H.R. 833 Would Provide Uniform Subprime Standards

Pending bill would regulate subprime loans

July 22, 2003

By PATRICK CROWLEY

“National standards would make it a lot easier for us to operate,” said Mark Taylor of Option One Mortgage, a national subprime lender.

Option One belongs to The Coalition for Fair and Affordable Lending, or CFAL, a group of lenders representing some of the biggest names in the subprime mortgage business, among them Household, New Century, Washington Mutual and Aegis.

The coalition formed in January to “advocate national, uniform fair legislative standards for nonprime mortgage lending,” according to information from the coalition’s Washington office.

Coalition spokesperson Ellia Thompson said Congressional hearings on the bill, sponsored by U.S. Rep. Bob Ney, R-Ohio, could begin by the end of this year. So far 12 other House members have co-sponsored the legislation. The Bush administration has yet to take a stand on the bill, Thompson said.

Backers say the bill is necessary, not only to establish a national standard to crack down and punish abuses such as predatory lending, but also because there is no consistency among the many state and local governments that have passed laws and implemented regulations regarding subprime lending.

Taylor said standards and laws literally change from city to city “making it very hard to do business” from a compliance standpoint. In other places, no local laws or standards exist, making borrowers easy targets for predators.

Congress did pass the Home Ownership and Equity Protection Act of 1994 (HOEPA). It requires special protections and disclosures for higher cost subprime loans – also known as nonprime – to higher risk borrowers.

But those laws have not been updated since, leaving a “patchwork” of regulations scattered across state and local jurisdictions, Thompson said.

That can make it more difficult for borrowers to find a lender, the coalition says.

“Borrowers in some areas are finding their access to affordable mortgage credit being severely curtailed,” the coalition says on its Internet Web site, www.fairlendingnow.org. “In other cases where nonprime credit remains available, many already economically hard-pressed consumers have to pay significantly more than they should because of poorly drafted local requirements.

“And although a patchwork of often ill-defined and unworkable laws is developing, most Americans are still left without any special protections other than the outdated federal HOEPA law,” the coalition says.

Among the major goals of legislation is, according to the coalition, “providing uniform consumer protections to prevent abusive lending practices while preserving access for consumers to affordable credit … (and) creating a workable, fair balance between consumer credit access and consumer protection.”

Even though Kentucky recently passed its own law dealing with subprime lending, the Kentucky Mortgage Brokers Association “is pushing for a national standard,” said Steve Hamm, a past president and current director of the Kentucky association.

The coalition is also pushing for consumer protections through prohibitions on “lending practices that are abusive and egregious such as ‘flipping’, lending without regard to a borrower’s ability to repay, selling single premium credit life insurance, charging unjustifiably high rates or points and closing fees, profiting from foreclosures or otherwise marketing nonprime mortgage products in an unfair, deceptive or fraudulent manner.”

U.S. Rep. Ken Lucas, D-Ky., one of the bill’s co-sponsors, said national “protections against unethical lending practices for subprime mortgage customers are long overdue.”

“This legislation will combat predatory lending, protect consumers and promote home ownership without limiting the financing options of those in need,” Lucas said in a statement.”

According to the coalition subprime home equity loans totaled more than $200 billion in 2002. The average interest rate was 9.41%, the average loan-to-value ratio was 81% – compared to 76% for a conventional mortgage loan – and the average loan amount was $130,000.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com