Seeking to curb so-called predatory lending, the New York State government has put out a list of unacceptable practices, including charging super-high interest to borrowers in default.
Under a regulation proposed by Gov. George E. Pataki, lenders would also be prohibited from lending without regard to repayment ability; financing the fees, points, and charges that borrowers pay; and refinancing more often than once every three years at higher interest rates.
The proposal would not ban high-cost lending. It would impose these limits on mortgages with annual percentage rates higher than 8 percentage points over the yield of contemporaneous Treasury securities or with closing fees and points exceeding 5% of the loan amount.
Those thresholds are lower than those in federal law, which puts the same conditions on loans with APRs more than 10 points over the Treasury yield and closing costs exceeding 8% of the loan.
The New York State Banking Department held a public hearing on the proposal last Thursday in New York City. The second hearing, in a series of five, is scheduled for Wednesday in Rochester.
A more stringent definition of high-cost loan is needed to get at what we view as unconscionable lending practices, said Elizabeth McCaul, acting superintendent of the State Banking Department. Targets of unfair mortgage lending are typically the most vulnerable among us -- the elderly or financially unsophisticated.
Ms. McCaul explained that the proposal is meant to curb rip-offs, not high-cost lending itself, which she said is a necessary means for many people with past credit problems.
There are legitimate, fair businesspeople who have a ton of integrity, she said.
As for predatory lending, she said, in the best-case scenario, it is people skirting around the law. In the worse-case scenario, it is outright fraud.
High-cost lenders in New York would be required to recommend that applicants get a second opinion from a financial counselor approved by the state.
And they would be compelled to report both favorable and unfavorable credit histories to a credit bureau.
Industry representatives expressed concern at Thursday's hearing.
While we support regulatory efforts to prevent unscrupulous brokers and lenders from abusing borrowers, we believe it is critically important that your final regulation be crafted in such a way that it does not inadvertently or unnecessarily limit credit availability, said Laura Borrelli, president of the National Home Equity Mortgage Association.
Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project in New York, was among the 33 people who testified on the proposal. She said there should be no opposition to the proposal, because it simply lays out what is unfair.
It is not too much to ask that lenders do not deceive people, Ms. Ludwig said.. What were seeing is not only are these loans gouging people, but a lot of people are losing their homes, she said.