgage Coalition.

Jeffrey Zeltzer, executive director of the National Home Equity Mortgage Association, which represents subprime lenders, said the legislation will scare away lenders and make it more difficult for borrowers to get credit.

He said subprime lenders have performed a valuable service by offering loans to high-risk individuals, allowing them to buy homes or send their children to college.

He and Ms. Canfield said the new measures are too broad, allowing for legitimate practices to be squelched.

For example, the legislation bans balloon payments loans that rise at the end of the loan that last less than seven years.

But Mr. Zeltzer said conditions such as balloon payments can be beneficial in some cases.

"We really need to look at the heart of abusive-loan practices and they are in fraud and misrepresentation, and not terms and conditions," he said.

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