By Lew Sichelman
The noose is slowly tightening around the necks of predatory lenders who charge exorbitant fees and rates on mortgages, home improvement loans and home equity loans.
At the federal level, Rep. John LaFalce (NY), the highest ranking Democrat on the House Banking Committee, is crafting legislation to expand the 1994 law that requires additional disclosures on high-cost loans.
In addition, the Federal Deposit Insurance Corp. is working to keep predatory lenders out of the mainstream banking system, and Freddie Mac is advising consumer organizations and industry groups it will no longer purchase loans that are subject to the Home Owners and Equity Protection Act.
At the state level, meanwhile, three more states have introduced predatory lender legislation of their own, prompting Robert Lotstein, counsel to the National Association of Mortgage Brokers, to say, "The flood gates have opened to state regulation of high-cost home loans."
Patterning his legislation after a new law in North Carolina and a similar measurev working its way through the New York legislature, Rep. LaFalce wants HOEPA to cover a wider span of loans and outlaw an expanded list of abuses. Currently, the law requires additional disclosures on loans with high fees and rates. It also prohibits balloon payments and negative amortization, and restricts prepayment penalties.
The New York solan already has introduced a measure to prohibit creditors from soliciting business by sending live loan checks to consumers unless the customer has previously requested such credit.
At the state level, Illinois, Missouri and South Carolina are now considering HOEPA-like legislation.
Bills under consideration borrow heavily from the North Carolina law, according to a synopsis of the measures by attorney Lotstein. But the one in Illinois "goes further" by prohibiting prepayment penalties on any type of home loan and requiring that an attorney representing the borrower be present at the closing of a high-cost loan. And the bill in Missouri expands HOEPA's tests regarding the loan rate, points and fees.
Back in Washington, meanwhile, FDIC Chair Donna Tanoue said in a recent speech that institutions the agency supervisors should be careful not to purchase loans from or provide lines of credit to lenders who pray on unknowing consumers, especially the uneducated and the elderly.
To help them, Tanoue plans to work closely with the Federal Trade Commission to identify predatory lenders and warn legitimate financial institutions to keep them at arm's length.
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