- The Washington Times - Monday, February 27, 2006

Congress has spent two years wrestling with proposals to curtail so-called “predatory lending,” but now there has been some movement after studies have shown that tougher mortgage laws won’t hurt creditors.

The House is considering two bills, one backed by Republican Reps. Bob Ney of Ohio and Spencer Bachus of Alabama, and the other by Democratic Reps. Melvin Watt and Brad Miller of North Carolina and Paul E. Kanjorski of Pennsylvania.

“Mr. Ney and I have talked, as have all the people looking at this, and in fact, we are trying to see whether there is common ground,” Mr. Miller said. “We are also continuing to talk to the sub-prime mortgage industry and consumer groups.”

While the rival proposals have been deadlocked on Capitol Hill, laws against predatory lending practices have been strengthened by 28 states that don’t want Congress to interfere.

Concerns about lending practices have risen along with the real-estate boom that began in the early 1990s. Consumer advocates say predatory lending encompasses a wide range of abusive practices designed to take advantage of uninformed borrowers, including charging fees and rates outside the realm of normal risk protections and keeping borrowers in the dark about less expensive loan alternatives and the terms of mortgage loans.

“At the end of the day, this is about the ability to buy and afford a home and preserving the right to protect it,” said Massachusetts state Rep. John Quinn, a Democrat.

He said that in Massachusetts, which recently enacted very tough laws, lenders are making 30 percent fewer loans with abusive penalties, and that the costs of loans have gone down.

The credit industry has argued that some of the laws are too stringent, forcing lenders out of markets and leaving consumers with fewer credit options. Most lending practices that critics call predatory are legal, and lenders say they need them to protect their investments.

“But responsible lenders don’t need predatory lending practices to be profitable and extend credit,” counters Iowa Attorney General Tom Miller.

Mortgage industry analysts such as the Center for Responsible Lending have narrowed the predatory lending identifiers down to seven warning signs.

One of the most pervasive is excessive lending fees that are often at or above 5 percent of the loan when the usual fee is about 1 percent or less. Also high on the list are abusive penalties for early loan payoffs in the amount of six months’ interest or with an effective term lasting more than three years, which often unfairly prevents borrowers with bad credit from refinancing at better interest rate when their credit improves.

Other predatory practices include lender kickbacks to brokers for loans above the usual interest rate; “loan flipping,” in which a lender refinances a borrower’s loan to increase fee income; unnecessary products; mandatory arbitration to keep borrowers from seeking remedies in court; and steering borrowers to mortgages intended for those with bad credit, even if the borrower could qualify for a regular mortgage.

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