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If 2002 was the year that New York’s legislators passed tough laws against fraudulent home loans known as predatory lending, then 2003 might be the year when Congress flushes all their hard work down the toilet.
Federal policymakers are expected to open debate this winter on the Responsible Lending Act, which would set a single national standard for fighting predatory lending that supercedes all local legislation, including a bill signed into law by Governor Pataki in October and another passed by the City Council over Mayor Bloomberg’s veto in November.
While advocates for poor and minority homeowners say they support a tough national bill to regulate mortgage lending, they say the Responsible Lending Act is a laughably weak effort driven by the mortgage lending industry. Its main goal, they say, is to preempt the much stricter laws already passed in six states and four cities, like those in Albany and City Hall.
“This is Congress destroying all the work that states and cities have done to protect their residents,” said David Swanson of ACORN, a community group that has lobbied for most of those local laws.
The Responsible Lending Act, to be introduced by Ohio Republican Bob Ney, falls far short of state and city anti-predatory lending laws, in part because it limits its focus to a much smaller pool of loans. For example, while the New York State law applies to high-cost loans whose fees total more than 5 percent of the loan amount, the Ney bill would only cover those with fees above 8 percent of the loan.
The Ney bill also would make it much harder for homeowners to seek recourse from what are called secondary lenders, or bigger banks that buy up home loans in bulk from street-level mortgage lenders. Under current federal law, the secondary lender–which may be the only feasible target for a wronged homeowner, since smaller lenders close shop so frequently–is liable for fraudulent loans. The Ney bill changes that, however, making big banks responsible only if the fraud is “apparent on the face of” the loan.
While it is unclear how much support Ney’s bill will get, it is certainly expected to benefit from the backing of at least one powerful Washington lobbyist–the National Association of Mortgage Brokers, which last year, despite opposition from consumer groups, joined the credit card industry in backing bankruptcy legislation that nearly passed Congress.
Needless to say, leaders in New York’s legislatures aren’t thrilled that Congress may be trying to invalidate their work. A spokesperson for the City Council, Lupé Todd, said that the Ney bill appears to be much weaker than the Council’s, which forbids companies that issue predatory loans or buy them on the secondary market from doing business with the city. The council would like a national law, she said, but only if it “sends the signal that predatory lending is wrong and will not be tolerated.”