Yielding Wealth | Personal Finance

Financial News: Predatory Lending Bill

by miranda on November 16th, 2007

Yesterday, the House rushed to pass their version of a bill that is supposed to stop predatory lending. But the general consensus is this: nobody likes it. Not consumer groups, not the mortgage industry. Well, Inman News reports that some might like it:

Rep. Tom Feeney, R-Fla., called HR 3915 “the landlords and lawyers relief act,” because he said it would make it more difficult for renters to become home buyers, and make lenders and the investors who back them more vulnerable to lawsuits.

Why are so many hating on what appears, at least by the long title (Mortgage Reform and Anti-Predatory Lending Act of 2007), to be a positive step to help us avoid another subprime lending crash? Well, because according to some, it does no such thing.

Mortgage lenders complain that the limits to their incentives and prepayment penalties hurt would-be borrowers as much as themselves, reports Inman:

Some critics said the bill, in attempting to eliminate incentives for loan originators to place borrowers in higher-cost loans, would not allow borrowers to choose a loan with higher up-front fees in exchange for a lower interest rate.

But why are consumer groups upset? Well, because they feel the predatory lending bill, as passed by the House, is a step backward for borrower protections. ConsumerAffairs.com reports on their concerns:

“We cannot support a bill that eliminates strong state-law remedies for the victims of predatory mortgage abuses,” said Ed Mierzwinski, consumer program director of U.S. PIRG. “Consumers need these protections now more than and ever, and intentionally or not, this federal law creates rights without remedies.”

That’s right. The new law pre-empts tough laws many states already have in place, replacing them with a federal standard of protection that some feel is essentially toothless.

But all is not lost for consumer groups and mortgage lenders. The bill still has to pass the Senate, and a Senate version with some differences is already in the works. And then it has to pass presidential muster as well. So there is plenty of time for the predatory lending bill to change.

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