Last month the Mortgage Bankers Association issued a press release describing a report it commissioned to examine the effects of North Carolina's anti-predatory-lending law. Unfortunately, the release trumpeted conclusions that aren't even in the report, doing a disservice not only to the law but also to the credibility of the MBA.
North Carolina passed the nation's first predatory-lending law, in 1999, with bipartisan, local mortgage industry, and consumer advocate support. The state's attorney general recently said the law "allows lenders to make credit widely available for people, but it also protects consumers from abusive practices that can rob them of their home."
In a separate study of the law - the most comprehensive study on it to date - University of North Carolina professors concluded that it was working as intended. Lenders continue to aggressively compete to make subprime loans in the state and the North Carolina commissioner of banks has not fielded a single complaint from a borrower unable to secure a mortgage loan.
Despite the well-established fact that North Carolina's law is working, the MBA has gone on the attack. Here's what the trade group's study (conducted by Abt Associates Inc.) says, versus what the MBA leadership says about it.
First, the MBA study admits that its data didn't allow it to determine whether any differences in North Carolina's mortgage market were due to a reduction in predatory loans. The study says, "We cannot conclude whether this decline was due to a drop in 'good' loans versus a drop in 'bad' loans."
Yet in the press release, MBA chairman Rob Couch claims, "This study shows that the size of the problem was nowhere near the size of the reduction in lending that has taken place in North Carolina."
It's worth noting that the UNC study looked at this very question and found that the elimination of abusive loan terms and practices did not hurt the availability or volume of mortgage credit. In fact, the MBA study itself shows that the North Carolina mortgage market grew over all at the same rate as the two comparison states (Tennessee and South Carolina).
Second, the MBA study found that bank subprime lending grew 8.4% faster in North Carolina than in Tennessee and South Carolina. The MBA study noted national banks and their subsidiaries are "no longer subject to North Carolina's anti-predatory-lending law, although they were during the period examined by this study."
Yet the MBA press release states that "lending in North Carolina would have been even lower had it not been for increased lending by bank and thrift-owned subprime firms, which were essentially exempt from the provisions of the North Carolina law."
Rather than supposing that banks were just ignoring North Carolina's law in 2002 -two years before the OCC's preemption determination - isn't it more plausible that once predatory lenders couldn't operate as they had in the past, borrowers found mortgage credit at reputable lenders?
Third, the MBA study found that "among subprime lenders, the largest differences between North Carolina and the control group were in predominantly white neighborhoods." Similarly, the study found that among subprime lenders the largest differences "in both home purchase loans and refinance loans were in moderate income neighborhoods."
But the opposite was suggested by the title of the MBA's press release, "MBA Study Shows Negative Effects of North Carolina Lending Law Hit Minorities and Low-Income Borrowers the Hardest." And if that wasn't enough, Mr. Couch is quoted as calling this "a modern-day form of redlining" that is "choking off mortgage credit to minority and low-income neighborhoods."
Nice rhetoric; no basis in fact.
As the MBA continues to pursue its top priority of gaining a federal bill that would preempt state predatory-lending laws, it would be well served not to tarnish a law that has proven successful in reducing predatory lending to the benefit of both borrowers and responsible subprime lenders.
Lenders in a number of states have recognized that predatory lending can be addressed without damaging legitimate lending, and they have joined forces with advocates and policymakers to craft responsible lending legislation.
I wish the national MBA leadership were spending its energy in creating a workable solution, rather than trying to manufacture a crisis that doesn't exist.
