- The Washington Times - Saturday, April 14, 2007

Much has been written and broadcast about the subprime crisis and its potential to affect the overall national economy. Alan Reynolds’ excellent commentary of March 25 (“Subprime economics”) details many of the issue’s mitigating factors.

Mr. Reynolds is commendable for dismissing congressional efforts to bail out subprime lenders and borrowers as suggested by Sen. Christopher Dodd, Connecticut Democrat, and others. More regulation may be needed on predatory lending but let us hope Congress resists overregulating the entire lending industry.

Missing in the frantic calls to do something about the subprime mess is the fact the federal government and the private sector previously took steps to deal with some of the pressing issues in subprime lending. Recently, the Treasury Department and Freddie Mac have announced new guidelines designed to reduce or eliminate many types of loan programs likelier than more conservative ones to slip into foreclosure.

The market place has also spoken. On March 6, major subprime lender Fremont Investment and Loan announced it was no longer making new loans and recently, New Century, another industry giant, filed for bankruptcy protection. As these loans become less viable, fewer will be made. Many other lenders have changed their criteria in response to the new guidelines and the market place.

But it should be noted further federal regulation — or at least clarification — is needed in the area of predatory lending, which usually is the offspring of subprime lending. Though not all subprime lending is predatory, this abusive assault on unwary borrowers must be fought vigorously on both the federal and state levels.

While predatory lending is a great threat to home ownership and creditworthiness, there is no unified definition of what constitutes predatory lending. In fact, in a policy letter dated Jan. 22, the Federal Deposit Insurance Corp. (FDIC) lamented “there is no simple checklist for determining whether a particular loan or loan program is predatory.”

Common elements in defining predatory lending include exploiting customers with poor credit histories, exorbitant interest rates, deceptive marketing practices, and lending based on the equity in the property rather than the borrowers’ ability repay the loan. Minorities are typically more apt to be its victims.

With Wall Street and Congress focusing on subprime lending, we are presented with an opportunity to provide FDIC Chairman Sheila Blair what she asked for on March 27 in congressional testimony: national anti-predatory lending standards.

Currently, several federal entities, including the Departments of Housing and Urban Development and Treasury, and the FDIC, along with the congressionally organized companies Fannie Mae and Freddie Mac, all have an interest in combating predatory lending. Most states have enacted anti-predatory lending laws. And last year Montgomery County, Md., attempted to pass its own punitive anti-predatory lending statute that was ultimately rejected by the Circuit Court. Chicago and Cleveland also attempted local legislation last year.

Myriad federal, state and local definitions and regulations create a bureaucratic morass for lenders. State municipalities have to struggle with issues of federal pre-emption in their attempts to enforce existing statutes. Mortgages are no longer the purview of street corner banks or local lenders. In the 21st century, a Marylander’s mortgage is most likely funded by a lender in another state. Federal guidance is necessary to unify the standards.


Real Estate Lawyer

Bethesda, Md.

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