Senior Democrats Propose New Predatory Lending Legislation

Following on the heels of a media blitzkrieg on the credit industry, including payday lending, credit card companies, and the subprime mortgage industry, Democratic legislators in both houses of Congress are moving forward with legislation to curtail predatory lending practices. From the NY Times article:

The provisions include requiring mortgage lenders to determine if borrowers have the financial ability to repay loans and making issuers and buyers of predatory mortgages more legally accountable.

If this can make past an extremely well-funded lending industry not keen on further regulation, it could be a great help to consumers. The statute is both remedial and preventative. On the one hand, it would give consumers the right to sue mortgage lenders who write, well, stupid loans when they should know better. On the other, I’m sure the industry will say this means consumers will take advantage of them. Of course, lenders knew very well what they were doing when they started lending to risky borrowers and they made a heckuva lot of money doing it. SAM GLOVER

(Photo: polarissilver)

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  1. Nice to see Congress getting something done FOR the people. Glad I voted D last November.

  2. CaptainCrash says:

    “Democratic senators in both houses”…wtf?

  3. Sam Glover says:

    It was early when I wrote that.

  4. Trackback says:

    I won’t be posting a lot to this blog in the next few days, as Ben Popken asked me to fill in for him at the Consumerist while he bakes his pasty whiteness during a much-needed vacation.

  5. CaptainCrash says:

    No, that’s okay, I kinda felt like a jerk for writing that. As if I never make typos.

  6. junkmail says:

    “I’m sure the industry will say this means consumers will take advantage of them.”

    Boy, that’d suck, eh? Don’t you just hate being taken advantage of? Kinda blows to be on the recieving end of that for once, eh?

  7. automatic_blue says:

    The problem with lenders giving money to risky borrowers is twofold. Mabye there’s a positive spin on this somewhere – that the lenders are lending to folks that otherwise would have no access to funds whatsoever, and that it’s not the job of the credit industry to protect people from themselves.

    That could be true. COULD. In some alternate universe.

    A lot of these risky loans are either aggressively secured and/or aggressively written in such a way that it is impossible to NOT go into default, even for someone with a better, more stable income.

    Of course, it goes without saying that these same bad actors like to run with the kind of debt collection dogs that use the most aggressive and illegal tactics.

    The deck is stacked from the getgo. The poor, despite what you might think, really do pay more.

    The solution is mabye to start regulating some of these lenders, or making basic financial literacy and consumer rights something that everyone is taught in school. Or both.

  8. mac-phisto says:

    there’s unseen repercussions in legislation such as this. “stated income” or “no income verification” loans are often the only loans that self-employed small business owners qualify for. piggybacks are often used by first-time homebuyers who find that saving 20% for a down payment is nearly impossible when housing prices are increasing 15% annually. also, what of the millions of americans that took out ARMs or balloons in the expectation of refinancing over the next couple years? they may find themselves unable to secure new lending. that means facing a substantial increase in their monthly payment (or in other words, DEFAULT).

    i’m in favor of this legislation as much as anyone, but let’s focus less on allowing only the best of the best to secure financing & more on the shady games of lenders: inflated closing costs, universal default rules, late payer interest rate increases, interest rates topping 30%, dual-cycle billing, exorbitant prepayment penalties, program fees, escrow fees, annual fees, setting your account up for automated payment fees, etc.

  9. automatic_blue says:

    @mac-phisto:

    I agree with you there. Sometimes “risky” loans are the only way for someone to get credit – like you talked about the example of the “self-employed small business owner”.

    Let’s get real, though. It’s easy to spot the example above from a bad actor.

    I see this every day – fortunately some of the people who have been screwed in this situation end up getting themselves lawyered up with a NACA member.

    The problem is these guys will likely continue to do what they do in violation of law or regulations – since they’re already breaking the FCRA and the FDCPA.

  10. mac-phisto says:

    @automatic_blue: i agree with you that many brokerage houses have made a business out of putting people in default. what concerns me is “[t]he provisions include requiring mortgage lenders to determine if borrowers have the financial ability to repay loans”. that statement tells me that washington is looking to put the kaibosh on “stated income” programs & other subprime lending.

    it’s important for me to note that without securing a “stated income” mortgage myself, i would still be renting.

  11. katana says:

    “it’s important for me to note that without securing a “stated income” mortgage myself, i would still be renting.”

    and that would be the end of the fucking world

  12. automatic_blue says:

    Unfortunately, IF the state does end up taking some action, it’s likely the excesses of the bad actors and the individuals who have borrowed well in over their heads that’s going to close the gates for everyone involved.

    I feel like some of this could be abated by making financial literacy and consumer rights part of the standard curriculum for grade school and high school – a progressive thing, much like how you learn more complicated english or math every year.
    You shouldn’t have to have a 4-year college degree to understand secured financing, bankruptcy, and other issues.

    When the first thing someone hears about mortgages or loans are the hard-sell radio and TV ads there’s going to be a problem, no matter how ethical the lender might be.

    This isn’t neccessarily a cry for a “nanny state” regulation on credit but mabye it is. My fear is that the proverbial “bad actors” I’ve been discussing will continue to operate in blatant disregard of any regulations (just like they already do), closing off any of these “riskier” sources of funds from being offered by more ethical creditors.

  13. mac-phisto says:

    @katana: not the end of the world, but i was shelling out more money monthly in a 1-br rental than i am owning a 3-br home, not to mention my landlord was awful slow at correcting maintenance issues & the old farts downstairs called the cops on me twice for watching tv past 10pm at a barely audible level. now i have an extra $200/mo. in the bank + tax writeoffs + real property. the only downside is no courtesy snow removal anymore. =O(

    for me, owning just makes cents.

  14. QuirkyRachel says:

    And lending to my Granny. They make a lot of money with lending scams on people like her, too.

  15. Elvisisdead says:

    Almost all of the bad actors in this movie are subprime lenders that originate the loans with the intent to sell them off for servicing. They make the $$ on origination fees and don’t really care if it defaults. Their only concern there is to make the loan within the boundaries of what someone else will buy. If they can’t sell it, then they’re stuck servicing it, and they don’t want that.

    Mortgage companies do not want anyone to default on a loan. They don’t want the house. They want the interest you’re paying. A piece of property is a liability for them. Ask me how I know. I interned in a forclosure department. The last thing they want is to own your house.

    The subprime market exists because there are people who need it. It serves a purpose. However, that purpose should be served fairly. If you have bad credit, you pay more because you’re a higher risk. That’s fair. Nobody twists anyone’s arm to buy a house. However, I do agree that the terms should be clear and up front.

  16. humphrmi says:

    @automatic_blue:

    Great generalization. Doesn’t wash.

    I was a subprime borrower, when I got my first mortgage in 2001. My FICO score was in the mid-500’s. I was paying roughly 7.75% (fixed).

    Now after several years of perfect payments and two refi’s, my score is in the high 700’s, and I’m paying 5.25%. And ABN Amro will see every dollar of that.

    If they hadn’t taken a chance on me in the first place, I would still be paying a landlord and ABNA wouldn’t be seeing any money from me.

    The problem isn’t the product, it’s the practice.