Legislation would step up predatory lending protections
March 11, 2005
Democrats introduce federal bill
A bill by Rep. Brad Miller, Rep. Mel Watt and Rep. Barney Frank, the ranking Democrat on the House Finance Committee, would protect homeowners from predatory lenders far better than current federal law, says the Center for Responsible Lending, a nonprofit, nonpartisan research and policy group.
The bill discourages lenders from charging exorbitant fees or the prepayment penalties that keep borrowers from refinancing at lower interest rates; prohibits "flipping" – refinancing a home loan with no benefit to the borrower simply to generate fees; requires people to get financial counseling before taking a loan with a very high interest rate or fees; and bans mandatory arbitration clauses on home loans. Forcing people cheated by abusive lenders into mandatory arbitration leaves them with little legal recourse.
The bill is modeled on North Carolina's landmark 1999 law to amend the federal Home Ownership and Equity Protection Act. The North Carolina law cut predatory lending while the market for sub-prime home loans, made to buyers with imperfect credit records, has continued to thrive, according to a press statement.
The bill also tightens loopholes in federal law by preventing lenders from disguising fees and by including all mortgage originators and loan brokers, as well as lenders. It also would bar lenders from making loans they know a homeowner cannot repay.
"This bill will extend to the rest of the country the protections in states with strong predatory lending laws," said Mark Pearce, CRL's president. "States have found a way to establish a fair and competitive market, where credit is provided on responsible terms. Congress should enact this bill so all Americans will be protected from abusive loan practices."
Copyright 2005 Inman News