- The Washington Times - Wednesday, February 20, 2002

The D.C. Council unanimously approved a bill to curb so-called "predatory lending" practices yesterday in a compromise between lenders and community activists.
Yet both parties remained largely unsatisfied by the bill, which tries to stop mortgage lenders from targeting elderly people and minority groups through deceptive tactics called "predatory lending." The practice preys on subprime borrowers consumers with troubled credit histories who qualify only for higher-cost loans who are trying to refinance or make improvements to their home.
The legislation applies only to nonbank lenders, who are forbidden from making loans that exceed the interest rate on U.S. Treasury securities by 6 percent, or charge points or fees that exceed 5 percent of the loan value.
This leaves the new regulation covering only loans made by subprime lenders something that displeases both community activists and lenders.
"Basically they've inserted a loophole that will exempt any of the federally regulated lenders and their affiliates, so that covers … virtually every loan in the city," said Jim Sugarman, attorney with the AARP Legal Council for the Elderly.
The lending industry is equally unsatisfied with the new bill, because it discriminates against subprime lenders, said Wright Andrews, a partner at Butera & Andrews, representing the Responsible Mortgage Lenders Coalition, a group of subprime lenders such as Countrywide and OptionOne.
"Unfortunately, the bill as passed today will force many legitimate, responsible lenders who have made credit available to D.C. borrowers to stop lending in the District," he said. "And for those residents who can still find mortgage credit, most will find their mortgage costs significantly increased."
Among the practices banned in the bill are loans to borrowers with insufficient ability to repay; "flipping," or repeated refinancing; credit insurance financed up front in a loan, unless approved by the mayor; "unusual and unconscionable" charges; and bigger loans than the borrower could qualify for based on credit scores.
The District passed a law last year meant to crack down on predatory lending. But the measure's tough language scared away many mortgage lenders, including large banks, causing local lawmakers to suspend the law and work on one that would be more flexible.
On Jan. 8, council member Sharon Ambrose, Ward 6 Democrat, and council Chairman Linda W. Cropp, at-large Democrat, co-authored a replacement bill that significantly eased the rules lenders have to follow. This led to a month of struggling between the lending industry and community activists, until two amendments were added to appease the activists.
The old bill applied to banks as well as subprime lenders if they exceeded the interest rate on U.S. Treasury securities by 7 percent. The only loans that were not covered under the old law were those backed by mortgage giants Fannie Mae and Freddie Mac.
The bill that passed yesterday defeated a measure proposed last month by Mayor Anthony A. Williams. His office yesterday would not comment on whether the mayor plans to sign the bill.
The commissioner of the city's Department of Banking and Financial Institutions, S. Kathryn Allen, expressed concern that the scope of the legislation is limited and would not cover an adequate number of high-cost loans made in the District.
"Many District residents will not be covered by the act's protections," she said in a statement, further expressing concern that the legislation will push many nonbank lenders out of the city because they now face tougher lending rules than banks.

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