WASHINGTON A first-of-its kind bill has been introduced in District of Columbia City Council that would prevent lenders from foreclosing on home loans found to have predatory characteristics.
The bill would permit homeowners to contest a foreclosure in court on the ground that the initial loan was predatory. If the court ruled in the homeowners favor, foreclosure proceedings would be halted and the homeowner compensated.
The measure proposes many ways for loans to qualify as predatory. A loan made to a borrower known to have insufficient repayment ability would do so, as would a loan made to refinance a property more than once in 18 months with no benefit to the homeowner. A lender encouraging a borrower to default on another loan or charging excessive or unnecessary fees would also be defined as predatory.
The Washington bill would come into play only when the creditor tried to foreclose. In that it differs from a North Carolina law, which makes it illegal to make a predatory loan in the first place. North Carolina is the only state with a predatory-lending law in effect; several states have introduced similar legislation.
Stacy Canan, a lawyer with the American Association of Retired Persons and a member of the task force that created the predatory lending guidelines, said her office has been inundated with calls from low-income elderly people in Washington complaining about predatory lenders. In July, after two years of study, the task force made up of mortgage bankers and consumer advocates introduced a bill that would give consumers more rights in the foreclosure process.
Some of the prohibitions were very hard to draft, Ms. Canan said. Its very difficult to prohibit certain lending practices that may be OK for some and devastating to others.
Yet even with bankers helping to create the bill, Americas Community Bankers is very much opposed to the legislation. This, its first opposition to a predatory lending bill, was spurred by concern from local members who thought the language was too vague and could be duplicated by other states if it becomes a law.
In a written statement sent to the council last week, the trade association stated that the broad language would discourage lenders from making loans in the district. Steve Verdier, the associations legislative counsel, said lenders would fear going to court over a loan that was issued years before the foreclosure, but could be interpreted as predatory by the borrower well after it was made.
The fact is that there are some vague and hard-to-prove standards, and lenders are going to be very reluctant to make loans in D.C., he said. It is harmful to the people in the District and harmful to property value.
Ms. Canan, however, said the bill is meant to deter only predatory lenders, while protecting people vulnerable to them.
Legitimate lenders have nothing to fear from this law, she said.
The thrift group is also opposed to a provision in the current bill that would exempt loans sold to Fannie Mae or Freddie Mac from being contested. Mr. Verdier said that this exemption would cause lenders to only make loans that fit Freddie and Fannie descriptions.
It will harm low- and moderate-income families by taking options off the table, Mr. Verdier said. Ms. Canan said the council is reworking the language to exempt all prime loans.
Some consumer advocates have joined the bankers in opposing the District of Columbia proposal. Margot Saunders, managing attorney for the National Consumer Law Center, said the bills focus on the foreclosure does nothing to curb predatory lending.
Its a terrible bill, Ms. Saunders said. It wont stop bad activity, it wont make anything illegal.
The National Consumer Law Center has drafted its preferred version of a predatory lending bill, which Georgia is considering, and Ms. Saunders said that the Districts bill is a far cry from that. She said the city council should set clear laws that prohibit predatory practices from the start, rather than penalizing the lender years after the loan has been issued and only if the borrower decides to go to court.
Despite the opposition, Ms. Canan says she is optimistic that the bill will pass when the city council votes Dec. 5.
I think the city is finally recognizing how pervasive the problem is and how hard it is hitting the city, she said.