Until now, New Yorkers’ main weapons for fighting outrageously unscrupulous home loans have been consumer education and protestors’ megaphones. Now, a massive coalition of consumer, housing and banking groups is proposing a serious new piece of ammunition: a far-reaching bill that would curb the abusive banking practices known as “predatory lending.”
Under the Responsible Lending Act, bankers would have a much harder time deceiving homeowners. Lenders would have to make sure borrowers had the ability to repay their loans and that they received counseling. Among the many practices it would prohibit are “flipping”–repeatedly refinancing a mortgage to raise fees–and “balloon payments” that skyrocket at the end of a loan’s life. Predatory loans often make it impossible for homeowners to repay their mortgages.
“Hundreds of borrowers in New York State each year get fleeced and lose their homes,” said Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project, a campaign leader. “The stakes are really high.”
Among the 70 groups backing the effort are AARP, the National Federation of Community Development Credit Unions and ACORN. “Older people are cash poor and equity rich,” said Bill Ferris, a lobbyist for AARP. “They’re among the leading targets of lenders like these.”
AARP, which claims 2.5 million members statewide, will be an essential ally in getting the support of key Republicans in the State Senate. In search of a bill sponsor, coalition members are targeting Senate Republicans George Maziarz of Niagara, who chairs the aging committee, and banking committee chair Hugh Farley of Saratoga. Neither legislator has agreed to push the bill, but Ferris gauged their conversations so far as “supportive” and “extremely interested.”
The legislation is carefully crafted to bar practices that clearly abuse consumers. But it would not prohibit lending institutions from making loans that merely charge high interest, since those “sub prime” loans can be a lifeline for borrowers with bad credit. More importantly for this bill’s future, focusing on predatory loans will also help the coalition get the support it will need most–from the banking industry itself. The passage of a similar bill in North Carolina two years ago was helped greatly by the support of mainstream banks that found predatory lenders were giving legitimate high-cost loans a bad name. Said Ludwig, “Basically, we’re forcing [banks] to say, ‘We don’t support laws that gouge people.”