WASHINGTON, D.C. -- 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.
The bill is modeled on a North Carolina law that has reduced predatory loans and would eliminate current loopholes in federal law.
The bill discourages lenders from charging exorbitant fees or prepayment penalties that keep borrowers from refinancing at a lower interest rate or strip wealth from savings; prohibits "flipping" – refinancing a home loan with no benefit to the borrower simply to generate fees; requires people 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 also tightens loopholes in federal law by preventing lenders from disguising fees and the bill includes all mortgage originators -- loan brokers as well as lenders. And it bars lenders from making loans knowing a homeowner cannot repay.
Predatory lenders rob homeowners of more than $9 billion a year, forcing them into foreclosure and stripping them of the equity they have built in their homes. These predatory lenders target the most vulnerable: the elderly, immigrants, minorities. Abusive loan terms and lending practices have not only limited the wealth-building potential for homeownership, but have led families to lose their homes and their accumulated life savings, leading to high foreclosure rates in some areas that can devastate whole communities.
The bill draws 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 subprime market has continued to thrive, contrary to lender predictions. A leading trade journal, Inside B&C Lending, found lenders "continue to offer a full array of products for borrowers" in the state. CRL helped write the North Carolina statute, the first such law in the nation.
CRL urges Congress to follow the lead of the two North Carolina Congressmen, Miller and Watt, and Massachusetts' Barney Frank as the best way to protect our most vulnerable citizens from the predations of unscrupulous lenders.
"This bill will extend the protections found in states with strong predatory lending laws to the rest of the country," 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.
Contact: Michael Flagg at 202-349-1862 or mike.flagg@responsiblelending.org